REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #9

CHAMPAIGN AND FORD COUNTIES

FINANCIAL AUDIT

(In Accordance with the

Single Audit Act and

OMB Circular A-133)

For the Year Ended:

June 30, 2008

Summary of Findings:

Total this audit                      2

Total last audit                      4

Repeated from last audit       2

Release Date:

April 21, 2009

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 is also available on

the worldwide web at

http://www.auditor.illinois.gov

SYNOPSIS

·         The Regional Office of Education #9 did not have sufficient internal controls over the financial reporting process.

·         The Regional Office of Education #9 maintained an excess working cash reserve in its Internal Service Fund.

{Expenditures and Revenues are summarized on the reverse page.}

The Regional Office of Education #9 did not have sufficient internal controls over the financial reporting process.

The Regional Office of Education #9 maintained an excess working cash reserve in its Internal Service Fund.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

Controls Over Financial Statement Preparation

         The Regional Office of Education #9 is required to maintain a system of controls over the preparation of financial statements in accordance with generally accepted accounting principles (GAAP).  Regional Office 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 #9 did not have sufficient internal controls over the financial reporting process.  The Regional Office maintains their 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.

         According to Regional Office officials, they did not have adequate funding to hire and/or train their accounting personnel in order to comply with these requirements.  (Finding 08-1, 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 #9 should implement a comprehensive preparation and/or review procedure to ensure that the financial statements, including disclosures, are complete and accurate.  Such 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 #9 responded that because of this finding in FY2007, the Regional Office of Education #9 sought training for staff.  The two members of the bookkeeping staff attended training at Regional Office of Education #17 on July 14, 2008.  For the first time, ROE #9 bookkeepers prepared the adjusting entries and trial balances prior to the beginning of the FY2008 audit.

         The Regional Office of Education #9 noted that it accepts the degree of risk associated with the condition because 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 noted that it will continue to review, approve, and accept responsibility for the audit adjustments, financial statements and related notes provided by the auditors.

EXCESS WORKING CASH IN INTERNAL SERVICE FUND

         The Regional Office of Education #9 maintained an excess working cash reserve in its Internal Service Fund that would cover 88 days of average expenditures when a 60 day cash reserve is considered reasonable. 

         The Internal Service Fund is used to account for the administrative services of the Regional Office of Education #9 where these services are provided for all funds of the Regional Office.  Revenue is generated through charges to other funds using interfund billings.  Regulations set forth by OMB Circular A-87 require charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve.  In addition, the full recovery of costs is allowable.  A working capital reserve of up to 60 days cash expenses for normal operating purposes is considered reasonable.  A working capital reserve exceeding 60 days may be maintained in exceptional cases; however, it requires the approval of the cognizant federal agency.

         The auditors’ review of the Internal Service Fund identified that:

• Over the last two years, average expenses within the administrative Internal Service Fund were $128,870.  Cash on hand in the administrative Internal Service Fund at June 30, 2008 totaled $31,236, representing approximately 88 days of average expenses.  In comparison, at June 30, 2007, the Internal Service Fund’s working cash totaled $46,970 representing approximately 138 days of average expenses.  The working cash decrease was influenced by a prior year audit adjustment (approximately $13,000) and capital expenditures (approximately $10,000).

• The Internal Service Fund showed a profit of $12,427 for FY2008 due to billings in excess of actual costs.

         The Regional Office of Education #9’s indirect cost rate is too high.  The ROE had decreased the indirect cost rate to account for lower expenses, but the rate decrease was not sufficient. (Finding 08-2, pages 12c-12d)

         The auditors recommended that Regional Office of Education #9 should lower its indirect cost rate and that the ROE should reimburse $12,427 to the individual programs.

         The Regional Office of Education #9 responded that staff has reviewed the requirements of indirect cost allocations and has modified their method.  The Regional Office noted that it will refund the excess cost of the $12,427 to the individual programs.

AUDITORS’ OPINION

         Our auditors state the Regional Office of Education #9’s financial statements as of June 30, 2008 are fairly presented in all material respects.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KJM

SPECIAL ASSISTANT AUDITORS

         Our special assistant auditors were Kemper CPA Group, LLP.