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					   LEGISLATIVE
      AUDIT
   COMMISSION




            Review of
Workers’ Compensation Commission
 Two Years Ended June 30, 2005

     622 Stratton Office Building
      Springfield, Illinois 62706
           217/782-7097
                               REVIEW: 4253
                     WORKERS’ COMPENSATION COMMISSION
                       TWO YEARS ENDED JUNE 30, 2005

                          FINDINGS/RECOMMENDATIONS - 9

                                   IMPLEMENTED - 3
                                     ACCEPTED- 6

                         REPEATED RECOMMENDATIONS - 5

                 PRIOR AUDIT FINDINGS/RECOMMENDATIONS - 10


This review summarizes an audit of the Illinois Industrial Commission for the two years
ended June 30, 2005, filed with the Legislative Audit Commission March 2, 2006. The
auditors performed a financial audit and compliance examination in accordance with
Government Auditing Standards and State law. The auditors stated that the financial
statements were fairly presented.


The Illinois Workers’ Compensation Commission, formerly the Illinois Industrial
Commission, administers the Workers’ Compensation Act and the Workers’ Occupational
Disease Act. The Self-Insurers’ Advisory Board, established within the Commission, was
created for the purpose of administering the Self-Insurers’ Security Fund.         The
Commission consists of seven members appointed by the Governor with the consent of
the Senate. Of the seven members, two are representatives of employers and two are
employees covered under the Act, and three are not identified with either employers or
employees. The Chairman is selected by the Governor. Not more than four of the
Commissioners shall come from the same political party.


The Act authorizes the Commission to function as a quasi-judicial body with the equivalent
of court status in that its records, when properly represented, are accepted by regularly
constituted courts as legal evidence; its decisions are final unless an appeal is made to
the Courts.


Mr. Dennis R. Ruth was the Chairman of the Commission during the audit period. Mr.
Ruth became Chairman on February 22, 2003. Prior to becoming Chairman, Mr. Ruth
served as a Commission arbitrator.


The total number of employees appears on the following page.
REVIEW: 4253


                                                 FY05         FY04           FY03
   Administrative – General                        86           85             83
   Arbitrators                                     34           27             22
   Court Reporters                                 24           23             26
   Electronic Data Processing                      11           11             11
   Peoria Office                                    1            1              1
   Accident Reporting                               2            3              3
   Information Handbook                             0            0              1
   Self-Insurers’ Administration Fund               5            4              5
   Self-Insurers’ Security Fund                     2            3              2
      TOTAL                                       165          157            154
   Commissioners                                  6             6              6

The Commissioners are paid from the Comptroller’s State Officers’ Salaries appropriation.
Commissioners are paid about $94,000 per year, while the chairman earns almost
$106,400 per year.

Appendix A summarizes caseload activity of the Commission, along with an analysis of
cases closed during FY05, FY04 and FY03. The number of cases pending at year-end
has decreased from 114,212 as of June 30, 2004 to approximately 110,067 as of June 30,
2005.


                          Expenditures From Appropriations

Appendix B provides a summary of appropriations and expenditures for FY03 through
FY05. The General Assembly appropriated a total of $16,320,050 to the Commission for
FY05. Total expenditures in FY05 were $14,880,598 compared to $12,747,722 in FY04,
which represents an increase of $2,132,876, or 16.7%. In FY04, funds were expended
from “Lump Sum and Other Purposes” for administrative expenses.

In FY05, spending increased from the non-appropriated Self-Insurers’ Administration Fund
because of costs associated with moving to new office space in the Thompson Center and
a long term employee retired requiring a liquidation of accrued vacation and sick time.
Expenditures from the Self-Insurer’ Security Fund increased $2.4 million due to additional
bankruptcies by self-insurers during the fiscal year.


