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Outstanding obligation of $17.875 million not communicated to proper division
Poor controls over food commodities totaling $1.2 million
Calculated absences overstated by $280,725
$7 million paid from the General Revenue Fund rather than Common School Fund
Inadequate controls over School Technology Revolving Loan Fund with expenditures of
approximately $16 million
Controls lacking over computer hardware and applications costing approximately $22
million |
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
LACK OF COMMUNICATION BETWEEN DIVISIONS
The Agency’s lack of communication between divisions led to the failure to
properly communicate essential financial reporting information.
During our testing, we noted an outstanding obligation of $17.875 million existing at
June 30, 2000 which was not properly accounted for in the Agency’s financial
statements. The short-term and long-term portion of this obligation was not included in
the Agency’s financial statements until auditor adjustments were recorded.
Generally accepted accounting principles require the reporting of all current
liabilities in the proper fund and all long-term obligations in the General Long-Term Debt
Account Group. Statewide Accounting Management System (SAMS) procedure 27.20.99 requires
the reporting of contingencies and commitments in a manner clearly establishing the
existence, amount and nature of the obligation. In addition, proper internal controls
require adequate communication of essential information among divisions to enhance the
quality and effectiveness of financial reporting. (Finding 1, pages 16-17)
We recommended the Agency establish policies and procedures ensuring effective
communication among all divisions to provide management with the information necessary to
evaluate the financial reporting impact of all events and transactions affecting the
Agency. We further recommended the Agency record all obligations in its financial
statements.
Agency officials agreed with our recommendation and stated the Agency has agreed to
record the identified liability.
INADEQUATE CONTROLS OVER FOOD COMMODITIES INVENTORY
The Agency did not have adequate controls over its food commodities inventory,
totaling $1.2 million at June 30, 2000. We noted the following:
- The Agency did not adequately monitor inventory held in an independent warehouse and
distribution center.
- The Agency was unable to determine fiscal year receipts and disbursements of $25 million
in commodities distributed to school districts until five months after the fiscal year
end.
- The Agency did not provide the fiscal year 2000 account receivable balance of $4
thousand or the fiscal year 1999 account receivable balance of $5 thousand until November
2000.
- 8 of 36 (22%) food commodities selected for physical test counts did not agree to
warehouse inventory records resulting in an overstatement of approximately $4 thousand.
The USDA Food Distribution Regulations (Title 7, Section 250.16(a)(1)) require accurate
and complete records to be maintained. In addition, Section 250.24(c) requires a financial
management system be maintained to ensure the fiscal integrity and accountability for all
funds. (Finding 2, pages 18-19)
We recommended the Agency implement strong internal controls over its food commodities
inventory to ensure compliance with USDA Food Distribution Regulations.
Agency personnel agreed with our recommendation and stated a request for proposal has
been developed to obtain software to correct the system deficiencies and that it is
expected that some of the Food Commodities system will be outsourced.
INACCURATE COMPUTATION OF COMPENSATED ABSENCES
The Agency did not compute compensated absence balances in an accurate manner.
During our testing of GAAP Reporting Form (SCO 580) we noted the following:
- The compensated absence calculation was not based on June 30, 2000 salaries resulting in
an overstatement of $280,725. The computation was based on salaries in effect as of the
date of the report that was run after the fiscal year end.
- The compensated absence calculation for sick leave was not calculated properly. Prior to
January 1, 1998, employees were allowed to accumulate sick leave and were compensated
one-half of unused sick days upon termination. In addition, the Agency allows employees to
take up to 10 sick days in excess of days accumulated. These days are considered to be on
loan to the employee and if the employee is terminated, a full-day's wage is to be
deducted from his final payout. Sick days on loan to employees were netted with pre-1998
sick days accumulated. Therefore, only one-half, rather than the total, of loaned sick
days were calculated in determining compensated absences at June 30, 2000.
