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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 information such as accounts and loans receivable and grant program
details between the financial reporting division and other divisions.
Throughout the audit process, we noted several
instances where the Agency’s organizational structure directly impacted its
ability to communicate and process essential information. For example, we noted:
·
Divisions within the Agency did not communicate with
one another regarding litigation, legislation, receipts, accounts receivable,
payroll and federal and state programs.
·
Management did not ensure the Agency’s various
computer systems and the divisions responsible for maintaining those systems
were providing the financial reporting division with accurate and timely
information.
·
Management did not centrally assign the
responsibility for monitoring new mandates or track changes in individual
responsibilities and the location of records during staff reductions,
staffing changes and physical moves.
·
Management did not ensure all supervisors were
effectively overseeing Agency activities and that the supervision was taking
place on a timely basis. (Finding 1,
pages 16-18) This finding was
first reported in 2002.
We recommended the Agency establish policies and
procedures to ensure 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.
Agency officials agreed with our recommendation and
stated the new Agency administration will review policies and procedures in
an effort to ensure that more effective communication exists among divisions
to provide management with the necessary information. (For the previous agency response, see
Digest Footnote #1.)
NEED TO IMPROVE CONTROLS OVER ACCOUNTS RECEIVABLE
REPORTING AND RECORDKEEPING
The Agency did not have 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 Office of the State Comptroller for
several funds. At June 30, 2004,
accounts receivable for these funds totaled $17.2 million on the Agency’s
financial statements. During our
testing we noted the following:
·
All receivables information was inaccurately reported
on the June 30, 2004 Accounts Receivable Activity Report (C-97) and the Aging
of Total Gross Receivables Report (C-98) for the School Technology Revolving
Loan Program Fund (Fund 569). In
addition, detailed supporting documentation was not provided to facilitate
compliance testing of the C-97 and C-98 for the 569 Fund and no
reconciliations were performed between the Fund 569 loan system and the MIDAS
system.
·
A new loan system was implemented during the fiscal
year to maintain Fund 569 loans but the new system did not provide all
essential loan information, did not agree to the old system and was not
updated to include the loan payment/amortization schedules for loans made
prior to the implementation of the system.
In addition, the Agency failed to ensure adequate training for
operation of the new Fund 569 loan system.
·
The interest and principal in the new loan system was
inconsistent with amounts reported in the system used for active loans made
prior to the implementation of the new system for Fund 569 loans. In addition, the amortization schedule in
1 of 25 loans tested in Fund 569 was revised due to a lump sum payment,
leading to a violation of the loan agreement and the Agency did not attempt
to collect a payment, nor assess late fees, on 1 of 25 loans tested in Fund
569. The Agency also incorrectly
reported short-term and long-term receivables in Fund 569 on the June 30,
2004 Report C-97.
·
The Agency administered the Illinois Virtual High
School Program in the School Technology Revolving Fund (Fund 544) prior to
fiscal year 2004, but failed to prepare quarterly accounts receivable reports
or include the receivables in financial reporting and failed to maintain
documentation to support the beginning balance of accounts receivable for the
September 30, 2003 Report C-97.
·
The Agency did not report the correct number of
accounts for gross receivables on the C-97 Reports in Fund 567, incorrectly
reported short-term and long-term receivables in Fund 605, and understated
interest receivable in Fund 130.
·
A thorough supervisory review was not performed for
accounts receivable reporting. In
addition, no Agency-wide system of controls was established to ensure the
reporting of all receivables or to ensure the accuracy of the information
reported. (Finding 2, pages
19-22) This finding was first
reported in 2002.
We recommended the Agency establish and implement
formal policies and procedures to ensure accounts receivable are reported in
accordance with Statewide Accounting Management System’s procedures, proper
records are maintained and a supervisory review is performed of the C-97 and
C-98 Forms prior to submission to the Comptroller’s office. Further, the Agency should implement a system
encouraging collaboration between divisions to ensure the accurate reporting
of all receivables for compliance and financial reporting purposes.
