STATE OF ILLINOIS UNIVERSITY OF ILLINOIS COMPLIANCE EXAMINATION. (In accordance with the Single Audit Act and OMB Circular A-133)

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1 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO (In accordance with the Single Audit Act and OMB Circular A-133) ear Ended June 30, 2015 Performed as Special Assistant Auditors for the Auditor General, State of Illinois

2 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO ear Ended June 30, 2015 TABLE OF COTETS Page University Officials... 1 Management Assertion Letter... 2 Compliance Report: Summary Independent Accountants Report on State Compliance and on Internal Control over Compliance for State Compliance Purposes Independent Auditors Report on Internal Control over Financial Reporting and on Compliance with Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Federal Program, on Internal Control over Compliance, and on the Schedule of Expenditures of Federal Awards Required by OMB Circular A Schedule of Findings and Questioned Costs: Summary of Auditors Results Current Findings - Government Auditing Standards Current Findings - Federal Compliance Current Findings - State Compliance Prior Findings ot Repeated Table of Award umbers Referenced in the Federal Compliance Findings Financial Related Information: Financial Related Information Summary Financial Related Schedules: Schedule of Expenditures of Federal Awards Attachments to Schedule of Expenditures of Federal Awards: on Cash Federal Awards Federal Loans Disbursed and Capital Contributions Schedule of Loans Issued and Outstanding Balances Student Loan Disclosure Details for Pass-Through Federal Funding otes to Schedule of Expenditures of Federal Awards Related Reports Published Under Separate Cover: Financial Audits for the ear Ended June 30, 2015 of University of Illinois Auxiliary Facilities System Health Services Facilities System Supplementary Financial Information Report for the ear ended June 30, 2015 of University of Illinois Reports Required Under Government Auditing Standards for the University of Illinois, Auxiliary Facilities System and Health Services Facilities System for the ear ended June 30, 2015

3 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO ear Ended June 30, 2015 UIVERSIT OFFICIALS Timothy L. Killeen Robert A. Easter Walter K. Knorr Michael B. Bass Patrick M. Patterson Julie A. Zemaitis Barbara J. Wilson Phyllis M. Wise Ginger Velazquez Michael D. Amiridis Paula Allen-Meares Vanessa Peoples Heather J. Haberaecker Susan J. Koch Michael E. Bloechle President (effective May 18, 2015) President (through May 17, 2015) Vice President / Chief Financial Officer and Comptroller Senior Associate Vice President for Business and Financial Services and Deputy Comptroller Controller and Senior Assistant Vice President for Business and Finance Executive Director of University Audits Interim Chancellor and Vice President, University of Illinois, Urbana-Champaign Campus (effective August 13, 2015) Chancellor and Vice President, University of Illinois, Urbana-Champaign Campus (through August 13, 2015) Interim Assistant Vice President for Business and Finance, Urbana-Champaign Campus Chancellor and Vice President, University of Illinois, Chicago Campus (effective March 16, 2015) Chancellor and Vice President, University of Illinois, Chicago Campus (through March 15, 2015) Interim Assistant Vice President for Business and Finance, Chicago Campus (effective March 1, 2015) Executive Assistant Vice President for Business and Finance, Chicago Campus (through February 28, 2015) Chancellor and Vice President, University of Illinois, Springfield Campus Director of Business Services, Springfield Campus Administrative Offices are located at: University Office of Business and Financial Services (OBFS) 238 Henry Administration Building 506 South Wright Street Urbana, Illinois Chicago Campus 809 South Marshfield Room 608 Chicago, Illinois Springfield Campus Business Services Building Room 57 Springfield, Illinois Urbana-Champaign Campus 109 Coble Hall 801 South Wright Street Champaign, Illinois

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5 TlmDlhyL. President Walter K Knorr Vice Prukfenl. Chief FIMndal Officer and Comptroller Michael B. Bass Senior Associate Vice Pruldent for Business and Financial Service and Deputy Comptraller l'hol14: l ) la.\ 217 2M

