REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #17: DEWITT,
LIVINGSTON, LOGAN AND MCLEAN COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2019

Release Date:  August 13, 2020

FINDINGS THIS AUDIT:  3

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

FINDINGS LAST AUDIT: 3

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

INTRODUCTION
SYNOPSIS

• (19-1) The Regional Office of Education
#17 did not provide financial statements
in an auditable form by the August 31
deadline.

• (19-2) The Regional Office of Education
#17 did not have adequate internal
control procedures.

• (19-3) The Regional Office of Education
#17 did not maintain adequate controls to
ensure external service providers’
internal controls were reviewed.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

DELAY OF AUDIT

The Regional Office of Education #17
(ROE) did not provide completed financial
statements in an auditable form by the
August 31st due date. Initial financial
statements were provided on October 28,
2019, but subsequent revisions were made,
and final statements were provided on
November 22, 2019.

The Regional Office 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 regional
superintendent of schools 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 Governmental 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.

ROE management indicated it experienced
key fiscal employee turnover during the
year and contracted with an accounting
firm later after the fiscal year ended to
meet the August 31st due date for
financial reports to be available to
auditors. (Finding 19-001, pages 11 – 12)

The auditors recommended the ROE 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.
ROE Response: The ROE recognizes the
importance of providing financial
statements in a timely manner to prevent
delays in the audit process. The ROE
indicated that it experienced key fiscal
employee turnover during the year and
contracted with an accounting firm after
the fiscal year ended to meet the August
31st due date for financial reports to be
available for the auditors.

Going forward, the ROE will ensure that
any future turnover will not impede the
ability to meet prescribed deadlines to
its fullest ability. The ROE’s plan
includes:

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

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Superintendent of Schools
did not have adequate internal control
procedures in place to for establishing
and maintaining an internal control
system over accounting transactions to
prevent errors and fraud.

In addition, the Regional Office of
Education (ROE) Accounting Manual
requires each ROE to maintain detailed
fixed asset records for both accounting
purposes as well as insurance purposes,
for fixed assets costing $500 or more.
Generally accepted accounting principles
(GAAP) require that an inventory of all
fixed assets and depreciation schedules
for assets meeting the capitalization
threshold for reporting be maintained.

The ROE Accounting Manual also states
that the fixed asset inventory records
should include: the inventory control
number (tag number); major asset class;
function and activity; reference to the
acquisition source document; acquisition
date; vendor; short description of the
asset; unit charged with custody;
location; fund and account from which
purchased; method of acquisition;
estimated useful life and method of
depreciation; estimated salvage value;
and date, method, and authorization of
disposition.

In addition, sound internal controls
require that policies and procedures on
fixed assets should cover acquisition and
tagging, recording and reporting,
depreciation (if applicable), transfers
and dispositions, and annual physical
inventory, and that they should be
formally documented and consistently
applied.

Auditors noted the following weaknesses
in the Regional Office of Education #17’s
(ROE) internal control system for which
there were no mitigating controls:

• Quarterly expenditure reports (8 of 20)
were not filed by the due date.
• The ROE did not include all capital
additions on the asset schedule. In
addition, the ROE did not consistently
tag all assets with asset tags to ensure
complete accounting and monitoring of
capital assets.
• The ROE did not perform proper cut-off
procedures for professional development
fees revenues. Auditors noted fees
collected in FY19 totaling $3,295 for
events occurring in FY20 but recognized
as revenues in FY19. Auditors also noted
fees collected in FY20 totaling $593 for
events that occurred in FY19 that were
not accrued at year end.

Regional Office management indicated it
experienced key fiscal employee turnover
during the year and competing priorities
resulted in internal control procedures
not being adhered to. (Finding 19-002,
pages 13 – 15)

The auditors recommended the Regional
Office should monitor reporting deadlines
and file the required expenditure reports
timely. In addition, the ROE should
assign responsibility to one individual
to ensure that the capital assets are
tagged, schedules are regularly
maintained, and current year activity is
periodically reconciled to the capital
asset listing. An inventory count should
be taken periodically and compared to the
items on the capital asset list, and
significant differences investigated. The
fixed asset listing should be completed
to include all the details required by
the ROE Accounting Manual.

