REPORT DIGEST

INTERMEDIATE SERVICE CENTER #2: WEST COOK

FINANCIAL AUDIT (IN ACCORDANCE WITH THE
UNIFORM GUIDANCE)
FOR THE YEAR ENDED JUNE 30, 2016

Release Date:  September 30, 2020

FINDINGS THIS AUDIT:  6

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 2 -- 2
Category 2:  1 -- 2 -- 3
Category 3:  0 -- 1 -- 1
TOTAL:  1 -- 5 -- 6

FINDINGS LAST AUDIT: 5

Category 1: Findings that are material
weaknesses in internal control and/or a
qualification on compliance with State
laws and regulations (material
noncompliance).
Category 2: Findings that are significant
deficiencies in internal control and
noncompliance with State laws and
regulations.
Category 3: Findings that have no
internal control issues but are in
noncompliance with State laws and
regulations.

State of Illinois, Office of the Auditor
General
FRANK J. MAUTINO, AUDITOR GENERAL

To obtain a copy of the Report contact:
Office of the Auditor General, Iles Park
Plaza, 740 E. Ash Street, Springfield, IL
62703
(217) 782-6046 or TTY (888) 261-2887

This Report Digest and Full Report are
also available on the worldwide web at
www.auditor.illinois.gov

SYNOPSIS

 • (16-1) The Intermediate Service Center
 #2 did not have adequate internal
 control procedures.

 • (16-2) The Intermediate Service Center
 #2 did not have adequate controls over
 the use of designated grant balances.

 • (16-3) The Intermediate Service Center
 #2 did not have adequate controls over
 Procurement card transactions.

 • (16-4) The Intermediate Service Center
 #2 did not provide completed financial
 statements in an auditable form by the
 August 31 deadline.

• (16-5) The Intermediate Service Center
#2’s salaries and benefits were not
supported by proper time and effort
documentation.

•  (16-6) The Intermediate Service Center
#2 did not comply with federal grant
requirements.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

INADEQUATE INTERNAL CONTROL PROCEDURES

The Intermediate Service Center #2 (ISC)
did not have adequate internal control
procedures. Auditors noted the following:

• The ISC had control procedures over its
various accounting functions in place;
however, they were not formally
documented.
• Pay rate approvals could not be
provided for 2 of the 5 (40%) payroll
contracts tested for current year major
programs.
• The ISC did not record many of the
grant expenditure transactions directly
to the grant funds in the general ledger
upon initial posting. The ISC would
subsequently make adjusting entries to
move the expenses to the proper grant
fund.

Intermediate Service Center #2 should
ensure control procedures over its
accounting functions are formally
documented.  Additionally, pay rate
approvals should be provided in writing
by a member of management independent of
the payroll process prior to each pay
period in order to prevent errors and/or
fraud.

ISC officials indicated the ISC did not
document its control procedures in
writing. They also did not adhere to
established internal control procedures
to ensure pay rates were approved prior
to running payroll. Additionally, the ISC
posted unnecessary adjusting journal
entries to the general ledger making
audit procedures more difficult as
entries must be traced back through the
general ledger to locate the initial
transactions and supporting
documentation. Excessive and unnecessary
entries to the system increase the
opportunity for fraud, can compromise the
integrity and validity of financial
results, increase the risk of error, and
impact process efficiency. (Finding
16-001, pages 14-15) This finding was
first reported in 2012.

The auditors recommended the ISC should
ensure control procedures for its
accounting functions are documented in
writing. It also should comply with its
established system of internal controls
to ensure pay rates are properly approved
before payroll is run and posted to the
general ledger. Additionally, the ISC
should post transactions directly to the
grants at the initial recording of the
transaction based on the grant manager’s
knowledge of allowable grant costs,
allowable grant activities, and approved
grant budgets. Grant managers should
properly determine at the time of
purchase the proper grant funding source
for each expenditure.

ISC Response: West 40 Intermediate
Service Center has documented, in written
form, internal control procedures.
Although the Executive Director approved
all the pay rates, West 40 did not have
written documentation of such approval
for 2 of the pay rates tested. All pay
rates are now approved by the Executive
Director/Designee (Assistant Executive
Director) prior to processing through
payroll. Each payroll is reviewed and
approved by the Executive Director and/or
the Assistant Executive Director prior to
being processed and posted to the general
ledger.

Over the past two years, we have trained
more staff on proper and timely coding of
transactions and tracking of budget
balances. We believe that with this
continued training, we will decrease the
need for similar journal entries in the
future. The number of journal entries in
FY20 is 25.88% lower than it was in FY17.
Our goal is to continue to decrease the
amount of entries this current fiscal
year.