6 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO ear Ended June 30, 2015 COMPLIACE REPORT SUMMAR The compliance testing performed during this examination was conducted in accordance with Government Auditing Standards and in accordance with the Illinois State Auditing Act. ACCOUTATS REPORT The Independent Accountants Report on State Compliance and on Internal Control over Compliance for State Compliance Purposes does not contain scope limitations, disclaimers, or other significant nonstandard language. SUMMAR OF FIDIGS umber of Current report Prior report Findings Repeated findings Prior recommendations implemented or not repeated 21 9 SCHEDULE OF FIDIGS AD QUESTIOED COSTS FIDIGS (GOVERMET AUDITIG STADARDS) Item o. Page Description Finding Type Inadequate Procedures over Expense Deferrals and Other Cut-off Related Issues Inadequate Controls over University Procurement Card Transactions Inadequate Controls over Monitoring External Audits, Attestation Engagements and Other Studies Significant deficiency Significant deficiency Significant deficiency 4 (Continued)

7 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO ear Ended June 30, 2015 COMPLIACE REPORT SUMMAR FIDIGS AD QUESTIOED COSTS (FEDERAL COMPLIACE) Item o. Page Description Finding Type Incomplete Documentation in Client Eligibility Files oncompliance and material weakness Inadequate Procedures for Closing out Federal Projects oncompliance and material weakness Incomplete Cost Transfer Information oncompliance and material weakness Inadequate Approval Controls over Financial Reporting oncompliance and material weakness Inadequate Support for Cash Requests oncompliance and material weakness Improper Reporting Amounts in Financial Status Reports oncompliance and material weakness Inadequate Procedures for Verifying Participant Eligibility oncompliance and material weakness Inadequate Off Campus Work Study Agreements oncompliance and significant deficiency Inaccurate Award Records oncompliance and significant deficiency Failure to Communicate Required Information to Subrecipients oncompliance and significant deficiency Failure to Obtain Suspension and Debarment Information from a Vendor oncompliance and significant deficiency Inadequate Review of Direct Loan Reconciliations oncompliance and significant deficiency Errors in Reporting for ational Student Loan Data Systems (SLDS) oncompliance and significant deficiency Over-Award of Title IV Funds oncompliance and significant deficiency 5 (Continued)

8 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO ear Ended June 30, 2015 COMPLIACE REPORT SUMMAR FIDIGS AD QUESTIOED COSTS (FEDERAL COMPLIACE, COTIUED) Item o. Page Description Finding Type Inadequate Return of Title IV Fund Calculation Failure to Obtain Required Information from Subrecipient oncompliance and significant deficiency oncompliance and significant deficiency FIDIGS (STATE COMPLIACE) Item o. Page Description Finding Type Contracts and Real Property Leases ot Properly Executed oncompliance and significant deficiency Failure to Follow Time Reporting Requirements Statutory Mandates - oncompliance with the School Code Sabbatical Reports ot Submitted in Accordance with University Policies and Procedures oncompliance and significant deficiency oncompliance and significant deficiency oncompliance and significant deficiency oncompliance with State Vehicle Use Act oncompliance and significant deficiency Statutory Mandates Pension Code oncompliance and significant deficiency oncompliance with the University of Illinois Act Regarding Proficiency in the English Language oncompliance and significant deficiency Inadequate Controls over Property and Equipment oncompliance and significant deficiency Lack of Formal Written Policy on Maintenance of University Vehicles oncompliance and significant deficiency oncompliance with the Campus Security Enhancement Act oncompliance and significant deficiency oncompliance with State Employee Housing Act and Related University Policies and Procedures oncompliance and significant deficiency 6 (Continued)

9 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO ear Ended June 30, 2015 COMPLIACE REPORT SUMMAR In addition, the following findings which are reported as current findings related to Government Auditing Standards also meet the reporting requirements for State Compliance. Item o. Page Description Finding Type Inadequate Procedures over Expense Deferrals and Other Cut-off Related Issues Inadequate Controls over University Procurement Card Transactions Inadequate Controls over Monitoring External Audits, Attestation Engagements and Other Studies oncompliance and significant deficiency oncompliance and significant deficiency oncompliance and significant deficiency PRIOR FIDIGS OT REPEATED (GOVERMET AUDITIG STADARDS) Item o. Page Description Finding Type A. 73 Inadequate Procedures over Financial Reporting of Investment Activity oncompliance and significant deficiency PRIOR FIDIGS OT REPEATED (FEDERAL COMPLIACE) Item o. Page Description Finding Type B. 74 Expenditures Reported in the Incorrect Accounting Period oncompliance and significant deficiency C. 74 Inadequate Documentation for Payroll and Fringe Benefit Expenditures oncompliance and significant deficiency D. 74 Inadequate Process for Updating Property Management Records oncompliance and significant deficiency E. F Improper Reconciliation of Borrower Data Improper Subsidized Federal Direct Loan Amount oncompliance and significant deficiency oncompliance and significant deficiency 7 (Continued)

