REPORT DIGEST

DEPARTMENT OF LABOR

COMPLIANCE EXAMINATION
FOR THE TWO YEARS ENDED JUNE 30, 2019

Release Date:  June 25, 2020

FINDINGS THIS AUDIT:  14

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 8 -- 8
Category 2:  2 -- 4 -- 6
Category 3:  0 -- 0 -- 0
TOTAL:  2 -- 12 -- 14

FINDINGS LAST AUDIT: 14

Category 1: Findings that are material
weaknesses in internal control and/or a
qualification on compliance with State
laws and regulations (material
noncompliance).
Category 2: Findings that are significant
deficiencies in internal control and
noncompliance with State laws and
regulations.
Category 3: Findings that have no
internal control issues but are in
noncompliance with State laws and
regulations.

State of Illinois, Office of the Auditor
General
FRANK J. MAUTINO, AUDITOR GENERAL

To obtain a copy of the Report contact:
Office of the Auditor General, Iles Park
Plaza, 740 E. Ash Street, Springfield, IL
62703
(217) 782-6046 or TTY (888) 261-2887

This Report Digest and Full Report are
also available on the worldwide web at
www.auditor.illinois.gov

INTRODUCTION
Because of the significance and
pervasiveness of the findings described
within the report, we expressed an
adverse opinion on the Department’s
compliance with the assertions which
comprise a State Compliance examination.
The Codification of Statements on
Standards for Attestation Engagements
(AT-C § 205.72) states a practitioner
“should express an adverse opinion when
the practitioner, having obtained
sufficient appropriate evidence,
concludes that misstatements,
individually or in the aggregate, are
both material and pervasive to the
subject matter.”

SYNOPSIS

• (19-01) The Department did not exercise
adequate control over its cash receipts
and related reporting.
• (19-02) The Department did not exercise
adequate control over its accounts
receivable and related reporting.
• (19-03) The Department failed to
establish and maintain adequate control
over its Special State Trust Fund (Fund
251), which holds unpaid wages due to
employees.
• (19-04) The Department did not perform
adequate and accurate reconciliations
during the examination period.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

INADEQUATE CONTROL OVER RECEIPTS

The Department did not exercise adequate
control over its cash receipts and
related reporting.  According to the
State Comptroller’s records, the
Department remitted $6,620,900 to the
State Treasury during the examination
period.

During testing, we noted for Fiscal Year
2018, the Department was unable to
provide individual receipt records for
the General Revenue Fund (Fund 001),
Amusement Ride and Patron Safety Fund
(Fund 051), Department of Labor Special
State Trust Fund (Fund 251), Child Labor
and Day and Temporary Labor Services
Enforcement Fund (Fund 357), Employee
Classification Fund (Fund 446), and Wage
Theft Enforcement Fund (Fund 885) which
reconciled to the Monthly Revenue Status
Report (SB04) from the Office of the
State Comptroller.

We noted this condition was primarily due
to the computer program used by the
Department in Fiscal Year 2018 to process
receipts, which was outdated and not
fully functional.  As such, it was
difficult for Department staff to track
receipts after entry, produce reports of
receipts collected, or sort data stored
within the system.  Due to this
condition, we were unable to conclude
whether the Department’s population
records were sufficiently precise and
detailed under the Attestation Standards
promulgated by the American Institute of
Certified Public Accountants (AT-C §
205.35) to test the Department’s
receipts.  In addition, due to these
limitations, we were unable to conclude
the Department’s Comparative Schedule of
Cash Receipts and Reconciliation Schedule
of Cash Receipts to Deposits Remitted to
the State Comptroller on pages 69-72 were
complete and accurate.

Even given the population limitations
noted above which hindered the ability of
the accountants to conclude whether
selected samples were representative of
the population as a whole,  we performed
testing and noted the following
deficiencies:

• Three of 60 (5%) receipts tested,
totaling $15,568 were deposited between 3
to 8 days late, even after allowing for
the Department’s 10-day deposit extension
granted by the State Comptroller and
State Treasurer.

• State Treasurer’s drafts for 2 of 60
(3%) receipts tested, totaling $5,500,
were remitted to the State Comptroller
via a Form C-64 between 182 and 297 days
after the Department received the State
Treasurer’s draft.

• One of 6 (17%) non-sufficient funds
(NSF) checks tested, totaling $889,
lacked supporting documentation to
substantiate a demand letter for payment
was sent by the Department, the payment
was eventually collected, appropriate
collection activity was pursued, and the
vendor’s licenses/permits were cancelled
or revoked for nonpayment.