USE OF DESIGNATED GRANT BALANCES

Cash that was granted to the Intermediate
Service Center #2   (ISC), and designated
for specific grant purposes, was used to
cover deficit cash balances in programs
other than those for which the cash was
granted. The ISC pools program and local
revenue into the same bank account.

The ISC runs several grant funded
programs. Programs funded by State and
federal grants must be tracked and
maintained separately.

ISC officials indicated that because the
ISC is primarily funded on a
reimbursement basis, money must be spent
before it is received from the State.
This caused programs which the ISC was
already in the midst of operating to have
severe cash deficits. The ISC officials
indicated that to continue operating as
the grant agreement stipulates, cash had
to be used from other sources in order to
temporarily fund expenditures that were
to be reimbursed by the State. (Finding
16-002, page 16)

The auditors recommended the ISC should
not use cash designated for specific
grant purposes to cover deficit cash
balances in programs other than those for
which the cash was granted.

ISC Response: The ISC is primarily funded
on a reimbursement basis for most of its
programs. This along with the persistent
delay in funding from the State of
Illinois has caused the ISC to experience
low cash flow issues. The source of funds
used to address cash flow issues was
primarily local funds, to the extent they
were available.


INADEQUTE CONTROLS OVER PROCUREMENT CARD
TRANSACTIONS

Internal controls over disbursements are
not effectively designed and implemented.
During testing of Procurement card (P-
card) transactions, the auditors noted
the following:

• In 6 of 6 (100%) of transactions
tested, the Executive Director approved
his own purchases.
• Personal expenses were charged by the
Executive Director and an employee on the
ISC’s P-card. These expenses were paid
back in full by the Executive Director
and the employee with personal checks
written to the credit card company. The
ISC maintained copies of the personal
checks and the related charge receipts
with the credit card statements. Personal
expenses charged within the transactions
tested totaled $456.
• Equipment totaling $1,251 was purchased
for an individual student to assist with
completing assignments at home but no
policies or procedures are in place to
follow when this is considered.

Intermediate Service Center #2 (ISC) is
required to maintain a system of controls
over disbursements to prevent errors,
omissions, and fraud. Additionally,
expenses incurred should be for a
business purpose and represent economical
and effective use of the ISC’s resources.

ISC officials indicated internal controls
over the Executive Director’s P-card
transactions are not effectively designed
and/or implemented. The Executive
Director deemed the equipment purchased
for an individual student necessary.
(Finding 2016-003, pages 17 – 18) This
finding was first reported in 2014.

Auditors recommended the ISC implement
internal control procedures to ensure an
appropriate review and approval process
is in place.  All P-card transactions
should be reviewed by an employee other
than the person incurring the
expenditures and the ISC should adhere to
its policy prohibiting the use of ISC P-
cards for personal use. Additionally, the
ISC should develop policies and
procedures outlining criteria to
determine the necessity of equipment
needed for student use.

ISC Response: The ISC has instituted a
policy of the Executive Director
reviewing all P-card transactions, except
his/her own, which are subsequently
reviewed by the Assistant Director. P-
cards will only be used for staff travel/
expenses. Spouse travel/expenses will not
be allowed to be charged to any ISC P-
card, and this will be included in the
policy. While there has been no formal
technology policy related to technology
distribution/collection to/from students
in place in the past, we will develop
such polices during FY21.

DELAY OF AUDIT

The Intermediate Service Center #2 (ISC)
did not provide completed financial
statements in an auditable form by the
August 31, 2016 deadline.

The ISC is subject to 105 ILCS 5/2-3.17a
which requires the Auditor General’s
office to cause an audit to be made, as
of June 30th of each year, of the
financial statements of all accounts,
funds, and other moneys in the care,
custody, or control of the executive
director of each educational service
region in the State and of each
educational service center established in
the School Code. The audit is to be
conducted in accordance with Generally
Accepted Government Auditing Standards
(GAGAS).

In accordance with 105 ILCS 5/2-3.17a,
the Auditor General has promulgated
administrative rules and regulations to
govern this process. Those rules, 74 Ill.
Adm. Code 420.320 (c) (2), state that for
audit purposes, each regional office of
education and educational service center
shall make available to the Auditor
General or his designee all books and
records deemed necessary to make and
complete the required audits. The records
shall be in auditable form by August 15
of the succeeding fiscal year. Financial
reports are to be available no later than
August 31 in order for the annual audit
to be completed by an independent auditor
selected by the Auditor General. Annual
financial statements are to be prepared
on an accrual basis of accounting in
accordance with generally accepted
accounting principles (GAAP).

In addition, prudent business practices
and transparency require timely
preparation and completion of financial
statements.

