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Fragmented organizational structure not conducive to providing management with
necessary financial reporting information
Poor controls over financial reporting of Agency expenditures totaling $6.6 billion,
$1.3 billion of which were federal funds
Poor controls over food commodities totaling $2,534,000 at June 30, 2002 and $2,220,000
at June 30, 2001
Inadequate controls over supplies inventory totaling $383,444 as of June 30, 2002
Chief Internal Auditor did not report directly to Superintendent and was not free of
operational duties
Reconciliations not performed of cash receipts or cash balances
Insufficient controls over accounts receivable reporting and recordkeeping
Fees reported improperly on Agency Fee Imposition Reports
ROEs/ISCs not provided adequate oversight
Noncompliance with duties mandated by State statute
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FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
IMPACT OF ORGANIZATIONAL STRUCTURE
The Agency’s decentralized organizational structure led to the failure to
properly communicate essential financial reporting such as accounts receivable, inventory
valuations, and fluctuations in federal program expenditures between the financial
reporting division and other divisions.
During our testing, we noted several instances where the Agency’s organizational
structure directly impacted the Agency’s ability to communicate and process essential
information. We noted the following:
- One division did not report accounts receivable information to the State Comptroller or
to the financial reporting division.
- One division did not communicate changes in inventory valuations to the financial
reporting division.
- Divisions responsible for administering federal and State programs did not communicate
receipt and expenditures variances by program to the financial reporting division.
- Internal Audit division did not remain free from operational duties.
- Changes in individual responsibilities and the location of records were not tracked
during the March 2002 reorganization and subsequent staffing changes and physical moves.
- Management did not ensure supervisors were effectively supervising all Agency activities
in a timely manner.
Agency personnel stated the failure to effectively communicate all events and
transactions between divisions was the result of the Agency’s reorganization and down
sizing, which led to a change in the internal reporting structure, reassignment of staff
to functions for which they were not adequately trained, and inadequate management
oversight in some areas.
We recommended the Agency establish policies and procedures to ensure effective
communication between all divisions to provide management with the information necessary
to evaluate the financial reporting impact of all events and transactions affecting the
Agency. (Finding 1, pages 13-14)
Agency officials stated the Agency’s structure was recently centralized and
realigned to improve communication and that the Internal Audit is now free of any
operational functions.
INADEQUATE CONTROLS OVER GAAP AND FINANCIAL REPORTING PROCESS
The Agency did not maintain adequate controls over, nor did it devote the proper
time or resources to the financial reporting process. We noted the following:
- Generally Accepted Accounting Principles Financial Reports (GAAP forms) were not
prepared timely. Further, the State Comptroller’s Office worked with the Agency until
December 16, 2002, attempting to correct the many errors in the forms submitted.
- Financial statements and footnotes were not prepared timely. They were not received
until February 20, 2003, three months and five days subsequent to the November 15, 2002
submission deadline established by the State Comptroller’s Office.
- Financial related schedules were not prepared timely. Final schedules for the audit
report were not received until March 19, 2003.
- No audit trail was maintained to assist the auditors in substantiating dollar amounts
reported to the Office of the State Comptroller on certain GAAP forms. Agency personnel
recreated the audit trail, however, numerous errors were encountered when comparing the
new audit trail to the forms, schedules, and statements reviewed, necessitating extensive
revisions.
- No supervision of the GAAP and financial reporting process took place to ensure all
required forms were completed for each fund and that all forms were completed accurately
and timely.
We recommended the Agency establish and maintain effective controls over the GAAP and
financial reporting process to ensure the timely and accurate submission of financial
data. (Finding 2, pages 15-16)
Agency officials stated they would make appropriate staff changes and implement
additional supervisory reviews so that timely and accurate financial data can be
generated.
