2727thth Annual Conference Annual ConferenceNSAA • June 9, 2005NSAA • June 9, 2005

Illinois Office of the Auditor GeneralWilliam G. Holland, Auditor General

Management and Program AuditFinancial Audit

REND LAKE CONSERVANCY DISTRICT

Background

Rend Lake Conservancy District was created in 1955 to provide water to Southern Illinois

Also provides sewage collection, as well as recreational facilities such as golfing, shooting, lodging, and dining

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Audit Conclusions Significant deficiencies identified:

• Planning• Water and sewage operations• Personnel• Contract management• Property and equipment management• Performance monitoring• Internal controls

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Audit Conclusions

Management and Program Audit:

• Identified deficiencies in 16 areas

• Recommended 70 specific actions the District needed to take

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Board of Trustees Concluded that the Board of Trustees needs to

fulfill its fiduciary responsibilities•Certain ordinances were not followed

Did not elect trustee to serve as Treasurer Did not establish Expense Committee to

review certain expenditures Did not establish in-house legal and

engineering departments•Legal and engineering consultants were paid more than $500,000 in FY 2004

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Board of Trustees

Specific line item budget was not established

• Ordinance passed that authorized $25 million in expenditures

• Total revenue was $12 million

• Actual expenditures totaled $10 million

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Board of Trustees

No conflict of interest disclosure reporting process

• River Conservancy District Act: “No trustee or employee…shall be directly or indirectly interested financially in any contract work or business or the sale of any article… .”

• Audit identified several relationships which could create, at minimum, possible conflicts of interest

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Planning No written mission statement, goals, or objectives

No strategic, business, or operational plan

No written staffing plan; lacked adequate number of professional managers

Policies and procedures were being developed but were incomplete

Limited performance information collected

No single, comprehensive capital plan

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District’s income in FY 2004 was nearly $2 million, mainly due to the water plant

Recreational areas lost over $900,000 in FY 2004

Financial Management

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General Fund

$345,005

$91,803

$2,566,632

– $904,126

– $145,369

$1,500,000

$1,000,000

$500,000

0 -

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Land inDevelopment Water System Recreation

SewageTreatment

Income by Operational Area – FY04

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– $268,844

Recreation Income / Loss

– $62,600

$45,935

– $165,243

-$300,000

-$250,000

-$200,000

-$150,000

-$100,000

-$50,000

0 -

$50,000

$100,000Golf Restaurant Lodge Shooting & Hunting

SUBTOTAL: –$450,752

Less Fund Depreciation: –$451,815

Less Other Fund Adjustments: –$1,559

TOTAL RECREATION INCOME/LOSS: –$904,126 12

District has not been charging rates for sewage and recreational facilities sufficient to cover their costs

Funds have been transferred from the Water Fund to cover recreation and other activities

At the end of Fiscal Year 2003, over $10 million had been transferred from the Water Fund to the Recreation Fund, General Fund, etc.

Financial Management

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No written policies and procedures for approval of expenditures

In 50 of 100 expenditures reviewed, there was lack of supervisory review

Some expenditures reviewed did not appear to benefit the programs and function of the District

Financial Management

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Water and Sewage Operations Problems noted with water and sewage

billing systems

• Residential billing system made errors in calculating the bills, which had to be corrected manually

• No supervisory review conducted of accuracy of bills prepared

• Residential customers were on self-determined billing cycles

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Water and Sewage Operations Water and sewage billing problems:

• Delinquent accounts were not adequately tracked or charged late fees

• Not all residential customers had their own meter

• Some customers did not pay established sewage rate

• District was unable to provide maps of locations of all water meters

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Personnel Personnel files were incomplete

• More than one-half of the personnel files reviewed lacked complete job applications

• Little documentation of hiring process, such as required and desired skills, interview records, reference checks, and decision memos

• No job descriptions prior to August 2003

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Contracts Contracts:

• No central list of all contracts

• River Conservancy Districts Act bidding requirement that contracts exceeding $2,500 be let to the lowest responsible bidder was not followed

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Contracts Weak controls over oil and farmland leases

• No centralized listing of oil well or farmland leases; some leases could not be located; did not know # of acres leased to each farmer

• No employee assigned responsibility to monitor these leases to ensure lessees were paying the District the correct amount

• Farmers not required to provide information to document revenue generated

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Property Weak controls over property and equipment

• Did not use tags to track assets

• Lacked an adequate physical inventory of assets

• Vehicles

Did not know the number of vehicles it owned

Did not have titles for all vehicles

Could not locate 2 vehicles it had “given” to the Benton airport

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Recreation – Golf Course

Lost $62,600 before depreciation

Golf course did strengthen planning and oversight through creation of policies and procedures for its basic operations, an operational plan for increasing revenue, and management reports