                                        Cash Receipts

Appendix C summarizes the total deposits remitted to the Comptroller by the Commission
which totaled $36,841,161 in FY05. The vast majority of receipts are in two funds, the
Rate Adjustment Fund and the Self Insurers’ Security Fund. Receipts in the Self-Insurers’
Security Fund increased to $23.9 million due to the surety bonds collected from bankrupt
employers.



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The Workers’ Compensation Commission Operations Fund received $11.8 million in FY04
compared to $2 million in FY05. Statutory assessments were not collected for an entire
fiscal year because the assessments were declared unconstitutional. The case is pending
before the Circuit Court in Cook County.

The Rate Adjustment Fund increased to $9,288,085, and is financed through
assessments on self-insured employers and insurance carriers based on their past
payments of disability compensation.   The Fund provides annual adjustments to
compensation payments awarded for death benefits and permanent total disability.


                               Property and Equipment

Appendix E summarizes the property and equipment for which the Commission was
accountable for during the period under review. The balance was $1,475,205 as of July 1,
2003, and $1,736,486 on June 30, 2005, an increase of $261,281, or 17.7%. The primary
cause of the increase was purchase of office and EDP equipment.


                       Locally Held and Nonappropriated Funds

The following is a summary of the Commission’s locally held and nonappropriated funds.

Transcript Deposit Fund

This Fund provides for the reimbursement of costs incurred by the Commission to process
transcripts of case proceedings.

Rate Adjustment Fund

The Rate Adjustment Fund provides annual adjustments to compensation payments
awarded for death benefits and permanent total disability. The Fund is financed by
assessments of insurance carriers and self-insured employers on their past payments of
disability compensation. The Fund has had to borrow money in order to meet its
obligations. The total fund deficit at June 30, 2005 was $15,924,302.

Second Injury Fund

The Second Injury Fund provides compensation payments to employees who incurred the
loss of or the permanent and complete loss or use of one member (hand, arm, leg, or eye)
and then suffered the loss of or the permanent and complete loss or use of another
member. The fund is financed through assessments on self-insured employers and
insurance carriers based on their past payment of disability compensation.




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Self-Insurers’ Security Fund

The Self-Insurers’ Security Fund provides compensation to employees of insolvent self-
insured employers for any type of injury or occupational disease and all claims for related
administrative fees, operating costs of the Board, attorney fees and other costs reasonably
incurred by the Board. The Commission may, upon the direction of the Self-Insurers’
Advisory Board, from time to time assess each of the private self-insurers a pro rata share
of the funding reasonably necessary to carry out its activities.

Workers’ Compensation Benefit Trust Fund

This Fund receives and records escrow deposits and surety bonds posted by self-insured
employers. The monies are to be used to pay workers’ compensation benefits to
employees of self-insured employers who filed for bankruptcy prior to the creation of the
Self-Insurers’ Security Fund.

Self-Insurers’ Administration Fund

The Self-Insurers’ Administration Fund provides funds for the salaries and benefits of the
Self-Insurers’ Advisory Board employees and the operating costs of the Board. The Fund
is financed by non-refundable application fees in the amount of $500 received from each
private self-insurer applying for self-insurance or renewal of self-insurance privilege.

Operations Fund

This Fund was created in FY99 and provides for the operation of the Commission. The
Fund is financed through penalty assessments on employers for violation of the Workers’
Compensation Act.


                    Accountants’ Findings and Recommendations

Condensed below are the nine findings and recommendations presented in the audit
report. Five of the recommendations in the report were repeated from previous audits.
The following recommendations are classified on the basis of information provided in the
original audit report and updated responses provided by Carol Reckamp, Chief Financial
Officer, Illinois Workers’ Compensation Commission.


                               Accepted or Implemented

1.   Only make payments for efficiency initiative billings              from    line   item
     appropriations where savings would be anticipated to occur.