INADEQUATE CONTROLS OVER FOOD COMMODITIES INVENTORY
The Agency did not have adequate controls over its food commodities inventory,
totaling $2,534,000 at June 30, 2002 and $2,220,000 at June 30, 2001. We noted the
following:
- The Agency did not adequately monitor receipts, distributions, and the physical count of
the food commodities inventory held by an independent warehouse and distribution center.
- The Agency was unable to determine fiscal year 2002 and 2001 receipts and disbursements
of product passed-through of $32 and $26 million until five months and four months after
the fiscal year end, respectively.
- The Agency did not calculate the fiscal year 2002 and 2001 account receivable assessment
of $81,000 and $22,000, until 5 months and 4 months after the fiscal year end,
respectively.
- 11 of 60 (18%) food commodities selected for physical test counts did not agree to
warehouse inventory records resulting in a net overstatement of approximately $4,000.
- The Agency did not maintain inventory records throughout the fiscal year leading to a
net overstatement of $77,435 of food commodities at June 30, 2002.
- The Agency’s detailed distribution lists did not agree to the Agency’s summary
report of distributions from the same computer system for 13 of 25 food commodities
selected for testing. Further, the Agency’s summary report did not agree to the
warehouse distribution records.
- 2 of 25 (8%) food commodities unit costs did not match the USDA's Commodity Values
report, resulting in an overstatement of $54.
- Ending inventory values at June 30, 2002 and 2001 were recorded incorrectly in the
Agency’s financial statements.
- A thorough supervisory review of all processes was not performed.
Agency personnel stated the above noted problems were due to oversight,
underutilization of the computer system’s capabilities, and failure to perform
monthly reconciliations.
We recommended the Agency implement strong internal controls over food commodities
inventory to ensure compliance with all USDA Food Distribution Regulations and the Fiscal
Control and Internal Auditing Act. (Finding 3, pages 17-19)
Agency officials stated they would make appropriate staff changes to comply with USDA
Food Distribution regulations.
INADEQUATE CONTROLS OVER SUPPLIES INVENTORY
The Agency did not have adequate controls over its supplies inventory. We noted the
following during our testing of supplies inventory:
- Unit price did not agree to Agency records for 12 of 30 items selected for testing
resulting in supplies being overstated by $5,558.
- Descriptions of 3 of 30 test count items were not consistent with prior year inventory
report or vendor invoices.
- No computer system controls were in place to restrict access to the reporting system and
no documentation was maintained providing evidence of a supervisory review of changes
made.
- Outdated and obsolete items were noted. We noted no change or only a slight reduction in
inventory counts for several items. This finding has been repeated since 1999.
We recommended the Agency strengthen its internal and accounting controls over its
supplies inventory. We also recommended the Agency ensure accurate inventory records are
maintained, supervisory approval is required before adjustments are made and outdated
supplies are disposed of timely and in an appropriate manner. (Finding 4, pages 20-21)
Agency officials stated they would make appropriate system changes and implement
additional supervisory review. (For the previous Agency responses, see Digest footnote
#1.)
FAILURE TO COMPLY WITH FISCAL CONTROL AND INTERNAL AUDITING ACT
The Agency did not comply with provisions of the Fiscal Control and Internal
Auditing Act. We noted the following:
- The chief internal auditor did not report directly to, or have direct communication
with, the Superintendent.
- The chief internal auditor and internal audit staff were not free of operational duties.
- The two-year audit plan was not approved by the Superintendent before the beginning of
the fiscal year.
We recommended the Agency ensure compliance with all provisions of the FCIAA. (Finding
5, pages 22-23)
Agency officials stated the Chief Internal Auditor began reporting directly to the
Superintendent on October 9, 2003. Agency officials further stated the Agency will ensure
that the annual audit plan will be approved by the Superintendent before the start of each
fiscal year.
FAILURE TO RECONCILE CASH RECEIPTS AND CASH BALANCES
The Agency did not properly perform reconciliations of cash receipts or cash
balances. During our testing of reconciliations, we noted the following:
- No procedures were in place to ensure cash receipts were properly reconciled between
Agency and State Comptroller records.