However, it lacked an adequate segregation of duties and supervisory review

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Recreation – Shooting and Hunting

Lost $165,623 before depreciation

Lacked a marketing plan with specific goals or timetables

Lacked written goals, objectives, policies and procedures to guide its operations

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Recreation – Lodging

Income of $45,935 before depreciation

Trends show the Lodge’s occupancy rates are declining

Compared the District’s occupancy rates for the Seasons Lodge with that of the neighboring Wayne Fitzgerrell State Park’s Rend Lake Resort

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Occupancy Rates for RLDC Seasons Lodge and Rend Lake Resort

0%

25%

50%

75%

100%

Jan-

01

Apr

il

July

Oct

ober

Jan-

02

Apr

il

July

Oct

ober

Jan-

03

Apr

il

July

Oct

ober

RLCD Seasons Lodge

Wayne Fitzgerrell State Park's Rend Lake Resort

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Recreation – Restaurant

Lost more than $250,000 before depreciation

Some controls were strengthened; however, others need to be improved

Personnel costs appeared to be significantly higher than industry averages

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Financial Audit Conclusions

Financial Audit:

• Contained 15 findings

• We will highlight 4 of them

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Inadequate Segregation of Duties

Internal controls were materially deficient. Areas that had inadequate segregation of duties without compensating controls:

• Revenue and Cash Receipts: For the residential and commercial water systems, shooting complex, lodge, restaurant, and pro shop – lack of segregation of duties in the collection of cash receipts and recording of revenue

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Inadequate Segregation of Duties

• Payables and Cash Disbursements: The same person enters accounts payable into the computer system, mails the vendor checks, and reconciles vendor statements to the bills

• Payroll Transactions: The same person enters timekeeping and payroll changes into the payroll system, has access to the general ledger, reviews and prints payroll checks, and receives returned payroll checks

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Inadequate Segregation of Duties• Inventory: Inventory counts are performed by

personnel who are also the custodian of the inventory

• General Accounting: The person who has access to, or maintains, the subsidiary ledgers, such as commercial receivables and accounts payable, also has access to the general ledger

• Compensating Control Weaknesses: Bank reconciliations, payroll and non-cash journal entries are not reviewed by independent management personnel

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Inadequate Segregation of Duties• Proper segregation of duties is required to help

mitigate the risks of fraud or misappropriation of assets

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Pension Enrollment Practices District was not enrolling employees into the IMRF in

accordance with IMRF regulations

In 2003, the District began a review of payroll records for a 9 year period to identify employees who should have been enrolled but were not

• Identified 34 current employees who had not been properly enrolled; 25 were subsequently enrolled

• District plans to contact 113 former employees who were entitled, but were not enrolled, in the IMRF

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Pension Enrollment Practices IMRF Handbook states that an IMRF position is

any position where the employee is expected to work 600 hours or more per year

District’s policy was to enroll employees after they worked 600 hours; was not enrolling employees in accordance with IMRF regulations

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Cash Disbursements District failed to establish proper internal

controls over cash disbursements

• No evidence of supervisor’s approval on 81 of 159 invoices (51%) tested, totaling $2,185,084

• On all invoices tested, no documentation by accounts payable personnel to evidence that clerical accuracy was checked

• 2 invoices, totaling $9,473 were paid twice; District discovered the error and received credit from the vendor

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Cash Disbursements• In six instances, invoices totaling $54,299 were

not paid within 60 days of receipt of the goods or service

• No employee matches invoices to a computer check run edit report to ensure invoices were accurately entered

• Board’s Finance Committee receives a list of checks but does not receive the invoice or other supporting documentation for review before signing the checks

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Purchase Orders, Receiving Reports The District does not use purchase orders for non-water

department purchases; non-water expenses in FY 2004 totaled $2.4 million, excluding payroll and depreciation

The District does not use receiving reports for any type of purchase

The District has no form or procedures to acknowledge the receipt of goods or services when they are delivered

• Function should be performed by someone independent of the purchasing function

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Agency Responses and Corrective Action

The District accepted all 16 management and program audit recommendations, and all 15 financial audit recommendations.

District responses to the audit reports, as well as their updated responses to the Legislative Audit Commission, demonstrate that the District is taking corrective action to address our findings.

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2727thth Annual Conference Annual ConferenceNSAA • June 9, 2005NSAA • June 9, 2005

Illinois Office of the Auditor GeneralWilliam G. Holland, Auditor General

Management and Program AuditFinancial Audit

REND LAKE CONSERVANCY DISTRICT