Findings: The Commission made payments for efficiency initiative billings from
improper line item appropriations. The Commission received one billing in FY05 from



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CMS for savings from efficiency initiatives for $1,597.22, but received no evidence of
savings although the procurement billing documentation showed that the bill should be
paid from printing and office supplies. The Commission used a contractual services
appropriation line to the pay the bill because of the availability of funds.

Response: The Commission believes that it made savings payments from those lines for
which it expected savings resulting from the efficiency initiative to occur. In the future, the
Commission will make savings payments from appropriations lines for which it anticipates
obtaining savings. CMS will provide information to the Commission on the method by
which savings estimates were derived.

Updated Response:             Accepted. There were no efficiency initiatives charged to the
IWCC in FY 2006.


2.   File official headquarters reports with the Legislative Audit Commission as
     required by law.     Further, the Commission should either designate the
     Chairman's headquarters as the location where he spends the largest part of his
     working time or seek approval from the Governor's Travel Control Board for any
     alternate designation.

Findings: The Commission did not submit Official Headquarters Reports to the
Legislative Audit Commission in accordance with statute. Additionally, the Commission
did not follow State rules concerning Agency Head's headquarters designation.

        TA-2 reports that were filed with the Legislative Audit Commission reflected the
         Chairman's official headquarters as Collinsville. Since the TA-2 reports are
         designed to reflect only those officials and employees whose official headquarters
         are designated at a location other than where those persons are required to spend
         the largest part of their working time, this filing constitutes an acknowledgement by
         the Commission that, while the Chairman's official headquarters are designated as
         Collinsville, he does not spend the largest part of his working time there. Under the
         Governor's Travel Control Board rules, "[a]ll Agency Heads shall be headquartered
         at the location where official duties require the largest part of their working time. . ."
         unless an exception is requested in writing by the Agency Head and approved by
         the Governor's Travel Control Board. The designation of official headquarters is
         important in determining whether and to what extent travel expenses will be
         reimbursed by the State.

        Incomplete time sheets made it difficult for auditors to determine where the
         Chairman spent the largest part of his working time. Because the Chairman's
         official headquarters was designated as Collinsville (his place of residence), the
         Commission paid $45,101 in travel expenses incurred by the Chairman for travel
         between Collinsville and any of the Commission's four offices for FY04 and FY05.
         The majority of this cost was for use of the State plane.



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REVIEW: 4253


Implemented or Accepted – continued

Response: Partially Accepted. The Commission acknowledges that the TA-2s were filed
late. We are currently in compliance and have filed the January 15, 2006 Report with the
Legislative Audit Commission.

However, we believe we have designated the Chairman’s headquarters appropriately in
Collinsville, where the Chairman spends the largest part of his working time, and no
exemption is needed from the Governor’s Travel Board.

We acknowledge that three of the Chairman’s time sheets were missing, and the
Chairman did not document all hours he worked on weekends, holidays, or scheduled
vacations. All future time sheets will be submitted, and will reflect all the hours the
Chairman worked each week.

The audit states the auditors were not able to determine where the Chairman spent the
largest part of his working time. The auditors used time sheets generated under the State
Officials and Employees Ethics Act to review the Chairman’s time. These time sheets
were not required until February 2004, which limited the time frame the auditors were able
to examine.      Additionally, the Chairman was able to document, through phone and
computer records, that he worked more hours, than are reflected on the ethics time
sheets. When all records were examined, the Commission determined the Chairman
spent the majority of his time in the Collinsville Office, which he worked from before being
promoted to Chairman. Moreover, the Commission does not believe the Chairman is
required to spend the majority of his time in the Chicago office. The Chairman spends the
majority of his time developing policy, developing and implementing legislation, and
ensuring legal compliance with state laws, which can be accomplished from any office.

Furthermore, Section 14 of the Workers’ Compensation Act specifically provides for travel
reimbursement to Commissioners and because Commissioners’ as state officers are
considered on duty 7 days a week Commission policy has always been to not file an
exception with the Travel Control Board. We believe that our present interpretation of the
travel regulation regarding headquarters designation for the agency director is appropriate.

