REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #3: BOND,
CHRISTIAN, EFFINGHAM, FAYETTE, AND
MONTGOMERY COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED: JUNE 30, 2016

Release Date:  August 22, 2017

FINDINGS THIS AUDIT:  2

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

FINDINGS LAST AUDIT: 1

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 Regional Office of Education
#3 did not have sufficient internal
controls over the financial reporting
process.

• (16-2) The Regional Office of Education
#3 did not properly implement internal
controls over payroll and grant
compliance.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #3 (ROE)
is required to maintain a system of
controls over the preparation of financial
statements in accordance with generally
accepted accounting principles (GAAP).
The ROE's internal controls over GAAP
financial reporting should include
adequately trained personnel with the
knowledge, skills, and experience to
prepare GAAP based financial statements
and include all disclosures as required by
the Governmental Accounting Standards
Board (GASB).

The ROE did not have sufficient internal
controls over the financial reporting
process. The ROE maintains its accounting
records on the cash basis of accounting
during the fiscal year and posts year-end
accrual and other applicable entries for
financial statement purposes. While the
ROE maintains controls over the processing
of most accounting transactions, there
were not sufficient controls over the
preparation of GAAP based financial
statements for management or employees in
the normal course of performing their
assigned functions to prevent or detect
financial statement misstatements and
disclosure omissions in a timely manner.

The ROE did not have adequate controls
over the maintenance of complete records
of accounts receivable, accounts payable,
or unavailable revenue. While the ROE did
maintain records to indicate the balances
of accounts receivable, accounts payable,
and unavailable revenue, numerous material
adjustments were needed to make the
financial statements comply with generally
accepted accounting principles.

In addition, the ROE did not have adequate
controls to record and report the ROE’s
net accrued pension liabilities, deferred
outflows of resources, deferred inflows of
resources, and pension expenses in
accordance with GAAP. Proposed adjusting
entries by auditors were approved and
accepted by the ROE’s management.

According to the ROE’s management, they
did not have adequate funding to hire and/
or train their accounting personnel in
order to maintain a system of internal
control over the preparation of financial
statements in accordance with GAAP. The
complex requirements of GASB Statements
No. 68 and No. 71 require additional time
and training before the ROE can fully
implement the requirement on its own.
(Finding 2016-001, pages 10a-10b)

The auditors recommended that as part of
its internal control over the preparation
of financial statements, the ROE should
implement comprehensive preparation
procedures to ensure that the financial
statements are complete and accurate.
These procedures should be performed by a
properly trained individual possessing a
thorough understanding of the applicable
GAAP, GASB pronouncements, and knowledge
of the ROE’s activities and operations.

The ROE responded that it will continue to
evaluate the time/training required to
implement these standards and the funding
available to do so.

INTERNAL CONTROLS OVER PAYROLL AND GRANT
COMPLIANCE

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. It also requires that records
are used to support the distribution of
employees’ salary and benefits among
specific activities if the employee only
works part of the time on a federal award
program. It further states that budget
estimates alone do not qualify as support
for salary and benefit charges to a
federal award.

The Illinois State Board of Education
(ISBE) State and Federal Grant
Administration Policy, Fiscal Requirements
and Procedures, requires that auditable
“time and effort” documentation should be
written, after the fact (not estimated or
budgeted) documentation of how the time
was spent. Time and effort reports should
be prepared by any staff with salary
charged (1) directly to a federal award,
(2) directly to multiple federal awards,
or (3) directly to any combination of a
federal award or other federal, State, or
local funds. Additionally, all time and
effort sheets and other supporting
documentation must be retained at the
local level and be available for review or
audit any time within three years after
termination of the project or until the
local entity is notified in writing from
ISBE that the records are no longer needed
for review or audit.

The ROE was unable to produce time and
effort documentation used to distribute
the salary and benefit costs for an
employee who partly worked on Adult
Education and Family Literacy (Federal)
and partly on Truants Alternative/Optional
Education General State Aid and also for
an employee who partly worked on McKinney
Education for Homeless Children (Federal)
and partly on County and Early Childhood
Block Grants. These two employees
completed inadequate time sheets that were
based on a previous time and effort study
rather than using actual time and effort
documentation. Furthermore, there was no
review of the amounts charged to federal
awards based on budget estimates in order
to make necessary adjustments ensuring
that the final amounts charged to the
federal awards is accurate, allowable, and
properly allocated.

According to the ROE’s management, proper
time and effort documentation was not
maintained in order to provide amounts
charged to programs that were accurate,
allowable, and properly allocated.
(Finding 2016-002, pages 10c-10d)

The auditors recommended that the ROE
should develop and implement written
policies and procedures over payroll to
ensure that proper controls are in place
over the use and maintenance of adequate
time and effort documentation as required
by the Uniform Guidance and the ISBE State
and Federal Grant Administration Policy,
Fiscal Requirements and Procedures.

The ROE responded that current policies
and procedures provide for the best
service possible. In the future, the ROE
will work on completing time and effort
sheets that meet this compliance standard.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #3’s financial statements as of
June 30, 2016 are fairly presented in all
material respects.

This financial report was conducted by the
firm of Doehring, Winders & Co., LLP.

AMEEN DADA
Division Director

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

FRANK J. MAUTINO
Auditor General

FJM:KJM