It’s back-to-school season and this year not only did Illinois turn in its annual financial report late but it also received a bad grade: a qualified audit opinion. Illinois’ annual financial report was released to the public on Thursday, August 19 for the fiscal year ending June 30, 2020. This means we just received the results of a fiscal year that ended more than 400 days ago.
Typically, the standard for timeliness is 180 days after the fiscal year-end as set by the Government Finance Officers Association (GFOA). Truth in Accounting believes that governments should publish their reports within 100 days of their fiscal year-end. The average turnaround time for corporate financial reports is within 45 days of their fiscal year-end.
According to the GFOA standard, Illinois issued its report more than 245 days late. This isn’t the tardiest the state has been in the last decade. In 2019, Illinois did not release its annual financial report until Labor Day weekend but backdated the letter of transmittal to August 22, 2019.
Illinois is also not the tardiest government this year. California has yet to release its annual financial report for fiscal year 2020. The state does not expect to release its report until October, according to an email conversation with a government official.
Not only is Illinois untimely with its report but it also received a qualified opinion, which was a result of the problems at Illinois’ Department of Employment Security (IDES). In his independent report, Illinois State Auditor Frank Mautino highlighted, “The system processing these claims had material weaknesses in the design and operation of internal control and we were unable to obtain sufficient appropriate audit evidence to determine or verify by alternative means whether accrued claims and certain other paid claims met eligibility requirements.”
The Illinois unemployment system received a record number of claims in 2020 because of the COVID-19 related shutdowns. More usage of the fragile system provides more opportunities for fraud. According to the IDES, more than $15 million in unemployment funds was paid to fraudsters in 2020.
The auditor’s report suggests that Illinois outsourced its claims processing system which had material weaknesses. This led to Illinois’ qualified opinion. A qualified opinion means the overall report is sound but the auditors found some issues within specific areas of the report that prevent them from giving it an unqualified or clean opinion. A qualified opinion is not as bad as an adverse or disclaimer (flunk) opinion.
It is virtually unheard of for corporations to receive a qualified opinion as it can threaten the company’s value. A handful of other states received this type of opinion. Three states, Colorado, Georgia, and Nebraska, received a disclaimer or flunk opinion.
The auditor’s opinion is most likely what delayed Comptroller Susana Mendoza from issuing the report. Fiscal year 2020 was the beginning of the COVID-19 pandemic, which also could have delayed the report. The other 48 states, however, released their financial reports within 206 days, on average, of the end of the 2020 fiscal year.
Illinois has a repeated history of tardiness with its annual financial report. Without the information from the financial report, Illinoisians, including elected officials, are left in the dark during the budgeting process and several other critical decisions.
Truth in Accounting's analysis of Illinois' latest report will be coming in September 2021.