Based on these three factors, the Commission does not believe the Chairman needs to
file for an exemption under the Governor’s Travel Board rules.

Updated Response:          Accepted. The Commission has filed the last two official
headquarters reports with the Legislative Audit Commission. After reviewing the
requirements of the State Finance Act, the reports have listed several persons who should
not have appeared on the reports, including the Chairman. Future reports will continue to
be filed on time as well as indicate the correct number of persons spending more than
50% of their time away from their assigned headquarters.




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REVIEW: 4253


3.   Comply with the requirements of the Fiscal Control and Internal Auditing Act.
     (Repeated – 2003)

Findings: The Commission was not in compliance with the Fiscal Control and Internal
Auditing Act (FCIAA). In the previous engagement the auditors noted the FY02 FCIAA
certification was submitted in November 2002, approximately seven months late, and no
certification had been submitted for fiscal year 2003.

In the current engagement, the following noncompliance was noted:
     The Commission did not file the FCIAA certification for fiscal years 2004 and 2005.
     No internal audits were performed, including no audit of the Petty Cash Fund.

The Fiscal Control and Internal Auditing Act requires that by May 1 of each year the chief
executive officer prepare and transmit to the Auditor General a certification as to whether or
not the system of internal fiscal and administrative controls comply with the requirements of
FCIAA. In addition, the Fiscal Control and Internal Auditing Act requires the chief executive
ensure the internal auditing program includes audits of all major systems of internal
accounting and administrative control at least once every two years. The Commission is not
under the jurisdiction of the Illinois Office of Internal Audits, therefore they are responsible
for having their own internal auditor.

Response: Accepted. The Commission will submit a request for additional headcount
for an internal auditor position. In addition, the agency director will submit the certifications
required under FCIAA.


4.   Comply with the Illinois Administrative Code by establishing and following
     procedures to ensure performance evaluations are conducted on an annual
     basis for all employees.

Findings: Twenty-eight of the fifty personnel files examined (56%) did not contain
current performance evaluations. The most recent evaluations for these employees
ranged from one to nine years.

Response: Accepted. Performance evaluations should be completed in a timely
manner. The Human Resources office will maintain a list of missing performance
evaluations, and will notify the relevant personnel and the Chairman of the late
evaluations.

Updated Response:       Implemented.     The Human Resource office informs all
supervisors and managers when evaluations are due and evaluations are being submitted
in a timelier manner.


5.   Update property control records and maintain them in accordance with statutory
     requirements. (Repeated-2003)


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Implemented or Accepted – continued

Findings:    Property and equipment were not adequately reported in the Commission’s
records. The Commission’s property and equipment balance was $1,439,765 as of June
30, 2005. The Commission conducted a complete physical inventory, in conjunction with the
update of their inventory records, in 2005. The previous physical inventory had been
performed in June 2001.

Twenty-six equipment items purchased during FY04 and FY05, totaling $74,661, were
tested. None of these items could be located because updated property records did not
exist. In addition, 14 of the 26 (54%) equipment purchases tested, totaling $34,967, could
not be traced to inventory records because they were fiscal year 2005 purchases that were
not added to the Commission property records.

Also, 22 of 30 (73%) equipment items, physically observed at the Commission’s offices,
could not be traced to the property control records. These equipment items had been
retagged and the property control records did not include the new tag numbers. In addition,
20 of 23 (87%) equipment items, totaling $18,058.47, selected from the property control
records could not be located and physically observed.

In total, 46 items selected from the Commission’s property control records could not be
located. These items consisted of office furniture and computer equipment. These items
had been retagged and relocated and the property control records had not been updated.

Commission management stated that the Commission began a comprehensive update of its
inventory records in January 2005. The Commission was still in the process of completing
this update when the current examination procedures were performed. Therefore, the
property control reports generated by the Common Systems Inventory Control (CSIC) were
inaccurate. However, the Commission did retain unofficial records of changes made to
inventory, in regards to tag numbers and location. State property tested could be traced to
the unofficial record.