10 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO ear Ended June 30, 2015 COMPLIACE REPORT SUMMAR PRIOR FIDIGS OT REPEATED (FEDERAL COMPLIACE, COTIUED) Item o. Page Description Finding Type G. 74 Failure to Timely and Accurately Report Student Status Changes oncompliance and significant deficiency H. 74 Improper Indirect Cost Rate oncompliance and significant deficiency I. 75 Inadequate Monitoring of Subrecipient OMB Circular A-133 Audit Reports oncompliance and significant deficiency J. 75 Failure to Report Subaward Information Required by FFATA oncompliance and significant deficiency PRIOR FIDIGS OT REPEATED (STATE COMPLIACE) Item o. Page Description Finding Type K. 76 Pre-employment References not documented in Accordance with University Policies and Procedures oncompliance and significant deficiency L. 76 Inadequate Procedures to Appropriately Identify and Record Capital Expenditures in a Timely Manner oncompliance and significant deficiency M. 76 Statutory Mandates County Cooperative Extension Law oncompliance and significant deficiency. 76 oncompliance with the Illinois Vehicle Code oncompliance and significant deficiency O. 76 Uncollateralized Deposit Account oncompliance and significant deficiency P. 76 Inadequate Review of an Accounting Adjustment Made at Period End oncompliance and significant deficiency Q. 77 Performance Audit Follow-Up oncompliance and significant deficiency R. 77 Inadequate Controls over User Access to Information Systems oncompliance and significant deficiency S. 77 oncompliance with University Guidelines of the Illinois Legislative Audit Commission oncompliance and significant deficiency T. 77 Inadequate Procedures to Remove Inactive Employees from Payroll System oncompliance and significant deficiency U. 77 Improper Classification and Approval of General Ledger Expenditures oncompliance and significant deficiency 8

11 STATE OF ILLIOIS UIVERSIT OF ILLIOIS COMPLIACE EXAMIATIO ear Ended June 30, 2015 COMPLIACE REPORT SUMMAR EXIT COFERECE The University waived the exit conference for the Federal OMB Circular A-133 audit and the State Compliance examination in an dated February 26, 2016, from Ginger Velazquez, Interim Assistant Vice President of the Office of the Assistant Vice President for Business and Finance. Responses to the findings were provided by Jennifer Erickson, Assistant Director for Business and Finance, and Ruth Boardman, Associate Director of Compliance, in s dated February 26,

12 CliftonLarsonAllen LLP CLAconnect.com IDEPEDET ACCOUTATS REPORT O STATE COMPLIACE AD O ITERAL COTROL OVER COMPLIACE FOR STATE COMPLIACE PURPOSES Honorable Frank J. Mautino Auditor General State of Illinois and Board of Trustees University of Illinois: Compliance As Special Assistant Auditors for the Auditor General, we have examined the University of Illinois compliance with the requirements listed below, as more fully described in the Audit Guide for Financial Audits and Compliance Attestation Engagements of Illinois State Agencies (Audit Guide) as adopted by the Auditor General, during the year ended June 30, The management of the University of Illinois (the University) is responsible for compliance with these requirements. Our responsibility is to express an opinion on the University s compliance based on our examination. A. The University has obligated, expended, received, and used public funds of the State in accordance with the purpose for which such funds have been appropriated or otherwise authorized by law. B. The University has obligated, expended, received, and used public funds of the State in accordance with any limitations, restrictions, conditions or mandatory directions imposed by law upon such obligation, expenditure, receipt or use. C. The University has complied, in all material respects, with applicable laws and regulations, including the State uniform accounting system, in its financial and fiscal operations. D. State revenues and receipts collected by the University are in accordance with applicable laws and regulations and the accounting and recordkeeping of such revenues and receipts is fair, accurate and in accordance with law. E. Money or negotiable securities or similar assets handled by the University on behalf of the State or held in trust by the University have been properly and legally administered and the accounting and recordkeeping relating thereto is proper, accurate, and in accordance with law. An independent member of exia International 10