- No reconciliations of the cash balance between Agency records and the State
Comptroller’s Monthly Cash Report were performed for the period February 2002 through
June 2002 for the S.B.E. Federal Department of Education Fund (Fund 561). The fund’s
cash balance at June 30, 2002 was $545,000.
- No reconciliation of the cash balance between Agency records and the State
Comptroller’s Monthly Cash Report was performed in June 2001 for the State Board of
Education Fund (Fund 579). The fund’s cash balance at June 30, 2002 was $33,000.
- A thorough supervisory review of reconciliations was not being performed.
Agency personnel stated the items noted were due to oversight, clerical error and the
implementation of a new computer system.
We recommended the Agency ensure cash receipt and cash balance reconciliations be
performed in accordance with Statewide Accounting Management Systems procedures and a
thorough supervisory review of the reconciliations be performed. (Finding 6, pages 24-25)
Agency personnel stated they would comply with SAMS procedures for cash receipt and
cash balance reconciliations and implement additional supervisory review.
LACK OF CONTROLS OVER ACCOUNTS RECEIVABLE REPORTING AND RECORDKEEPING
The Agency did not maintain sufficient controls over its accounts receivable
reporting and recordkeeping. During the audit period, the Agency was required to file
quarterly accounts receivable reports with the State Comptroller for Funds 410, 567, 569
and 605. During our testing, we noted the following:
- The division responsible for determining and maintaining the receivable in Fund 410
failed to prepare the Comptroller’s quarterly accounts receivable reports.
- The Agency did not file the quarterly accounts receivable summary reports for Fund 410
during the two-year audit period.
- A $25,000 account receivable collected on October 10, 2001 in Fund 567 was incorrectly
reported as collected on the September 30, 2001 accounts receivable summary report.
- A $33,000 account receivable collection in Fund 605 was reported as a collection after
180 days on the December 31, 2000 accounts receivable summary report.
- The September 30, 2000 and December 31, 2000 accounts receivables summary reports for
Fund 605 reported the total net receivable dollar amount as the number of accounts.
- The December 31, 2001 accounts receivable summary report of gross receivables for Fund
569 incorrectly reported 2.2% as the percentage of interest and penalties to gross
receivables.
- The June 30, 2001 accounts receivable summary report for Funds 567 and 605, as amended,
on October 1, 2001 were not signed by an Agency official.
- A thorough supervisory review was not performed for accounts receivable reporting.
Agency personnel stated the above exceptions were due to clerical errors and oversight.
We recommended the Agency establish and implement formal policies and procedures to
ensure accounts receivable are reported in accordance with Statewide Accounting Management
Systems procedures, proper records are maintained and a supervisory review is performed of
the accounts receivable summary report and accounts receivable summary report for gross
receivables forms prior to submission to the State’s Comptroller’s Office.
(Finding 7, pages 26-27)
Agency officials stated they would comply with SAMS procedures for accounts receivable
and implement additional supervisory review.
INACCURATE AGENCY FEE IMPOSITION REPORT FORMS
The Agency did not properly report the fees collected on the 2001 or 2002 Agency
Fee Imposition Report Form. During our testing of the two Agency Fee Imposition Report
Forms filed with the State Comptroller’s Office for the audit period, we noted the
following:
- The number and amount of fees collected were aggregated by fund and were not broken down
into the number and amount of individual fees collected by program on the fiscal year 2001
report.
- Two fee amounts, totaling $157,997, were reported twice under different categories, on
the fiscal year 2002 report.
- The amount of $1,240,728 reported as the receipt deposit for Teacher Certificate Fees on
the fiscal year 2002 report did not trace to Agency records.
- A thorough supervisory review of the Agency Fee Imposition Report Forms was not
performed.
Agency personnel stated the errors were due to oversight and clerical errors. In
addition, a supervisory review was not deemed necessary.