The auditors also recommended the ROE
should implement cut-off procedures at
year-end for revenues and expenses. In
addition, year-end cut-off entries for
accruals and deferrals should be reviewed
to ensure they are complete and charged
to the correct fiscal year.

ROE Response: The Regional Office
understands the importance of meeting
reporting deadlines. The ROE will monitor
reporting deadlines and file the required
expenditures reports on or before the
date that they are due.

The ROE’s plan includes:

• Responsibility has been assigned to one
individual to ensure that the capital
assets are tagged, schedules are
regularly maintained, and current year
activity is periodically reconciled to
the capital asset listing.
• An inventory count will be taken
periodically and compared to the items on
the capital asset list, and significant
differences investigated. The fixed asset
listing should be completed to include
all the details required by the ROE
Accounting Manual.
• The ROE has implemented cut-off
procedures at year-end for revenues and
expenses. In addition, year-end cut-off
for accruals and deferrals will be
reviewed to ensure they are complete and
are charged to the correct fiscal year.

LACK OF ADEQUATE CONTROLS OVER THE REVIEW
OF INTERNAL CONTROLS OVER EXTERNAL
SERVICE PROVIDERS

The Regional Office of Education #17 did
not maintain adequate controls to ensure
external service providers’ internal
controls were reviewed.

The Regional Office of Education #17
(ROE) is responsible for the design,
implementation and maintenance of
internal controls, including the controls
that are outsourced to service providers,
related to information systems and
operations to ensure resources and data
are adequately protected from
unauthorized or accidental disclosure,
modifications, or destruction.

Generally accepted information technology
guidance endorses the review and
assessment of internal controls related
to information systems and operations to
assure the accurate processing and
security of information.

As part of the audit process, auditors
requested the ROE provide a population of
the service providers utilized. The ROE
was able to identify service providers
that provided various hosting and backup
services for the ROE.

During testing, the auditors noted the
ROE had not:

• Developed a formal process for
identifying service providers and
obtaining the Service Organization
Controls (SOC) reports from the service
providers on an annual basis.
• Documented its reviews of each of the
SOC reports.
• Monitored and documented the operation
of the Complementary User Entity Controls
(CUECs) relevant to the ROE’s operations.
• Obtained and reviewed SOC reports for
subservice organizations or performed
alternative procedures to determine the
impact on its internal control
environment.

Regional Office officials indicated they
understand the importance of a formal
process to monitor service providers;
however, the ROE has not completed a
policy to address the issues due to other
priorities. (Finding 19-003, pages 16 –
17)

The auditors recommended the ROE identify
all third-party service providers and
determine and document if a review of
controls is required. If required, the
ROE should:

• Obtain SOC reports (or perform
independent reviews) of internal controls
associated with outsourced systems at
least annually.
• Monitor and document the operation of
the CUECs relevant to the ROE’s
operations.
• Either obtain and review SOC reports
for subservice organizations or perform
alternative procedures to satisfy itself
that the existence of the subservice
organization would not impact its
internal control environment.
• Document its review of the SOC reports
and review all significant issues with
subservice organizations to ascertain if
a corrective action plan exists and when
it will be implemented, any impacts to
the ROE, and any compensating controls.
• Review contracts with service providers
to ensure applicable requirements over
the independent review of internal
controls are included.

ROE Response: The ROE understands the
need to obtain assurance from external
providers and their subservice
organizations that their internal
controls are adequate relative to SOCs
and CUECs. The ROE’s plan includes:

• Obtain SOC reports or perform
independent reviews of internal controls
associated with outsourced systems at
least annually.
• Monitor and document the operation of
the CUECs relevant to the ROE’s
operations.
• Either obtain and review SOC reports
for subservice organizations or perform
alternative procedures to satisfy itself
that the existence of the subservice
organization would not impact its
internal control environment.
• Document its review of the SOC reports
and review all significant issues with
subservice organizations to ascertain if
a corrective action plan exists and when
it will be implemented, any impacts to
the ROE, and any compensating controls.
• Review contracts with service providers
to ensure applicable requirements over
the independent review of internal
controls are included.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #17’s financial statements as
of June 30, 2019 are fairly presented in
all material respects.

This financial audit was conducted by the
firm of Adelfia LLC.

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:BAO