13 Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants; the standards applicable to attestation engagements contained in Government Auditing Standards issued by the Comptroller General of the United States; the Illinois State Auditing Act (Act); and the Audit Guide as adopted by the Auditor General pursuant to the Act; and, accordingly, included examining, on a test basis, evidence about the University s compliance with those requirements listed in the first paragraph of this report and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the University s compliance with specified requirements. In our opinion, the University complied, in all material respects, with the compliance requirements listed in the first paragraph of this report during the year ended June 30, However, the results of our procedures disclosed instances of noncompliance with the requirements, which are required to be reported in accordance with criteria established by the Audit Guide, issued by the Illinois Office of the Auditor General and which are described in the accompanying schedule of findings and questioned costs as items through , and through As required by the Audit Guide, immaterial findings relating to instances of noncompliance excluded from this report have been reported in a separate letter to your office. Internal Control Management of the University is responsible for establishing and maintaining effective internal control over compliance with the requirements listed in the first paragraph of this report. In planning and performing our examination, we considered the University s internal control over compliance with the requirements listed in the first paragraph of this report to determine the examination procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with the Audit Guide, issued by the Illinois Office of the Auditor General, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the University s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with the requirements listed in the first paragraph of this report on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a requirement listed in the first paragraph of this report will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as items through , and through , that we consider to be significant deficiencies. As required by the Audit Guide, immaterial findings excluded from this report have been reported in a separate letter to your office. 11

14 The University s responses to the findings identified in our examination are described in the accompanying schedule of findings and questioned costs. We did not examine the University s responses and, accordingly, we express no opinion on the responses. This report is intended solely for the information and use of the Auditor General, the General Assembly, the Legislative Audit Commission, the Governor, University management, the Board of Trustees of the University, others within the University, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. a CliftonLarsonAllen LLP Peoria, Illinois March 1,

15 CliftonLarsonAllen LLP CLAconnect.com IDEPEDET AUDITORS REPORT O ITERAL COTROL OVER FIACIAL REPORTIG AD O COMPLIACE AD OTHER MATTERS BASED O A AUDIT OF FIACIAL STATEMETS PERFORMED I ACCORDACE WITH GOVERMET AUDITIG STADARDS Honorable William G. Holland Auditor General State of Illinois and Board of Trustees University of Illinois: As Special Assistant Auditors for the Auditor General, we have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the business-type activities of University of Illinois and the aggregate discretely presented component units, collectively a component unit of the State of Illinois, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the University of Illinois basic financial statements, and have issued our report thereon dated December 23, Our report includes a reference to other auditors who audited the financial statements of the discretely presented component units, as described in our report on the University s financial statements. Other auditors audited the financial statements of the University of Illinois Foundation (a discretely presented component unit) in accordance with Government Auditing Standards, as described in our report on the University s financial statements. This report does not include the results of the other auditors testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of the University of Illinois Alumni Association; Wolcott, Wood, and Taylor, Inc.; Prairieland Energy, Inc.; Illinois Ventures, LLC; the University Research Park, LLC; and UI Singapore Research, LLC (all discretely presented component units), were not audited in accordance with Government Auditing Standards and accordingly this report does not include reporting on internal control over financial reporting or instances of reportable noncompliance with those entities. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the University of Illinois internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University of Illinois internal control. Accordingly, we do not express an opinion on the effectiveness of the University of Illinois internal control. An independent member of exia International 13

16 A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, we identified certain deficiencies in internal control over financial reporting, described in the accompanying schedule of findings as items , , and that we consider to be significant deficiencies in internal control over financial reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged governance. Compliance and Other Matters As part of obtaining reasonable assurance about whether the University of Illinois financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. University of Illinois Response to Findings The University of Illinois response to the findings identified in our audit is described in the accompanying schedule of findings. The University of Illinois responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the University of Illinois internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University of Illinois internal control and compliance. Accordingly, this communication is not suitable for any other purpose. a CliftonLarsonAllen LLP Peoria, Illinois December 23,

17 CliftonLarsonAllen LLP CLAconnect.com IDEPEDET AUDITORS REPORT O COMPLIACE FOR EACH MAJOR FEDERAL PROGRAM, O ITERAL COTROL OVER COMPLIACE, AD O THE SCHEDULE OF EXPEDITURES OF FEDERAL AWARDS REQUIRED B OMB CIRCULAR A-133 Honorable Frank J. Mautino Auditor General State of Illinois and Board of Trustees University of Illinois: Report on Compliance for Each Major Federal Program We have audited the University of Illinois (the University) compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of the University s major federal programs for the year ended June 30, The University s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. The schedule of expenditures of federal awards and our audit described below does not include expenditures of federal awards for those agencies determined to be component units of the University for financial statement purposes. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the University s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and on-profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the University s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. An independent member of exia International 15

