REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #4: BOONE AND WINNEBAGO
COUNTIES

FINANCIAL AUDIT (In accordance with the Single Audit Act
and OMB Circular A-133)
For the Year Ended: June 30, 2011



Release Date:  May 31, 2012


Summary of Findings:
Total this audit: 3
Total last audit:  3
Repeated from last audit: 3

State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, 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

• The Regional Office of Education #4 did not have
sufficient internal controls over the financial
reporting process.

• The Regional Office of Education #4 did not properly
recognize and disclose expenses and liabilities related
to postemployment benefits other than pensions as
required by Governmental Accounting Standards Board
Statement No. 45.

• The Regional Office of Education #4 maintains its cash
in common bank accounts and does not segregate
individual fund and grant program cash and fund balances
in its accounting system.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #4 is required to
maintain a system of controls over the preparation of
financial statements in accordance with generally
accepted accounting principles (GAAP).  The Regional
Office’s internal controls over GAAP financial reporting
should include adequately trained personnel with the
knowledge and expertise to prepare and/or thoroughly
review GAAP based financial statements to ensure that
they are free of material misstatements and include all
disclosures as required by the Governmental Accounting
Standards Board (GASB).

The Regional Office of Education #4 did not have
sufficient internal controls over the financial
reporting process.  The Regional Office maintains its
accounting records on the cash basis of accounting.
While the Regional Office maintains controls over the
processing of most accounting transactions, there are
not sufficient controls over the preparation of the 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.  For example, in their review of the Regional
Office’s accounting records, auditors noted the
following:

• The Regional Office’s financial information required
numerous adjusting entries to present financial
statements in accordance with generally accepted
accounting principles.

• The Regional Office did not have adequate controls
over the maintenance of complete records of accounts
receivable, accounts payable, or deferred revenues.
While the Regional Office did maintain records to
indicate the balances of accounts payable, accounts
receivable, and deferred revenues, no entries were
provided to reconcile the Regional Office’s grant
activity, such as posting grant receivables and deferred
revenues.

According to Regional Office officials, they did not
have adequate funding to hire and/or train accounting
personnel in order to comply with these requirements.
(Finding 11-01, pages 12a-12b)

The auditors recommended that, as part of its internal
control over the preparation of its financial
statements, including disclosures, the Regional Office
of Education #4 should implement a comprehensive
preparation and/or review procedure to ensure that the
financial statements, including disclosures, are
complete and accurate.  Such review procedures should be
performed by a properly trained individual(s) possessing
a thorough understanding of applicable generally
accepted accounting principles, GASB pronouncements, and
knowledge of the Regional Office of Education’s
activities and operations.

The Regional Office of Education #4 responded that it
accepts the degree of risk associated with this
condition.  The additional expense to seek outside
accounting expertise to prepare and/or review financial
statements would take away from the funds available to
provide educational services for the schools in the
region.  The Regional Office of Education #4 noted that
it will review, approve, and accept responsibility for
the audit adjustments, financial statements and related
notes provided by the auditors. The Regional Office of
Education #4 also noted that it will continue to work
with the other Regional Offices of Education to
determine the most effective method of ensuring that its
employees possess the knowledge required to prepare the
necessary GAAP-based financial statements.

DEPARTURE FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLE

The Regional Office of Education #4 did not properly
recognize and disclose expenses and liabilities related
to postemployment benefits other than pensions as
required by Governmental Accounting Standards Board
Statement No. 45.
The Illinois Administrative Code (74 Ill. Adm. Code
420.320 (c) (1) and (2)) requires that each Regional
Office of Education maintain the accounting records
necessary to prepare financial statements in accordance
with generally accepted accounting principles (GAAP).

Governmental Accounting Standards Board (GASB) Statement
No. 45, Accounting and Financial Reporting by Employers
for Postemployment Benefits Other Than Pensions (OPEB),
requires that employers recognize and disclose OPEB
expense.  Net OPEB obligations, if any, should be
reported as liabilities (or assets if overfunded) in the
financial statements.  For financial reporting purposes,
an actuarial valuation is required to measure and
disclose the annual OPEB cost.  In certain
circumstances, an alternative measurement method can be
applied instead of obtaining an actuarial valuation.