• Four of 13 (31%) fees on the
Department’s Fiscal Year 2018 Agency Fee
Imposition Report did not trace to the
Department’s records, with a net over-
reported difference of $1,387 (Finding 1,
pages 11-13).  This finding has been
repeated since 2005.

We recommended the Department develop and
maintain internal controls over its
receipts to ensure the timely collection
of revenues and adequate documentation is
maintained and readily available for all
transactions.  In addition, we
recommended the Department ensure its
accounting records reside within a system
capable of generating reports, providing
detailed records and balances, and
producing transaction listings, which are
timely reconciled to the State
Comptroller’s records and as a part of
this reconciliation, any discrepancies
should be investigated.  Further, we
recommended the Department timely
establish receivables and initiate
collection for NSF checks.  Finally, we
recommended the Department ensure its
annual Fee Imposition Report is
accurately prepared.

Department officials accepted our finding
and recommendation.

INADEQUATE CONTROL OVER ACCOUNTS
RECEIVABLE

The Department did not exercise adequate
control over its accounts receivable and
related reporting.  Some of the issues we
noted follow:

• The Department was unable to provide
detailed individual accounts receivable
records for the General Revenue Fund
(Fund 001), Child Labor and Day and
Temporary Labor Services Enforcement Fund
(Fund 357), Employee Classification Fund
(Fund 446), and Wage Theft Enforcement
Fund (Fund 885).

• During analytical reviews, we noted the
Department’s Accounts Receivable Activity
(Form C-97) did not report any amounts
considered to be uncollectible and did
not report any write-offs during Fiscal
Year 2018 and Fiscal Year 2019.

• The Department was unable to provide an
aging schedule to support its Form C-98s.

• The Department was unable to provide
current policies or procedures for
handling and reporting its accounts
receivable, tracking and monitoring
complaints received, posting delinquent
accounts receivable into the
Comptroller’s Illinois Debt Recovery
Offset Portal system or pursuing other
debt collection procedures, and writing
off uncollectible receivables.  (Finding
2, pages 14-17).  This finding has been
repeated since 2005.

We recommended the Department take action
to ensure its accounts receivable are
properly recorded, collection efforts are
made, and accounts receivable reports are
properly prepared in accordance with all
applicable laws, rules, and regulations.

Department officials accepted our finding
and recommendation.

FAILURE TO ESTABLISH AND MAINTAIN
ADEQUATE INTERNAL CONTROL OVER THE
SPECIAL STATE TRUST FUND

The Department failed to establish and
maintain adequate control over its
Special State Trust Fund (Fund 251),
which holds unpaid wages due to
employees.  As of June 30, 2019, Fund 251
had $1,508,743 in cash.

Pursuant to the Illinois Wage Payment and
Collection Act (WPCA) (820 ILCS
115/11.5(a)), the Department collects,
when necessary, an employee’s wages or
final compensation due and holds these
moneys until the employee (now, claimant)
can be located by the Department and
properly paid.  Additionally, pursuant to
the Minimum Wage Law (MWL) (820 ILCS
105/12(b)), the Department collects, when
necessary, unpaid minimum wages and
overtime due to employees and holds these
moneys until the employee (now, claimant)
can be located by the Department and
properly paid.  Finally, the Statewide
Accounting Management System (SAMS)
(Procedure 05.50.01) notes fiduciary
funds account for assets held by a
governmental unit in a trustee capacity
or as an agent for individuals, and SAMS
(Exhibit 27.50.10-A) notes Fund 251 is an
agency type of fiduciary fund.

During our testing, we noted the
following:

• Twenty-one of 60 (35%) claimant payment
requested tested, totaling $97,993, were
approved for payment between 15 to 103
days after the claimant filed their claim
with the Department.

• We were unable to reconcile the
Department’s ledger of claimants to Fund
251’s cash balance from the Monthly Cash
Report (SB05) prepared by the
Comptroller.  We noted unreconciled
differences of $605,789 and $526,628 at
June 30, 2018, and June 30, 2019,
respectively.

• At June 30, 2019, the Department is
holding claimant balances related to as
far back as Calendar Year 2003 activity.
Each of these balances require a proper
disposition by the Department.  (Finding
3, pages 18-21).  This finding has been
repeated since 2007.