18 We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the University s compliance. Opinion on Each Major Federal Program In our opinion, the University complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items through Our opinion on each major federal program is not modified with respect to these matters. The University s responses to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The University s responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. Report on Internal Control over Compliance Management of the University is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the University s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the University s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as items through that we consider to be material weaknesses. We identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as items through , that we consider to be significant deficiencies. 16

19 The University s responses to the internal control over compliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The University s responses were not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the responses. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of, the business-type activities and the aggregate discretely presented component units of University of Illinois, a component unit of the State of Illinois, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise University of Illinois basic financial statements. We issued our report thereon dated December 23, 2015, which contained unmodified opinions on those financial statements. Our report was modified to include a reference to other auditors and to include an emphasis of matter paragraph stating the University adopted GASB Statement o. 68, Accounting and Financial Reporting for Pensions, and the related GASB Statement o. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement o. 68. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditure of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. a CliftonLarsonAllen LLP Peoria, Illinois March 1,

20 STATE OF ILLIOIS UIVERSIT OF ILLIOIS SCHEDULE OF FIDIGS AD QUESTIOED COSTS ear Ended June 30, 2015 SUMMAR OF AUDITORS RESULTS Financial Statements Type of auditors report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? es x o Significant deficiencies identified that are not considered to be material weaknesses? x es one reported oncompliance material to financial statements noted? es x o Federal Awards Internal control over major programs: Material weakness(es) identified? x es o Significant deficiencies identified that are not considered to be material weaknesses? x es one reported Type of auditors report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Section 510 (a) of OMB Circular A-133? x es o Identification of major programs: CFDA umbers ame of Federal Program or Cluster Various Research and Development Cluster / Child Care and Development Fund Cooperative Extension Service Maternal and Child Health Services Block Grant to the States Head Start Education and Human Resources Supplemental utrition Assistance Program (SAP) Various Student Financial Assistance Cluster Temporary Assistance for eedy Families (TAF) Dollar threshold used to distinguish between Type A and Type B programs: $ 3,741,862 Auditee qualified as low-risk auditee pursuant to OMB Circular A-133? es x o 18

21 STATE OF ILLIOIS UIVERSIT OF ILLIOIS CURRET FIDIGS GOVERMET AUDITIG STADARDS ear Ended June 30, Finding: Inadequate Procedures over Expense Deferrals and Other Cut-off Related Issues The University of Illinois (the University) has not established adequate internal controls over accurately identifying and recording deferred expense transactions and reporting prepaid expenses at fiscal yearend for financial reporting purposes. During our audit, we noted that the University s procedures to identify and record prepaid expenses include a review of all cash disbursements by University Payables (UPA). UPA identifies expense transactions that pertain to multiple fiscal years and code them for further review by University Accounting and Financial Reporting (UAFR). UAFR will then post year end journal entries to appropriately defer the identified expense transactions. In addition to the review of all cash disbursements by UPA, UAFR also requires individual units to identify and report known accrual and deferral transactions at fiscal year-end for certain fund types. We also noted that the University s year-end accounts payable procedures include specifically reviewing cash disbursements made subsequent to year-end through the end of October to determine which accounting period the related expense transactions pertain. In relation to our test work over expense transactions, we reviewed 197 cash disbursement transactions (totaling $42,171,231), 67 P-Card expense transactions (totaling $247,947), and 60 T-Card expense transactions (totaling $239,444) recorded during the fiscal year. We also reviewed 11 cash disbursements occurring subsequent to year-end (totaling $24,827,569). Additionally, we separately reviewed 12 internal journal voucher transactions recorded during the fiscal year (totaling $13,894,968 debits and $16,297,995 credits). In relation to our test work over revenue transactions, we reviewed 60 cash receipt transactions recorded during the fiscal year (totaling $216,289,228). During our review of these transactions, we noted the following items were not recorded in the proper accounting period: University of Illinois transactions One (1) general expense cash disbursement (totaling $5,682) that was recorded as expense for fiscal year ended June 30, 2015, should have been partially accrued as of June 30, 2014 at an amount of $1,218. One (1) general expense cash disbursement (totaling $68,175) that was recorded as expense for fiscal year ended June 30, 2015, should have been partially deferred as of June 30, 2015 at an amount of $34,088, and then recognized as expense for the fiscal year ending June 30, One (1) cash receipt (totaling $272,051) that was recorded as operating revenue for the fiscal year ended June 30, 2015, should have been partially deferred as of June 30, 2015 at amount of $181,864, and then recognized as operating revenue for the fiscal year ending June 30, University of Illinois P-card transactions One (1) service expense cash disbursement (totaling $3,931) that was recorded as an expense for fiscal year ended June 30, 2015, should have been deferred as of June 30, 2015, and then recognized as expenses for the fiscal years ending June 30, 2016 and June 30, 2017 at an amount of $2,016 and $1,915, respectively. 19 (Continued)