Response: Accepted. The Commission will continue to maintain and upgrade our
property system. We plan to purchase a bar scanner and software to expedite the physical
inventory process.


6.   Comply with the Illinois Procurement Code by including the required language
     on all publications.

Findings: Items published by the Commission did not include the following information:
“Printed by the authority of the State of Illinois”, the date of each publication, the number
of copies printed, and the printing order number as required by the Illinois Procurement
Code.     Commission personnel stated that persons responsible for preparing the
publications were unaware of the Illinois Procurement Code requirements.




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Response: Accepted. The Commission will inform all persons involved in preparing
publications about the requisite language.

Updated Response:          Implemented. All publications have required language.


7.   Form an information technology steering committee that meets regularly, keeps
     minutes of those meetings, and includes representatives from senior
     management, user management, and IT management. The committee should
     prepare a strategic information technology plan for the entire Commission that
     addresses business process, policies and procedures, computer security, and
     responsibilities of the Commission staff. Review and update the plan at least
     annually to ensure it meets the needs of the Commission. (Repeated-2001)

Findings: The Commission did not have an information technology (IT) steering
committee or an effective strategic planning process.        The Commission’s senior
management met on a regular basis to discuss key issues and resolve overall business,
procedure and policy issues. However, these meetings did not address information
technology issues and did not include IT or user management.

The Commission should ensure issues and opportunities for the use of IT are assessed and
incorporated into a strategic plan. The planning process should be structured to
accommodate changes within the Commission and changing technology. The strategic plan
should be comprehensive, evaluate risks and alternatives, and analyze cost-benefit
relationships of the alternatives. This strategic planning process should be translated into
short- and long term plans.

Commission staff stated that prior to this audit the Commission believed it was making
progress in complying with this finding by keeping minutes of the monthly senior manager
meetings held to address its operational needs. The absence of an IT strategic plan is
primarily due to the inconsistency of budget issues as well as newly created IT initiatives
being constructed by the Governors Technology Office.

Response: Accepted. The Commission will continue to work towards being compliant
with this recommendation.

Updated Response:            Implemented. The Commission has formed an information
technology steering committee which is in its early stages of defining the mission and
goals. The committee has met twice and is comprised of representatives from senior
management, user management and IT management but is exploring the possibility of
additional members from user and IT staffs. The committee fully intends to develop an IT
strategic plan and focus on resolving the IT issues documented in the latest audit finding
in addition to any future IT issues that may arise.




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REVIEW: 4253


Implemented or Accepted - concluded

     8. Develop and implement a formal systems development methodology to assist
        in planning, developing, testing, and implementing new system developments
        or modifications to existing systems.        Also, formal change control
        policies and procedures for all change requests should be developed and
        implemented. (Repeated-2001)

Findings: The Commission had thirteen computer applications that were critical for
completing its mission. However, there was no formal methodology to assist in the
planning, development, testing and implementation of computer applications.

The Commission also did not have formal change control procedures for documenting the
identification of the problem, the request for a change, the approval of the change, or the
movement of an authorized change into production for all applications.

During the review period, the Commission initiated and developed two computer
applications to track transcripts and personnel, which the auditors tested to determine
whether the Commission followed its own informal development/change process.         The
auditors identified deficiencies in defining the project, documenting requirements,
performing risk analyses, and testing, and also found problems with documenting, testing,
approving, and implementing program changes.

Commission staff stated the IT department is very small and is responsible for supporting
the needs of the entire Commission including remote locations.           Historically the
department has been called upon to provide support and development to various
departments in rapid succession, which hampers the documentation process.

Response: Accepted. The Commission intends to make every effort to comply with this
recommendation.