We recommended the Agency ensure Agency Fee Imposition information is accurately
reported and that a supervisory review be performed prior to submission of the report to
the Comptroller’s Office. (Finding 8, pages 28-29)
Agency officials stated they would accurately report fee information and implement
additional supervisory review.
INADEQUATE OVERSIGHT OF THE REGIONAL OFFICES OF EDUCATION
As Special Assistant Auditors, follow-up procedures were performed on a management
audit conducted by the Office of the Auditor General of the Agency’s interaction with
and oversight of the Regional Offices of Education (ROEs) and Intermediate Service Centers
(ISCs). The audit was released in August 2001 and was conducted pursuant to Legislative
Audit Commission Resolution Number 118. The Agency did not provided adequate oversight of
ROEs and ISCs. During our audit, we noted the following:
- The Agency established a central contact for the ROEs/ISCs; however, the Agency did not
maintain documentation of meetings of the coordinating council.
- The Agency did not include language identifying allowable and unallowable expenditures
in some grant application material.
- The Agency did not provide training to the ROEs/ISCs in the use of expenditure codes.
- The Agency did not perform annual record reviews of the 48 ROEs/ISCs.
- The Agency did not maintain a list of the 10 smallest ROEs and the cooperative
agreements for each.
- The Agency did not monitor the meetings of the ROE/ISC advisory boards.
- The Agency did not monitor, set guidelines or introduce legislation on additional
compensation paid to ROE superintendents and assistant superintendents by sources other
than the State or county.
We recommended the Agency implement policies and procedures to ensure proper oversight
of the ROEs and ISCs. These policies and procedures should include controls designed to
improve ROE/ISC financial reporting guidelines, strengthen the Agency’s oversight of
the ROEs/ISCs and specify documentation to ensure compliance with mandated duties.
(Finding 11, pages 32-34)
Agency officials stated they will perform the annual records reviews, as well as
reviews of the cooperative agreements of the 10 smallest ROEs, and provide adequate
documentation of the bi-annual site visits. The Illinois State Board of Education does not
have direct oversight authority or responsibility for the ROEs/ISCs. However, the Agency
will implement appropriate policies in accordance with statutory requirements.
NONCOMPLIANCE WITH MANDATED DUTIES
The Agency did not comply with duties mandated by State statute. We noted the
following:
- The Agency did not implement and administer a missing child program.
- The Agency did not initiate and maintain an annual Governor’s Recognition Program.
- The Agency did not maintain documentation for fiscal year 2001 to verify standards were
established or supervised in the administration of special courses for those age 21 or
older and those less than age 21 and not attending public schools.
We recommended the Agency comply with the mandated duties. We further recommended the
Agency comply with the State Records Act by ensuring the preservation of Agency records.
(Finding 13, pages 37-38)
Agency officials stated they had gone through a risk assessment process to review what
it was required to do and the risk of not accomplishing it. The Agency has allocated
available staff and resources to the most critical functions, issues and programs which
benefit the entire elementary and secondary education system and the basic operations of
the Agency.
OTHER FINDINGS
The remaining findings are less significant and are reportedly being given
attention by the Agency. We will review progress towards the implementation of our
recommendations during the Agency’s next audit.
Karl Vogl, Chief Internal Auditor, provided the responses to our findings and
recommendations.
AUDITORS’ OPINION
Our special assistant auditors stated that the Agency’s financial
statements of the governmental activities, the major fund, and the aggregate remaining
fund information of the Agency, as of and for the year ended June 30, 2002, are fairly
stated in all in all material respects.
_____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:JSC:pp
SPECIAL ASSISTANT AUDITORS
Our special assistant auditors for this audit were FPT&W, Ltd.
DIGEST FOOTNOTES
#1 - INADEQUATE CONTROLS OVER SUPPLIES INVENTORY – Previous Agency Responses
2000: The Agency agrees to improve the system that records supplies. However,
all inventory items appear to be usable and therefore, will not be destroyed.
1999: The Agency agrees. Changes have already been implemented.
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