22 STATE OF ILLIOIS UIVERSIT OF ILLIOIS CURRET FIDIGS GOVERMET AUDITIG STADARDS ear Ended June 30, 2015 Two (2) general and service expenses cash disbursements (totaling $9,817) that were recorded as expenses for fiscal year ended June 30, 2015, should have been partially deferred as of June 30, 2015 at an amount of $9,514, and then recognized as expenses for the fiscal year ending June 30, University of Illinois T-card transactions One (1) general expense cash disbursement (totaling $2,307) that was recorded as an expense for fiscal year ended June 30, 2015, should have been accrued as of June 30, One (1) general expense cash disbursement (totaling $5,209) that was recorded as an expense for fiscal year ended June 30, 2015, should have been deferred as of June 30, 2015, and then recognized as expense for the fiscal year ending June 30, Generally accepted accounting principles require transactions to be reported in the period they are incurred. Additionally, the Fiscal Control and Internal Auditing Act (30 ILCS 10/3001), requires the University to establish and maintain a system, or systems, of internal fiscal and administrative controls, which shall provide assurance that: (1) resources are utilized efficiently, effectively, and in compliance with applicable law; (2) obligations and costs are in compliance with applicable law; (3) funds, property, and other assets and resources are safeguarded against waste, loss, unauthorized use, and misappropriation; (4) revenues, expenditures, and transfers of assets, resources, or funds applicable to operations are properly recorded and accounted for to permit the preparation of accounts and reliable financial and statistical reports and to maintain accountability over the State's resources; and (5) funds held outside the State Treasury are managed, used, and obtained in strict accordance with the terms of their enabling authorities and that no unauthorized funds exist. The University s system of internal controls should include procedures to ensure expenses and revenues are recognized in the appropriate reporting period. In discussing these conditions with University personnel, they stated that the units associated with the exceptions did not adequately follow the procedures to record the transactions in the proper period. While the University believes it has processes in place to prevent material misstatements in the financial statements, the highly decentralized business environment with hundreds of units and large volumes of transactions does present challenges to catching all errors. Failure to accurately analyze and record cash disbursements within the proper fiscal year may result in the misstatement of the University s financial statements. (Finding Code , , , 12-01, 11-01, 10-03, 09-03) Recommendation: We recommend the University continue to review its process to assess the existence of current period expenses and consider changes necessary to ensure prepaid expenses are accurately identified and recorded for presentation in the University s financial statements. University Response: Accepted. The University will continue to implement corrective actions to address the recommendation in this finding. 20 (Continued)