Agency officials agreed to improve its internal procedures to
ensure that accounts receivable will be reported as required by the
SAMS. Agency officials also stated
the transition to a new accounts receivable system has begun and adjustments
to the reporting capabilities are being completed. (For the previous agency response, see Digest Footnote #2.)
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:
·
The Agency did not reconcile amounts in the Management
Information Database Accounting System (MIDAS) and the State Comptroller
reports to the proper fund balance at June 30, 2004. The fund balance reconciliations for Funds
016, 159, and 161 did not include cash in-transit totaling $10,198, $232, and
$2,602, respectively. The fund
balance reconciliation for Fund 569 did not include cash on-hand totaling
$1,187,714.
·
The Agency lacks formal policies and procedures to
provide guidance for proper reconciliations.
(Finding 3, page 23-24) This
finding was first reported in 2002.
We recommended the Agency ensure cash receipt and cash
balance reconciliations be performed in accordance with Statewide Accounting
Management Systems (SAMS) procedures and ensure a thorough and timely
supervisory review of the reconciliations is performed.
Agency personnel agreed with our recommendation and stated
they are continually improving the process of reconciling cash receipts as
required by SAMS. The Agency will
review SAMS procedures and Agency processes to ensure that cash receipts are
treated appropriately. (For the
previous agency response, see Digest Footnote #3.)
NEED TO IMPROVE CONTROLS OVER THE FINANCIAL
REPORTING PROCESS
The Agency did not maintain adequate controls over the
financial reporting process and did not devote the proper time and resources
to this function. We noted financial
statements, related footnotes, and financial related schedules were not
prepared timely. We also noted
several errors in Agency prepared accounting reports transmitting financial
information to the Office of the State Comptroller in accordance with
generally accepted accounting principals (GAAP). As a result, many adjusting entries and revisions were
necessary. (Finding 4, pages
25-27) This finding was first
reported in 2002.
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.
Agency officials agreed with our recommendation and stated
they will continue to improve their controls for GAAP and financial reporting
processes. (For the previous
agency response, see Digest Footnote #4.)
NONCOMPLIANCE WITH MANDATED DUTIES SET FORTH IN STATE LAW
The Agency did not comply with duties mandated by State
statute. We noted the Agency did not:
·
initiate and maintain an annual Governor’s
Recognition Program;
·
develop a model curriculum;
·
make computer literacy and high-tech competency
grants available to qualifying school districts;
·
prepare or make available all provisions of family
life instruction courses and evaluation procedures;
·
establish a State-level Committee of Cooperative
Services;
·
prepare fiscal notes timely as requested by the
General Assembly;
·
review, approve and process Safety Survey Reports
timely;
·
issue a Certificate of Approval for the Expenditure
of Fire Prevention and Safety Funds timely;
·
adequately assess the performance progress for
Reading Improvement Block Grant Programs;
·
maintain documentation demonstrating teacher
coordinators of the Work Experience and Career Exploration Program possessed
the educational experience;
·
notify school districts of a link on the Agency’s
website to homework assistance websites;
·
compile data by school district on attacks on school
personnel; or,
·
maintain documentation that the behavioral
intervention guidelines were reviewed in the last three years. (Finding 6, pages 30-35) This finding was first reported in
2000.
We recommended the Agency comply with the mandated
duties.
Agency officials agreed with our recommendation and stated
they will implement changes accordingly.
(For the previous agency response, see Digest Footnote #5.)
NONCOMPLIANCE WITH REPORTING REQUIREMENTS SET
FORTH IN THE SCHOOL CODE
The Agency did not properly
report all information as required by the School Code to the Governor and the
General Assembly. We noted the
Agency’s report to the Governor in accordance with the Vocational Education
Act under the School Code did not include a statement of suggestions and
recommendations with reference to the development of vocational education in
the State and did not include a statement of recommendations on programs and
policies to overcome sex bias and stereotyping in vocational education
programming or an assessment of the State’s progress in achieving such
goals. We also noted the Agency did
not timely submit the Teacher Supply and Demand Annual Report to the
Governor, General Assembly and institutions of higher education as required by
the School Code. (Finding 7, pages
36-37) This finding was first
reported in 2003.