We recommended the Department take action
to ensure:

• Supporting documentation is obtained
and preserved, along with the posting of
proper accounting entries, when receipts
for unclaimed wages are collected and
remitted into Fund 251;

• a notation within the Department’s
records is made to indicate amounts
collected pursuant to the WPCA or the MWL
when receipts are collected and remitted
into Fund 251;

• claimant claims are promptly processed
and paid, along with the posting of
proper accounting entries, when
distributed from Fund 251;

• reconciliations of the total amount due
to claimants at the end of each month to
the SB05 report are performed and any
unreconciled discrepancies are
investigated and properly resolved;

• amounts due to claimants older than one
year under the MWL are promptly
transferred to the General Revenue Fund,
with the timely posting of proper
accounting entries; and,

• amounts due to claimants under the WPCA
are properly handled under the relevant
provisions of the Revised Uniform
Unclaimed Property Act, with the timely
posting of proper accounting entries.

Department officials accepted our finding
and recommendation.
INADEQUATE AND INACCURATE RECONCILIATIONS

The Department did not perform adequate
and accurate reconciliations during the
examination period.  Some of the more
significant issues we noted follow:

During testing, we found the Department
prepared Monthly Appropriations Status
Report (SB01) reconciliations, but failed
to properly update the Department’s
records for the reconciling differences
identified in the Department’s SB01
reconciliations.

When performing a comparison of the
Fiscal Year 2018 Comptroller’s
expenditure records to the Department’s
Fiscal Year 2018 expenditure records, we
noted 1) one salary refund, totaling
$1,910, was recorded within the
Comptroller’s records, but was not
recorded in the Department’s records, 2)
one expenditure refund, totaling $894,
was recorded within the Comptroller’s
records, but was not recorded in the
Department’s records, 3) one voucher,
totaling $119, was recorded in the
Comptroller’s records, but was
incorrectly recorded within the
Department’s records, and 4) two
vouchers, totaling $198, were recorded on
the Department’s records, but were not
recorded on the Comptroller’s records.

When performing a comparison of the
Fiscal Year 2019 Comptroller’s
expenditure records to the Department’s
Fiscal Year 2019 expenditure records, we
noted 1) one salary refund, totaling
$3,334, was recorded within the
Comptroller’s records, but was not
recorded in the Department’s records, 2)
four expenditure transfers, totaling
$32,182, were recorded within the
Comptroller’s records, but were not
recorded in the Department’s records, 3)
one voucher, totaling $15,394, was
recorded within the Comptroller’s
records, but was duplicated within the
Department’s records, 4) one voucher,
totaling $356,903, was revised in the
Comptroller’s records, but was not
revised in the Department’s records, and
5) one voucher, totaling $66,708, was
recorded in the Comptroller’s records,
but was incorrectly recorded within the
Department’s records.

We also noted deficiencies in the
Department’s Non-Shared Funds Monthly
Cash Report (SB05), Agency Contract
Report (SC14), and Obligation Activity
Report (SC15) reconciliations (Finding 4,
pages 22-25).  This finding has been
repeated since 2007.

We recommended the Department take action
to ensure it timely prepares adequate and
accurate reconciliations of its
accounting records to the Comptroller’s
records each month and investigates and
resolves all discrepancies.

Department officials accepted our finding
and recommendation.
OTHER FINDINGS

The remaining findings pertain to (1)
State property control weaknesses, (2)
inadequate control over personal
services, (3) noncompliance with the
Employee Classification Act, (4) Improper
disposal of State records and
noncompliance with the Private Employment
Agency Act, (5) noncompliance with the
Fiscal Control and Internal Auditing Act,
(6) noncompliance with statutorily
mandated responsibilities, (7) reporting
procedural deficiencies, (8) inadequate
control over voucher processing, (9)
weaknesses regarding the security and
control of confidential information and
cybersecurity, and (10) lack of disaster
contingency planning or testing to ensure
the recovery of computer systems.  We
will review the Department’s progress
towards the implementation of our
recommendations in our next compliance
examination.

ACCOUNTANT’S OPINION

The accountants conducted a compliance
examination of the Department for the two
years ended June 30, 2019, as required by
the Illinois State Auditing Act.  Because
of the effect of noncompliance described
in Findings 2019-001 through 2019-008,
the accountants stated the Department did
not materially comply with the
requirements described in the report.

This compliance examination was conducted
by West & Company, LLC.

JANE CLARK
Division Director

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

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