ISC officials indicated they incurred key
employee turnover. (Finding 16-004, pages
19 – 20)

The auditors recommended the ISC should
implement procedures to ensure compliance
with 105 ILCS 5/2-3.17a and 74 Ill. Adm.
Code 420.320 (c) (2). Annual financial
statements should be compiled on an
accrual basis of accounting in accordance
with GAAP. These financial statements
need to be presented to the Auditor
General’s independent auditors for audit
by the August 31 deadline.

ISC Response: West 40 contracted with a
CPA firm to prepare complete, accurate,
and timely financial statements for the
ISC to prepare for the 2016 audit. The
West 40 Executive Director has hired the
CPA firm to prepare the statements for
2017-2019 and will secure the same firm
to prepare the documents for 2020 once
the fiscal year ends.

SALARIES AND BENEFITS NOT SUPPORTED BY
PROPER TIME AND EFFORT DOCUMENTATION

Employees who worked on the Title I –
School Improvement & Accountability grant
turned in time and effort reports, but
these time records did not always include
100% of the employees’ time. These
reports only included time spent on
federal grants, not 100% of the time paid
from multiple funding sources.

Employees of the Intermediate Service
Center #2 (ISC) are required to document
their time and effort working on federal
programs. Title 2 U.S. Code of Federal
Regulations Part 200, Uniform
Administrative Requirements, Cost
Principles, and Audit Requirements for
Federal Awards (Uniform Guidance)
requires charges for salaries and
benefits to be supported by a system of
internal control which provides
reasonable assurance that the charges are
accurate, allowable and properly
allocated. Documentation records should
reasonably reflect the total activity for
which the employee is compensated, not
exceeding 100% of compensated activities,
and should encompass both federally
assisted and non-federally assisted
activities. It further states that budget
estimates alone do not qualify as support
for salary and benefit charges to a
federal award. Significant changes in the
corresponding work activity should be
identified and entered into the
accounting records in a timely manner.
All necessary adjustments must be made
such that the final amount charged to the
federal award is accurate, allowable, and
properly allocated.

ISC officials indicated they were unaware
of the time and effort log requirements
for administrative personnel, including
tracking 100% of their time. (Finding
16-005, pages 21 – 22)

The auditors recommended the ISC should
implement a system of internal controls
over time and effort reporting. The ISC
should use time and effort documentation
to distribute salary and benefit costs
for employees who work in whole or in
part on grant program activity in
accordance with Uniform Guidance.

ISC Response: All staff who work in whole
or in part on grant-program-activity
complete time and effort logs which now
reflect all work, not just work that is
grant related.

NONCOMPLIANCE WITH GRANT REQUIREMENTS

The Intermediate Service Center #2 (ISC)
reported expenditures to the grant
outside the grant funding period and not
in accordance with 2 CFR Part 200.309.
Expenditures were also outside the ISC’s
appropriate fiscal year.

The ISC claimed expenditures in the
amount of $18,918 for the funding period
07/01/2015 – 08/31/2016. These
expenditures were allowable costs but
should have been claimed in the earlier
funding period 07/01/2014 – 08/31/2015.
In addition to the $18,918 charged to the
grant, $18,918 claimed expenditures for
the 6/30/2016 fiscal year were allowable
costs, but should have been claimed in
the prior fiscal year ended 6/30/2015.

According to 2 CFR Part 200.309, Uniform
Administrative Requirements for Grants
and Cooperative Agreements to State and
Local Governments, the ISC may only
charge costs to the grant resulting from
obligations of the funding period unless
carryover of unobligated balances is
permitted, in which case the carryover
balances may be charged for costs
resulting from obligations of the
subsequent funding period.

It is the ISC’s responsibility to obtain
proper supporting documentation for its
grant expenditures.

ISC officials indicated grant
expenditures were incorrectly reported
outside the proper grant funding period
and fiscal year due to late receipt of
invoice. (Finding 16-006, pages 24 – 25)
This finding was first reported in 2014.

The auditors recommended the ISC
implement procedures to track anticipated
grant expenditures in order to properly
record and pay them in the correct grant
funding period and fiscal year. This
includes obtaining billing invoices for
services received in a timely manner.

ISC Response: The Township Treasurer
provides financial services to West 40
and other districts in the region. The
Township Treasurer invoiced for the
services they provided on a pro-rated
basis. The invoices were for services
provided during the previous fiscal year
and were based on the actual Township
Treasurer’s operating expenditures for
that year. In order to report grant
expenditures for services provided during
the proper year, the ISC has asked for
the Township Treasurer to invoice West 40
in a more-timely manner which is now
occurring. This allows West 40 to
properly record and pay similar invoices
in the correct grant funding period.

AUDITORS’ OPINION

Our auditors state the Intermediate
Service Center #2’s financial statements
as of June 30, 2016 are fairly presented
in all material respects.

This financial audit was conducted by the
firm of Wipfli LLP.

JOE BUTCHER
Division Director

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

FJM:JMM