We recommended the Agency prepare and submit required reports
in accordance with provisions of the School Code.
Agency officials agreed with our recommendation. (For the previous agency response, see Digest
Footnote #6.)
LACK OF CONTROLS OVER CONTRACT REQUIREMENTS
The Agency did not maintain proper controls over contract
requirements. We noted 2 of 11 (18%)
professional and artistic contracts sampled were not reduced to writing
before services were performed and the Agency did not file a Professional and
Artistic Services Affidavit with the Office of the Comptroller and the Office
of the Auditor General. We also noted
one contract over $3 million did not include the Request for Sealed Proposal
Routing Record in the contract file and could not be located by the
Agency. In addition, we noted one
contract did not contain dated disclosures and one contract was not signed by
the Agency. (Finding 9, pages
40-41) This finding was first
reported in 2002.
We recommended the Agency strengthen its controls to ensure
compliance with all contracting rules, regulations, and statutory
requirements.
Agency officials stated they will continue to enforce its
controls to ensure compliance with all contracting rules, regulations and
statutory requirements. (For the
previous agency response, see Digest Footnote #7.)
INACCURATE AGENCY FEE IMPOSITION REPORTING
The Agency did not properly
report the fees collected on the 2004 Agency Fee Imposition Report Form
submitted to the Office of the State Comptroller. We noted the School Bus Driver Course Fees were not properly
classified. The Agency classified all
school bus driver fees as School Bus Driver refresher course fees and
recorded no fees for the School Bus Driver initial classroom course in school
bus driver safety. (Finding 10, page
42) This finding was first
reported in 2002.
We recommended the
Agency ensure Agency Fee Imposition information is accurately reported.
Agency officials stated they
will ensure the Agency Fee Imposition information is accurately
reported. They also stated the 2004
report was revised and submitted to the Comptroller. (For the previous agency response, see
Digest Footnote #8.)
INADEQUATE OVERSIGHT OF THE REGIONAL OFFICES OF
EDUCATION
The Agency did not provide adequate oversight of Regional
Offices of Education (ROEs) and Intermediate Service Centers (ISCs). We noted the Agency did not include
language identifying allowable and unallowable expenditures in some grant application
material. In addition, we could not
determine whether annual record reviews were performed as the reviews were
not dated and the Regional Improvement Plan activity statements were not
reviewed to ensure the individual responsible for conducting each activity
was identified. (Finding 11, pages
43-44) This finding was first
reported in 2002.
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 strengthen the Agency’s oversight of the
ROEs/ISCs.
Agency
officials stated they agreed with the recommendation and will develop
guidelines for allowable and unallowable costs and incorporate them into
future ROE grant application materials and will also disseminate additional
guidance during FY05. Agency
officials also stated they have improved the annual record review process to
include dates and an additional review step to ensure that individuals
responsible for Regional Improvement Plan Activities are identified. (For the previous agency response, see
Digest Footnote #9.)
FAILURE TO
ENSURE PREMIUM LIST CERTIFICATIONS
The Agency did not comply with the Agricultural Fair
Act. We noted all premium list
certifications and financial statements did not contain all required
information and were not signed and notarized by the fair supervisor. In addition, the Agency did not maintain
documentation that financial statements were forwarded to the Department of
Agriculture within 30 days after the close of the fair and a thorough
supervisory review to ensure compliance with the Act was not performed. (Finding 12, pages 45-46) This finding was first reported in
2002.
We recommended the Agency ensure its mandated duties are fulfilled
by establishing and implementing policies and procedures to ensure compliance
with all applicable requirements of the Agricultural Fair Act.