23 STATE OF ILLIOIS UIVERSIT OF ILLIOIS CURRET FIDIGS GOVERMET AUDITIG STADARDS ear Ended June 30, Finding: Inadequate Controls Over University Procurement Card Transactions The University of Illinois (the University) has not established adequate internal controls over procurement card transactions. The University operates a procurement card program which allows individuals throughout the University to make smaller purchases (defined as less than $4,999) on a credit card which is directly paid by the University on a monthly basis. The University s policies require employees assigned a procurement card to complete training on policies and procedures, pass a test, and sign an agreement stipulating they will use the card in accordance with University policy. This agreement is also required to be authorized by the individual s supervisor or the department head. The University s policies require transactions incurred on the procurement card to be approved in the University s procurement card system by the individual cardholder and an assigned reviewer. During our test work over 67 procurement card transactions totaling $247,947, we noted the following: Two transactions (totaling $3,298) were for charges prohibited by the University s procurement card policies. One transaction (totaling $4,968) was for a graduate student s tuition and fees which did not follow the University s Office of Business and Financial Services policies and procedures for graduate student tuition and fees departmental payments which resulted in an erroneous refund totaling $4,968 to the student s account which was subsequently disbursed to the student. Three transactions (totaling $9,649) were for a graduate student s tuition and fees which did not follow the University s Office of Business and Financial Services policies and procedures for graduate student tuition and fees departmental payments which resulted in the transactions not being properly processed by the University s Payroll & Benefits department which determines the taxability of waivers. One purchase (totaling $12,192) was paid in two or more installments (3 transactions each for $4,064), circumventing the card holder s single transaction limit of $4,999. One transaction (totaling $5,785) exceeded the card holder s single transaction limit of $4,999, and the purchase was made prior to the approval of P-card Exception Request. The exception request was approved 23 days late. One transaction (totaling $71) included a charge of $4 for sales tax which is a prohibited charge because the University is tax-exempt. Three transactions for printing services (totaling $460) were not in compliance with the Illinois Procurement Code and the waiver for this requirement was not obtained from the State Purchasing Officer. The University has approximately 4,315 active procurement cards and the procurement card expenditures paid for the year ended June 30, 2015 totaled $58,780,227. The University policy states that all P-Card exception requests must be submitted to UPA Card Services using the P-Card Exception Request. Based on the exception criteria, UPA Card Services routes the request to the appropriate unit(s) or employee(s) for review, and notifies the requester via of the approval or denial of the request. Exceptions must be approved prior to making the requested purchase(s). The Illinois Procurement Code (30 ILCS 500/45-15) states that contracts requiring the procurement of printing services shall specify the use of soybean oil-based ink unless a State purchasing officer determines that another type of ink is required to assure high quality and reasonable pricing of the printed product. 21 (Continued)

24 STATE OF ILLIOIS UIVERSIT OF ILLIOIS CURRET FIDIGS GOVERMET AUDITIG STADARDS ear Ended June 30, 2015 Under Internal Revenue Code Section 127, employers may provide employees graduate tuition and fee waivers up to $5,250 per calendar year that are excludable from taxable income. The University s Office of Student Financial Aid is responsible for processing the waivers for which the University Payroll & Benefits department determines the taxability of waivers exceeding $5,250, notifies employees of the required taxation, and withholds the applicable taxes from the employees compensation. To ensure proper taxation, the University s Office of Business and Financial Services procedures require departments to complete the Student Account Payment Request Form to request payment for all graduate-level tuition and fees. Moreover, the Fiscal Control and Internal Auditing Act (30 ILCS 10/3001) requires the University to establish and maintain a system or systems of internal fiscal and administrative controls, which shall provide assurance that: (1) resources are utilized effectively, and in compliance with applicable law (2) obligations and cost are in compliance with applicable law; (3) funds, property, and other assets and resources are safeguarded against waste, loss, unauthorized use, and misappropriation; (4) revenues, expenditures, and transfers of assets, resources or funds applicable to operations are properly recorded and accounted for to permit preparation of accounts and reliable financial and statistical reports and to maintain accountability over the State s resources; and (5) funds held outside the State Treasury are managed, used, and obtained in strict accordance with the terms of their enabling authorities and that no unauthorized funds exist. The University s system of internal controls should include procedures to ensure procurement card transactions are in accordance with University policies and procedures and supporting documentation for each transaction is maintained. University officials stated the bulleted exceptions largely resulted from human error. In addition, management indicated the 3 exceptions related to the Soybean Oil-Based Ink Act are the result of challenges in understanding how to apply the applicable state statutes. 50 ILCS 520/10 gives state agencies flexibility in determining the type of ink to assure reasonable pricing and high quality of the printed product, while 30 ILCS 500/45-15 requires non-soybean oil-based ink to be approved by the State Purchasing Officer. Failure to properly review and approve procurement card transactions could result in erroneous or fraudulent transactions being recorded in the general ledger system and results in noncompliance with Internal Revenue Code and the University s Office of Business and Financial Services policies and procedures. (Finding Code , , , 12-02, 11-03, 10-02, 09-02, and 08-03) Recommendation: We recommend the University continue to review and improve its internal controls over procurement card transactions to ensure that erroneous or fraudulent transactions are not recorded in the general ledger system and to ensure compliance with Internal Revenue Code. University Response: Accepted. The University recognizes the importance of process controls, training, and transaction monitoring in this area. Further corrective action will be taken in connection with the recommendation in this finding. 22 (Continued)