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, 2012

Release Date:   March 28, 2013

Summary of Findings:
Total this audit: 2
Total last audit:  2
Repeated from last audit: 1

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 #9 did not have
sufficient internal controls over the financial
reporting process.

• The Regional Office of Education #9 did not have
adequate documentation of payroll expenditures charged
to federal grants.

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).  ROE #9’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 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 its
accounting records on cash basis accounting during the
fiscal year and posts year-end accrual entries for
financial statement purposes.  While the Regional Office
maintains controls over the processing of most
accounting transactions and prepares the governmental
fund financial statements, there are 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.

During the review of the trial balance and financial
statements prepared by the Regional Office, the
following were noted:

• Numerous adjustments were required to present the
financial statements in accordance with GAAP.  Proposed
adjusting entries resulted in an increase in the
Regional Office’s government-wide net assets by
$178,366.

• The Regional Office was unable to properly prepare the
government-wide and fund financial statements and
Schedule of Expenditure of Federal Awards in accordance
with GAAP.

According to ROE #9’s management, they did not have
adequate funding to hire and/or train their accounting
personnel in order to comply with GASB requirements.
(Finding 12-1, pages 13-14)  This finding was first
reported in 2007.

The auditors recommended that, as part of internal
control over the preparation of financial statements,
the Regional Office of Education #9 should implement a
comprehensive preparation and/or review procedure 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 #9’s activities
and operations.

The Regional Office of Education #9 responded that it
strives to maintain a system of controls over the
preparation of financial statements in accordance with
generally accepted accounting principles (GAAP).  The
Regional Office noted that it prepared the individual
funds financial statements as well as the notes to the
financial statements for the first time in FY2011 and
prepared the required reconciliation of government-wide
and fund financial statements in FY2012.  ROE #9 stated
that it understands the nature of this finding and
realizes that this circumstance is not unusual in an
organization of this size.  The Regional Office
responded that it will continue to work to alleviate
this finding and to improve controls over financial
statement preparation.  (For previous Regional Office
response, see Digest Footnote #1.)

INADEQUATE DOCUMENTATION OF PAYROLL EXPENDITURES CHARGED
TO FEDERAL GRANTS

Office of Management and Budget (OMB) Circular A-87,
Cost Principles for State, Local and Indian Tribal
Governments, establishes principles and standards for
determining costs for federal awards carried out through
grants, cost reimbursement contracts, and other
agreements.  To be allowable under federal awards, costs
must meet certain general criteria.  Those criteria,
among other things, require the expenditures must be
allocable, reasonable, and supported by adequate
documentation.

Part 4 of the OMB Circular A-133 Compliance Supplement
for the Department of Education prescribes that employee
time and effort distribution records must be maintained
to document the portion of time and effort dedicated to
the single cost objective and each program or other cost
objective supported by non-consolidated Federal funds or
other revenue sources.  Time-and-effort requirements
vary under different circumstances.  Where employees
work on multiple activities or cost objectives, a
distribution of their salaries or wages will be
supported by personnel activity reports or equivalent
documentation which meets the standards unless another
substitute system has been approved by the cognizant
federal agency.

Auditors noted that during review of payroll
expenditures for 11 program employees, salaries and
benefits totaling $267,005 for 5 salaried employees
assigned on multiple programs were allocated and charged
to the programs based on budgets.  No time allocation
sheets or time and effort reports were prepared to
account for actual time charged by program.  Failure to
prepare time allocation sheets did not provide a
sufficient basis for the allocation of actual payroll
charges incurred by program, which may result in a
program being over or under charged for salary and
benefits.

According to the Regional Office of Education #9
management, they did not have established policies and
procedures regarding salaries and benefits that
incorporate the requirements of Allowable Costs/Cost
Principles of the Circular A-133 Compliance Supplement
and the Cost Principles of OMB Circular A-87 for
Compensation for Personnel Services.  In addition, the
Regional Office staff did not anticipate significant
differences between the budgeted and actual time spent
by program. (Finding 12-2, pages 15-17)

The auditors recommended that the Regional Office of
Education #9 should develop and implement adequate
policies and procedures to ensure compliance with the
Allowable Costs/Cost Principles of the OMB Circular
A-133 Compliance Supplement and Cost Principles of OMB
Circular A-87 for Compensation for Personnel Services.
These policies and procedures should include requiring
staff involved in multiple programs to submit time
sheets by program or a time and effort report by
program.  The Regional Office should also establish a
payroll cost allocation procedure that allows for
computation and comparison of actual time charged with
budgeted or pre-determined allocation rates on a regular
basis.  Payroll charges by program should be based on
the time devoted and identified specifically to the
performance of those programs.

The Regional Office of Education #9 responded that it
will revise procedures to ensure that documentation of
payroll expenditures charged to federal grants meet the
standards in OMB Circular A-87 and OMB Circular A-133.

AUDITORS’ OPINION

Our auditors state the Regional Office of Education #9’s
financial statements as of June 30, 2012 are fairly
presented in all material respects.

WILLIAM G. HOLLAND
Auditor General

WGH:KJM

AUDITORS ASSIGNED:  E.C. Ortiz & Co., LLP, were our
special assistant auditors.

DIGEST FOOTNOTE

#1: Controls Over Financial Statement Preparation
—Previous Regional Office Response

In its prior response in 2011, the Regional Office of
Education #9 responded that it strives to maintain a
system of controls over the preparation of financial
statements in accordance with generally accepted
accounting principles (GAAP).  The Regional Office noted
that it understands the nature of this finding and
realizes that this circumstance is not unusual in an
organization of this size.  The ROE noted that it has
worked to alleviate this finding by consulting about
accounting practices and preparation of GAAP-based
financial statements with other ROE bookkeepers who have
not received the finding and making changes to its
procedures based on recommendations.  The ROE #9 also
noted that it prepared the individual funds financial
statements as well as the notes to the financial
statements for the first time in 2011.  The ROE #9 noted
that as part of on-going efforts, it will continue to
strive to improve controls over financial statement
preparation.  Beginning in FY 2012, it will attempt to
prepare the required reconciliation of government-wide
and fund financial statements.