Agency officials agreed with our recommendation and stated
since the program has been jointly administered by the Department of
Agriculture, which carries out most of the program’s functions, both Agencies
agreed that it would be appropriate for the Department of Agriculture to have
sole responsibility for the program.
Agency officials also stated they will follow the progress of
legislation introduced to amend the statute and continue to work with the
Department of Agriculture to ensure that all issues are resolved. (For the previous agency response, see
Digest Footnote #10.)
FOLLOW-UP
TO FINANCIAL AND MANAGEMENT AUDIT OF THE TEACHERS ACADEMY FOR MATHEMATICS AND
SCIENCE
The Agency did not fully implement six of seven
recommendations noted in the financial and management audit of the Teachers
Academy for Mathematics and Science (Academy). However, it should be noted that the Academy did not receive
any funding from the Agency during FY04.
The Academy is provided Agency funds in the FY05 State budget and the
issues noted below will be followed up on during the next engagement of the
Agency. The following was noted:
·
The Agency did not develop a formal grant agreement
with the Academy that includes information on what are appropriate and
inappropriate uses of the funds, program specifications, budget guidelines
and terms for the grant.
·
The Agency did not provide the Academy with
documented outcome goals prior to the fiscal year in return for funding
levels received from the State and did not monitor the Academy’s performance
to ensure State resources are being used for the purposes intended.
·
The Agency did not establish a system to monitor the
performance of the Academy by developing and implementing procedures
governing the review of Academy prepared documents and did not verify the
information presented in the Academy’s evaluation reports and determine
whether the increases in test scores are commensurate for the funding level
received by the Academy.
·
The Agency did not develop administrative rules that
identify what are allowable and unallowable uses of State funds provided to
grantees, including the Academy, and did not follow up on questioned
expenditures to see if there is any need to recover State funds.
·
The Agency did not monitor the use of interest income
on State funds to ensure that these funds are used for the same purpose as
the principal of the grant and the Agency did not examine the Academy’s use
of interest revenue and recover any funds that were used for non-grant
purposes. In March 2004, the Agency
requested an Attorney General opinion on the uses for interest earned with
State funds.
·
The Agency did not develop criteria to be included in
formal grant agreements with the Academy that returns fixed assets purchased
with State funds by the Academy to the State in the event the Agency
discontinues funding of the Academy program.
The Agency is waiting for an Attorney General opinion, requested in
March 2004, on remedies for disposition of fixed assets purchased with State
funds. (Finding 15, pages 50-52)
We recommended that the Agency continue to fully
implement the remaining six audit recommendations contained in the April 2003
financial and management audit of the Teachers Academy for Mathematics and
Science that were either not implemented or were partially implemented.
Agency officials agreed with our recommendation and stated they
will continue to implement the recommendations as agreed to in the previous
Agency responses.
Deborah Scheiter, Principal 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, 2004, are fairly stated in all material respects.
_____________________________________
WILLIAM
G. HOLLAND, Auditor General
WGH:JSC:pp
SPECIAL ASSISTANT AUDITORS
Our special assistant auditors for this audit were PTW &
Co.
DIGEST FOOTNOTES
#1 –
IMPACT OF ORGANIZATIONAL STRUCTURE – Previous Agency Response
2003: The
Agency does not accept the conclusion that its organizational structure led
to the issues listed under this finding.
We note that the discussion of issues above does not identify any
specific aspect of ISBE’s organization that is considered to have contributed
to the concerns raised. Further, the
recommendation include no suggestions for changes in the organizational
structure that are considered desirable in order to resolve those concerns.
Additionally, the individual items have been
included under other findings in this report and the Agency has provided
responses in those findings. Most
issues cited were due to the fact that the Agency lost 20 percent of its
staff during fiscal year 2003 to Early Retirement, and we were fiscally
unable to replace them.
To conclude, the main factor that contributed to
the issues listed in this finding was the significant loss of personnel the
Agency experienced during fiscal year 2003.
Subsequently, staff performing new functions have received training so
that they are able to execute their responsibilities appropriately. The Agency is committed to continuing that
process.