Statewide Accounting Management System (SAMS) procedure 27.20.80 requires compensated
absences to be calculated based on June 30 payroll and requires the number of sick days
accrued prior to January 1, 1998 to be calculated as one-half of the employee’s June
30 hourly rate. In addition, internal policy requires the number of loaned sick days to be
calculated at the full amount of the employee’s June 30 hourly rate. (Finding 3,
pages 20-21)
We recommended the Agency strengthen controls over compensated absence reporting and
ensure appropriate SAMS procedures are followed. We also recommended the Agency implement
policies and procedures requiring supervisory review of the compensated absence
calculation to ensure financial reporting accuracy.
Agency officials agreed with our recommendations and stated a review of the
calculations and supervisory reviews are in place.
SALARY PAYMENTS FROM IMPROPER FUND
The Agency compensated regional office of education superintendents and assistant
superintendents over $7 million from the General Revenue Fund.
The School Code (105 ILCS 5/18-5) states the Agency shall request an appropriation
payable from the Common School Fund to compensate the regional office of education
superintendents and assistant superintendents. (Finding 8, page 28)
We recommended the Agency specify the statutorily required fund from which its
appropriation is to be expended.
Agency officials agreed with our recommendation.
SCHOOL TECHNOLOGY REVOLVING LOAN FUND
The Agency did not properly monitor the School Technology Revolving Loan Fund. This
fund provides affordable financing of school technology hardware improvements to eligible
school districts. We noted the following weaknesses:
- A lack of monitoring/review to ensure loan proceeds were used in accordance with State
statutes.
- There is no right to audit clause in the language of the promissory notes.
School districts were not required to submit copies of Board resolutions/minutes
approving district application for loans.
Written agreements with the Districts did not include a provision holding them
accountable for compliance with the terms of the loan and use of its proceeds.
The use of these loan proceeds are specifically restricted by statute for certain
purposes. Good business practices requires the Agency monitor its programs to ensure
operations are conducted in an economical, efficient and effective manner and
adhere to all statutory requirements. (Finding 7, pages 26-27)
We recommended the Agency develop and implement a monitoring and/or review process to
provide for fiscal accountability and consider amending the rules governing the
application process to include submission of a copy of the Board’s resolution
approving the loan application. We also recommended the Agency consider the merit
of including "right to audit" language in the promissory notes and include
notices of loan programs in the Superintendent’s Bulletin or similar vehicle.
Agency officials agreed with our recommendation.
INADEQUATE CONTROLS OVER LOCAL AREA NETWORKS (LANS)
The Agency did not establish adequate security controls over its local area
networks (LANs). The Agency had approximately $22 million invested in computer hardware
and processed critical applications on their LANs, including the Management Information
Database Accounting System, the Financial Reimbursement Information System, and the Human
Resources Management System.
We noted a significant number of users were not required to change their passwords and
there was no minimum number of days set for a user to change their password.
Good internal controls require reasonable, cost effective procedures be implemented to
ensure the integrity and security of information maintained on the Agency’s LANs.
(Finding 10, page 30)
We recommended the Agency incorporate LAN security guidelines into its LAN security
policies and procedures. In addition, we recommended changes in its LAN security practices
to include requiring users to change their passwords at least every 35 days and setting
the minimum password aging length greater than 35 days.
Agency officials agreed with our recommendation and agreed to improve LAN security.
OTHER FINDINGS
The remaining findings and recommendations are less significant and are being given
attention by the Agency. We will review progress towards the implementation of our
recommendations during the Board’s next compliance audit.
The responses to our findings and recommendations were provided by Tammy J. Rust, Chief
Internal Auditor.
AUDITORS’ OPINION
Our auditors state the financial statements of the Board as of June 30, 2000,
and for the year then ended, are fairly presented in all material respects.
_____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:JSC:pp
SPECIAL ASSISTANT AUDITORS
Pandolfi, Topolski, Weiss & Co., LTD. were our special assistant auditors for this
audit.
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