ISSUED: May 20, 2002

EXECUTIVE SUMMARY - LEGISLATIVE AUDITS

Idaho Industrial Commission

PURPOSE AND SCOPE - We have completed certain financial audit procedures on the Idaho Industrial Commission's financial activities that occurred during the fiscal years ended June 30, 1999, 2000, and 2001. These procedures, together with procedures performed at other State agencies, allow us to express our opinion on the statewide general-purpose financial statements prepared by the State Controller's Office.

CONCLUSION - One finding and recommendation is included in this report related to federal regulations for cash draws that will, if implemented, improve efficiency, effectiveness, compliance or controls of the Commission. There were two findings and recommendations in the prior report that are considered closed. Although we discussed one issue for improvement, we conclude that the financial operations of the Commission meet accepted standards and the Commission substantially complies with laws, regulations, rules, grants, and contracts for which we tested compliance.

FINDINGS AND RECOMMENDATIONS - The one finding and recommendation is summarized below:

Finding 1 - Cash draws are not completed in compliance with federal regulations. Federal regulations require that State agencies keep cash balances in federal programs to a minimum. The timing and amount of cash advances are to match, as closely as administratively feasible, the actual disbursements made by the recipient organization for direct program costs. The Commission drew the entire balance of the Crime Victims' Compensation Grant prior to incurring expenditures for this full amount. For example, the Commission requested $573,000 from the grant but only had related expenditures of $442,497. This resulted in a cash balance of $130,502 being carried forward.

We recommend that the Commission request federal funds in compliance with federal regulations by matching the cash reimbursement requests as closely as possible to the expenditures incurred.

PRIOR FINDINGS AND RECOMMENDATIONS - The prior report included two findings and recommendations. The status of each follows:

Prior Finding 1 - Internal control over accounts receivable needs improvement to ensure timely collections and management review of write-offs. Almost all receivables were employer penalties assessed to companies not providing workers' compensation coverage, and court-ordered fines and restitution to the Crime Victims' Program.

Internal controls that need improvement are: (1) written policies and procedures for receivable reductions; (2) management reports, including an aging report, for appropriate management review; (3) review of receivables over one year old to determine appropriate action; (4) segregation of duties to ensure no one person has complete control from receipting to adjusting a transaction; and (5) centralization of the receipting process.

The Commission has taken several steps to improve internal controls including: (1) establishing written policies to follow-up on uncollected accounts receivable and for approval of compromises and adjustments to accounts receivable; (2) revising management reports for review by the appropriate supervisor and manager; (3) establishing guidance policies for writing off old accounts; (4) adding a new position to segregate and assist with duties in the Crime Victims' Program; and (5) centralizing receipting functions and controlling written receipts. CLOSED.

Prior Finding 2 - Compliance with Idaho Code requirements was not fully verified. The Commission should determine a means to verify compliance with Idaho Code requirements. Idaho Code ' 72-327 requires the Commission to assess workers' compensation insurers on a pro rata basis for the Industrial Special Indemnity Fund. This assessment is based on the total gross amount of indemnity benefits paid on workers' compensation claims. The amount of reported claims paid differed for two of six insurance companies reviewed when compared to annual reports filed with the Department of Insurance.

The Commission compares insurance company reports to the Department of Insurance reports for the insurance companies required to file with the Commission. While there are differences between the two reports, the Commission is taking steps to reconcile them. This includes contacting the insurance companies and researching reported amounts. CLOSED.

AGENCY RESPONSE - The Commission has reviewed the report and is in agreement with the finding and recommendation. The Commission's full response is included in the Findings and Recommendation section of the report.

FINANCIAL SUMMARY - The procedures completed and described above help us express our opinion on the fairness of presentation of the statewide Comprehensive Annual Financial Report (CAFR). Although no opinion is given on the financial data presented in this report, one is given on all State funds in the CAFR, including the financial data presented in the full report.

The Commission is funded primarily from workers' compensation insurance premium tax assessments, fines, interest, and restitution payments. A small federal grant and some miscellaneous revenues are also received. The revenues are used to support operations of the Industrial Commission's worker compensation, rehabilitation, and adjudication programs, as well as to make payments to crime victims and the Second Injury Fund administered by the Department of Administration. A summary of the Commission's financial activity for fiscal years 1999, 2000, and 2001 is included in the full report.

OTHER ISSUES - In addition to the findings and recommendations, we discussed other less important issues which, if changed, would improve internal control, ensure compliance, or improve efficiency.

This report is intended solely for the information and use of the Industrial Commission and the Idaho Legislature, and is not intended to be, and should not be, used by anyone other than these specified parties.

We appreciate the cooperation and assistance given to us by the Commissioners and their staff.

QUESTIONS CONCERNING THIS DOCUMENT SHOULD BE DIRECTED TO:

Ray Ineck, CGFM, Acting Supervisor, Legislative Audits