Auditor’s Comments: This is a repeat finding.
In the prior audit, we noted similar problems with a failure to
communicate essential financial reporting information among divisions. In response to the prior audit, the Agency
stated that it had recently centralized and realigned its structure to
improve communications.
Nevertheless, we found similar problems in the
current audit. While these problems
may have been exacerbated by the 2003 early retirement initiative, it is
important to note that they existed prior to that time. We leave it up to the Agency to determine,
within its managerial discretion, what specific organizational structure
changes will be sufficient to ensure effective communication of essential
financial reporting information among its various divisions.
#2 – LACK
OF CONTROLS OVER ACCOUNTS RECEIVABLE REPORTING AND RECORDKEEPING – Previous
Agency Response
2003: The Agency agrees
to improve its internal procedures to ensure that accounts receivable will be
reported as required by the Statewide Accounting Management System
(SAMS). The finding associated with
Fund 569 is the result of staff turnover in one area and is being addressed
through the implementation of a consolidated accounts receivable reporting
process and better staff training.
#3 –
FAILURE TO RECONCILE CASH RECEIPTS AND CASH BALANCES – Previous Agency
Response
2003: The Agency agrees with the recommendation
and is continuously improving the process of reconciling cash receipts as
required by SAMS. As pointed out in
the first bullet of the finding, some of the difficulties are related to the
transition from the previous, outdated accounting system to the new one,
which affected the Agency’s ability to perform the required
reconciliations. This was complicated
by the fact that Agency lost a significant number of staff under Early
Retirement and did not have the resources to address these issues as quickly
as intended.
#4 –
INADEQUATE CONTROLS OVER GAAP AND FINANCIAL REPORTING PROCESS – Previous
Agency Response
2003: We believe that ISBE has adequate controls
over the GAAP and financial reporting process and will continue to make every
effort to provide timely and accurate financial reports. Delays in the process are primarily due to
issues outside the control of the Agency, and most of the adjusting entries
that had to be made were also caused by events outside our control.
·
The GAAP reports are due before all final
financial data are available.
Therefore, some of the financial information is based on estimates and
has to be adjusted later as the actual figures become available. Approximately half of the adjusting
journal entries noted by the auditors were the result of such unavoidable
adjustments.
·
Some of the remaining adjusting journal entries
noted by the auditors were the result of adjustments made by the Comptroller
to characterize activities consistently across the state, rather than to
correct errors made by the Agency.
Such adjustments and reclassification entries will always be necessary
to reflect statewide activities, but they are outside the control of the
Agency
·
All GAAP packages were submitted timely. We were unable to provide the revised data
by November 15 because we were not informed revisions were due until after
that date. We provided adjustments
within two days of notification they were due.
Auditor’s
Comments: We agree
that some of the problems noted in the GAAP and financial reporting process
were caused by factors outside of the Agency’s control. Other adjustments were due to errors in
the Agency’s original submissions.
For instance, several adjusting entries were made to reclassify
liability accounts that were not accurately reflected in the original
submission of GAAP packages. These
entries were within the Agency’s control and were not due to the lack of
availability of final financial data.
We agree, however, that some adjustments were due to factors outside of
the Agency’s control, such as adjustments necessitated by actions of the
State Comptroller’s Office.
#5 –
NONCOMPLIANCE WITH MANDATED DUTIES – Previous Agency Response
2003: The Agency now has a system in place to
recognize and reward schools whose students perform at high levels or
demonstrate outstanding improvements.
The Agency has ensured the required number of members serve on the
Advisory Council for Bilingual Education.
The Agency is also pursuing legislative changes to help resolve the
computer literacy and high tech grant issue as well as the Teaching
Certificate suspension appeal and hearing timeframes. Because of limited resources, the Agency
will prioritize the remaining mandates and implement them in the order of
their priority.
