1. 27 th Annual Conference NSAA June 9, 2005 Illinois Office of the Auditor General William G. Holland, Auditor General Management and Program Audit Financial Audit REND LAKE CONSERVANCY DISTRICT

2. 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 2

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4. Audit Conclusions Significant deficiencies identified: Planning Water and sewage operations Personnel Contract management Property and equipment management Performance monitoring Internal controls 4

5. Audit Conclusions Management and Program Audit: Identified deficiencies in 16 areas Recommended 70 specific actions the District needed to take 5

6. 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 6

7. 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 7

8. 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 8

9. 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 9

10. Districts 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 10

11. 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 in Development Water System Recreation Sewage Treatment Income by Operational Area – FY04 11

12. – $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 $100,000 GolfRestaurantLodgeShooting & Hunting SUBTOTAL: –$450,752 Less Fund Depreciation: –$451,815 Less Other Fund Adjustments: –$1,559 TOTAL RECREATION INCOME/LOSS: –$904,126 12

13. 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 13

14. 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 14

15. 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 15

16. 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 16

17. 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 17

18. 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 18

19. 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 19

20. 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 20

21. 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 21

22. 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 22

23. Recreation – Lodging Income of $45,935 before depreciation Trends show the Lodges occupancy rates are declining Compared the Districts occupancy rates for the Seasons Lodge with that of the neighboring Wayne Fitzgerrell State Parks Rend Lake Resort 23

24. Occupancy Rates for RLDC Seasons Lodge and Rend Lake Resort 24

25. 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 25

26. Financial Audit Conclusions Financial Audit: Contained 15 findings We will highlight 4 of them 26

27. 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 27

28. 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 28

29. 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 29

30. Inadequate Segregation of Duties Proper segregation of duties is required to help mitigate the risks of fraud or misappropriation of assets 30

31. 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 31

32. 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 Districts policy was to enroll employees after they worked 600 hours; was not enrolling employees in accordance with IMRF regulations 32

33. Cash Disbursements District failed to establish proper internal controls over cash disbursements No evidence of supervisors 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 33

34. 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 Boards Finance Committee receives a list of checks but does not receive the invoice or other supporting documentation for review before signing the checks 34

35. 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 35

36. 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. 36

37. 27 th Annual Conference NSAA June 9, 2005 Illinois Office of the Auditor General William G. Holland, Auditor General Management and Program Audit Financial Audit REND LAKE CONSERVANCY DISTRICT