(1) Upon failure or refusal of any covered political subdivision or retirement system to submit wage reports and pay amounts due the State Agency on covered wages paid prior to January 1, 1987 in accordance with the terms of its agreement or applicable regulations, the State Agency after giving notice may order the entity to make its payroll books and related records available at the office of the State Agency in Springfield, or at the business office of the entity as the State Agency shall direct, and may audit those books and records to determine the liability for reporting wages, the amount of contributions due, the late filing penalty, and the federal interest charge. The expenses incurred by the State Agency to conduct the audit may be included in the amount due.
     (2) Upon completion of the audit, the entity shall be given an opportunity to make payment of the amount due. In the event of refusal to make payment, the State Agency shall then certify the amount to be collected to the State Comptroller who shall deduct such amounts or any part thereof from any State funds to which the entity may be entitled. Upon exercising the State’s right of setoff, the Comptroller shall pay amounts so deducted to the State Agency.
     (3) If State funds are not available from which setoff can be made by the Comptroller, the State Agency may proceed by instituting action in the appropriate circuit court against the defaulting entity to recover the amount due.