#6 –
NONCOMPLIANCE WITH REPORTING REQUIREMENTS – Previous Agency Response
2003: The Agency agrees with the recommendation
and has implemented the following reporting changes:
·
The previous format was modified to include the
additional recognition requirements, which have been included in the most
current 2003/2205 Condition of Education (2003 Annual Report and Proposed
Budget, FY05).
·
The required information mandated under the
Vocational Education Act included the most current 2003/2005 Condition of
Education (2003 Annual Report & Proposed Budget, FY05)
·
In prior years ISBE reported the required
information for each school district.
Information regarding recognized schools has been included in the most
recent Annual Statistical Report (2002).
·
The 2002-03 Latch Key Report has been transmitted
and documentation exists showing the transmission.
#7 – LACK
OF CONTROLS OVER CONTRACT REQUIREMENTS – Previous Agency Response
2003: This finding was caused by the improper
actions of one staff member who is no longer with the Agency. The Agency has reinforced with staff the
current contracting policy.
#8 –
INACCURATE AGENCY FEE IMPOSITION REPORT FORMS – Previous Agency Response
2003: The Agency will implement the necessary
processes to ensure that Agency Fee Imposition information is reviewed and
accurately reported.
#9 –
INADEQUATE OVERSIGHT OF THE REGIONAL OFFICES OF EDUCATION – Previous Agency
Response
2003: ROEs are elected officials. They have their own boards they have to
report to, not ISBE. ISBE has
specific statutory and regulatory responsibilities relative to the ROEs, and
this finding lists some of them. The
Agency agrees to implement the following:
·
The Agency is conducting the required biennial
site visits of the ROEs/ISCs and plans to complete the cycle in September
2004. Advisory Board meetings are
monitored in the course of the visits.
·
The Agency is in the process of implementing the
annual record reviews.
However, the Agency does
not have the authority or the requirement to fulfill the remaining
recommendations. Additionally, the
Agency has limited resources due to Early Retirement and we will not be able
to implement them.
·
The Superintendent holds regular meetings with the
ROEs to exchange their views on various issues. No formal documentation of the meetings is required.
·
All grant agreements with the ROEs are subject to
the same expenditure requirements as those with school districts and other
recipients. These requirements are
either directly stated in the agreements or addressed in standard written
guidance. No additional guidance is
required or necessary.
·
ISBE developed the ROE Accounting Manual, in which
expenditure codes are delineated.
There is no requirement in statute or rules that requires ISBE to
provide training on the use of these codes.
ISBE has neither the
responsibility nor the authority to monitor additional forms of compensation.
Auditor’s
Comments: The
Agency has the responsibility for effectively overseeing the State’s
elementary and secondary education system, as well as ensuring the proper use
of the Agency’s funds. As such,
allowable and unallowable uses of grant funds need to be clearly
defined. The 2001 management audit of
the Agency’s funding of Regional Offices of Education concluded that grant
agreements contained few guidelines, which resulted in questionable uses of
Agency funds. Similarly, the Auditor
General’s April 2003 audit of the Teachers Academy for Mathematics and
Science identified a lack of such guidelines and recommended that an administrative
rule be developed defining allowable and unallowable uses of State funds to
grantees.
Good business practices
suggest that minutes or other documentation of the coordinating council
meetings be maintained to ensure proper monitoring and accountability, as
well as ensuring that issues raised are followed-up on and addressed. In its responses to the same finding in
the office of the Auditor General’s 2002 compliance audit, the Agency
attributed the lack of coordinating council documentation to an
oversight. Regarding the training of
ROEs on expenditure codes, in its response to the 2001 management audit, the
Agency stated it would “partner with the ROEs and provide technical
assistance to address their internal training needs.”
#10 –
FAILURE TO ENSURE PREMIUM LIST CERTIFICATIONS – Previous Agency Response
2003: This program is administered jointly with
the Department of Agriculture, which carries out most of the program’s
functions. Both Agencies agree that
it would be appropriate for the Department of Agriculture to have sole
responsibility for the program, and legislation to effect that change has
been drafted and will be introduced.
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