The Regional Office of Education #4 participates in a
defined benefit OPEB plan that provides postemployment
benefits other than pensions to its employees in
exchange for employee services rendered.  Under accrual
accounting, the cost of OPEB, and any related OPEB
liability, should generally be recorded in the period
when the exchange for employees’ services occurs, rather
than when the benefits are paid.  Currently, the
Regional Office OPEB plan is financed on a pay-as-you-go
basis, and as such, the financial statements do not
report the financial effects of OPEB until the promised
benefits are paid.  The Regional Office did not obtain
an actuarial valuation of its postemployment benefits
other than pension liability, or apply the alternative
measurement method in order to be in compliance with
GASB Statement No. 45.

In the absence of the actuarial valuation, or the
application of the alternative measurement method, the
auditors could not reasonably determine the amount by
which this departure would affect the liabilities, fund
balances, and expenditures of the Regional Office of
Education #4 as of June 30, 2011.  Failure to apply the
accounting and reporting requirements of GASB Statement
No. 45 could result in misstatements of the Regional
Office of Education #4’s financial statements.  This
could also result in inaccurate and incomplete
disclosure of the OPEB plan description, the funding
policy, and the annual OPEB and net OPEB obligation.

According to Regional Office management, noncompliance
with GASB Statement No. 45 was due to budget restraints
and the overall complexity of the pronouncement.
(Finding 11-02, pages 12c-12d)

The auditors recommended that the Regional Office of
Education #4 obtain or perform an actuarial valuation of
its other postemployment benefit liability to be in
compliance with GASB Statement No. 45 and include all
disclosures required by the Statement in its financial
statements.

The Boone-Winnebago Regional Office of Education #4
responded that to ascertain its obligation for
postemployment benefit liability in compliance with GASB
Statement No. 45, the Regional Office has contacted an
actuary to obtain an actuarial valuation.  The Regional
Office of Education #4 noted that it will include the
required disclosures in the fiscal year 2012 financial
statements.

SEGREGATION OF CASH AND FUND BALANCES

The Regional Office of Education #4 maintains its cash
in common bank accounts and does not segregate
individual fund and grant program cash and fund balances
in its accounting system.  Generally accepted accounting
principles, good fiscal management, and some grant
agreements require cash and fund balances to be
segregated and reported by fund and individual grant
program.

The Regional Office was unable to determine cash and
fund balances by fund and grant program.  According to
the Regional Office, personnel incorrectly believed they
had segregated or lacked the expertise to segregate cash
and fund balances by programs and funds in their current
accounting system. (Finding 11-03, page 12e)

Auditors recommended that the Regional Office of
Education #4 should begin tracking cash and fund
balances in its accounting system segregated by fund and
grant program.

The Boone-Winnebago Regional Office of Education #4
responded that it is currently working with three
entities to improve its reporting of cash and fund
balances according to acceptable accounting principles.
The Regional Office noted that these entities are: a
local CPA firm, its accounting program representative,
and a bookkeeper in another ROE using the same
accounting program.

AUDITORS’ OPINION

Our auditors state the Regional Office of Education #4’s
financial statements as of June 30, 2011 are fairly
stated in all material respects except for the effects
of not recognizing a liability for postemployment
benefits other than pensions in the Statement of Net
Assets and the Statement of Activities.  Disclosure of
that information is required to conform with accounting
principles generally accepted in the United States of
America. In addition, except for the effects of such
adjustments, if any, as might have been determined to be
necessary had records concerning the balance of cash and
fund balance in each major fund and the aggregate
remaining fund information been adequate, such
information is fairly stated in all material respects in
relation to the financial statements as a whole.

WILLIAM G. HOLLAND
Auditor General

WGH:KJM

AUDITORS ASSIGNED:  Kemper CPA Group LLP were our
special assistant auditors.