Updated Response: Accepted. The steering committee has discussed the need to
develop a standard process form for initiation of project request. The process when
completed will also define the various stages of planning, development, testing and
implementation of new systems or modifications to existing systems. The process will also
define the responsibilities for both IT and user personnel and establish documented
change control policies and procedures.


9.   Establish comprehensive policies and procedures that outline general security
     provisions, appropriate use of computer resources, backup and care of data,
     and other appropriate measures to help ensure that effective controls exist. The
     policies and procedures should be communicated to all users, and monitored
     for compliance. In addition, require all users to sign a statement acknowledging
     they have read, understand, and agree to comply with these policies.




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    Strengthen security within the computing environment by establishing,
    implementing, monitoring, maintaining and enforcing an access control strategy
    relating to computer systems. (Repeated-2003)

Findings: The Commission had not established adequate security control over its
computer environment. The Commission relied on its mainframe and local area network
(LAN) to meet its mission, yet the current computer policy was outdated and did not provide
details with regards to computer operations at the Commission. The auditors reviewed the
Commission’s computer policies and noted the following documentation either did not
exist or was lacking specific detail:
    IT Personnel Responsibilities
    User Responsibilities
    Security Awareness Program
    Security Implementation
    Public Access Terminal Security
    Physical Security
    Hiring, Transferring, and Terminating Employees
    Proper Disposal of Data and Sensitive Information
    Media Storage and Backup

Commission staff stated that IT department has requested additional staff in order to provide
broader support of the Commission’s resources. The request is pending due to budgeting
and hiring issues. The current staff shares a wide range of support roles and responsibilities
and too often finds themselves in the position of being reactive rather than proactive.

Response: Accepted. The Commission will comply.

Updated Response: Accepted and partially implemented. The agency will work through
the IT committee to establish and document security polices and procedures that outline
general security provisions, appropriate use of computer resources, roles and
responsibilities for data backup and maintenance. The policies established will be
communicated to all users and monitored for compliance. The committee has briefly
discussed the need to require user sign offs to acknowledge policies and procedures are
read, understood and full compliance expected. The agency has terminated access to
mainframe applications on the public information terminals after 5:00 pm daily. This was
implemented to eliminate after hour access to information contained within the IWCC
systems and applications.


                                  Emergency Purchases

The Illinois Purchasing Act (30 ILCS 505/1) states, “The principle of competitive bidding
and economical procurement practices shall be applicable to all purchases and
contracts...” The law also recognizes that there will be emergency situations when it will be
impossible to conduct bidding. It provides a general exemption for emergencies “involving
public health, public safety, or where immediate expenditure is necessary for repairs to


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State property in order to protect against further loss of or damage ... prevent or minimize
serious disruption in State services or to insure the integrity of State records, or to avoid
lapsing or loss of federal or donated funds. The chief procurement officer may promulgate
rules extending the circumstances by which a purchasing agency may make “quick
purchases,” including but not limited to items available at a discount for a limited period of
time.

State agencies are required to file an affidavit with the Auditor General for emergency
procurements that are an exception to the competitive bidding requirements per the Illinois
Purchasing Act. The affidavit is to set forth the circumstance requiring the emergency
purchase. The Commission receives quarterly reports of all emergency purchases from
the Office of the Auditor General. The Legislative Audit Commission is directed to review
the purchases and to comment on abuses of the exemption.

During FY04-05 the Illinois Workers’ Compensation Commission filed no affidavits for
emergency purchases.


                               Headquarters Designations

The State Finance Act requires all State agencies to make semiannual headquarters
reports to the Legislative Audit Commission. Each State agency is required to file reports
of all of its officers and employees for whom official headquarters have been designated at
any location other than that at which their official duties require them to spend the largest
part of their working time.

The Industrial Commission filed a report on June 2005 stating that 28 of its officers and
employees spent more than 50% of their time away from their official headquarters. In the
previous audit period, 13 employees spent more than 50% of their time away from official
headquarters.




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