REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #19: DUPAGE
COUNTY

FINANCIAL AUDIT (In accordance with the Single
Audit Act and OMB Circular A-133)
For the Year Ended June 30, 2013

Release Date:  February 5, 2015

FINDINGS THIS AUDIT:  4

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 3 -- 3
Category 2:  0 -- 1 -- 1
Category 3:  0 -- 0 -- 0
TOTAL:  0 -- 4 -- 4

FINDINGS LAST AUDIT: 6

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
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

• (13-1) The Regional Office of Education #19
did not have sufficient internal controls over
the financial reporting process.

• (13-2) The Regional Office of Education #19
did not have adequate internal control
procedures.

• (13-3) The Regional Office of Education #19
had expenditure reports that did not agree to
general ledger.

• (13-4) The Regional Office of Education #19
did not have adequate documentation of payroll
expenditures.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #19 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, skill and experience 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 did not have sufficient
internal controls over the financial reporting
process.  The Regional Office maintains its
accounting records on the cash basis of
accounting during the fiscal year and posts
year end accrual entries for audit purposes.
The Regional Office did not have 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, review of the Regional Office’s
accounting records noted the Regional Office
did not maintain adequate internal controls
over the processing of all financial
transactions and adjustments were required to
present financial statements in accordance
with generally accepted accounting principles.
(Finding 2013-001, pages 16-17)  This finding
was first reported in 2011.

The auditors recommended that as part of its
internal control over the preparation of
financial statements, including disclosures,
the Regional Office 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 an individual(s) possessing a
thorough understanding of applicable generally
accepted accounting principles, GASB
pronouncements, and knowledge of the Regional
Office’s activities and operations.

The Regional Office of Education #19 responded
that it will continue its relationship with a
private Certified Public Accounting Company to
prepare (GAAP based) financial statements that
include all disclosures required by the
Governmental Accounting Standards Board.  The
Regional Office stated that its Project
Managers will play a key role because they
will be responsible, along with the Finance
Office, in the review of their respective
financial documents.  These reviews will be
completed at the end of each quarter.  In
addition, the Regional Office’s accounting
personnel will receive training in detecting
disclosure omissions and misstatements in a
timely manner with the final review completed
by the Business Manager.  (For previous
Regional Office response, see Digest Footnote
#1.)

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education #19 is
required to maintain a system of controls over
receipts, disbursements, and reporting to
prevent errors and fraud.  The Regional Office
has not established sufficient controls over
its accounting functions.  For example,
auditors, in their review of the Regional
Office’s accounting records, noted the
following:

• There is a lack of segregation of duties in
the cash disbursements and accounting process.
The fiscal staff has full, unrestricted access
to the accounting software and also can affix
the Regional Superintendent’s electronic
signature to checks.

• The Regional Office did not adhere to its
policy of requiring the Regional
Superintendent’s approval of purchases.  In 14
of 65 (22%) instances, purchase orders were
not completed or signed by the Regional
Superintendent.

• In 2 of 65 (3%) expenditures examined, the
Regional Office failed to provide adequate
supporting documentation.

• In 4 of 65 (6%) expenditures examined, the
Regional Office charged the expenditures to an
incorrect account.

According to Regional Office of Education #19
officials, Regional Office employees were not
aware, at that time, what duties should be
segregated to have a more effective process.
(Finding 2013-002, pages 18-19) This finding
was first reported in 2011.

The auditors recommended that the Regional
Office of Education #19 should adequately
segregate duties so that one individual is not
involved in all aspects of the disbursement
process.  Additionally, the Regional Office
should implement a system of internal controls
that ensures expenditures are properly
approved, supported and posted to the correct
account before disbursements are made and
posted to the accounting software.

The Regional Office of Education #19 responded
that it has completed a thorough review to
accomplish the maximum segregation of duties
possible with the two full time and two part
time members in the Finance Office.
Segregation of duties concerning cash receipts
and accounting process occurred immediately
after the FY11 audit became available to the
Regional Office.  Policy 4:50 concerning
Purchase Orders, Process Steps, and Payment
Procedures was written in June 2013 with
implementation beginning July 2013.  Beginning
later in the Fall of 2014, the support staff
of the financial systems for the general
ledger program will provide to the appropriate
financial personnel the training in the on-
line purchase order process so that purchase
order approvals and processing can be done
electronically.  In order to streamline the
procedure, the FileMaker process for Purchase
Orders will no longer be used effective
November 2014.  Once the system is implemented
and fully operational, an updated policy will
be written the Spring of 2015. (For previous
Regional Office response, see Digest Footnote
#2.)

EXPENDITURE REPORTS DO NOT AGREE TO GENERAL
LEDGER

Expenditure reports and reimbursement requests
for education programs submitted to the Will
County Regional Office of Education  #56 and
the Illinois State Board of Education (ISBE)
should agree with the expenditures reported on
the Regional Office of Education #19’s general
ledger.

A comparison of reimbursement requests
submitted to the Will County Regional Office
of Education #56 revealed instances where the
amounts requested for reimbursement did not
agree to the general ledger amounts.
Additionally, a comparison of expenditure
reports to the Regional Office of Education
#19’s general ledger revealed instances where
the totals on the final 2013 expenditure
reports submitted to the Illinois State Board
of Education did not agree with the Regional
Office’s general ledger.  Auditors noted the
following instances:

• In 2 of 6 (33%) monthly reimbursement
requests examined that were submitted to the
Will County Regional Office of Education #56
for Title I-Grants to Local Educational
Agencies, the requests did not agree to
general ledger detail in total and/or by
category.  The July 2012 reimbursement request
reported expenditures related to salaries of
$8,907 and employee benefits of $2,886 while
the general ledger reported salaries and
employee benefits expenditures of $7,735 and
$1,855, respectively, a total difference of
$2,203.  The March 2013 reimbursement request
reported expenditures related to employee
benefits of $1,147 while the general ledger
reported employee benefits expenditures of
$813, a difference of $334.  Total unsupported
costs were $2,537.

• The expenditure report submitted to ISBE for
the Early Childhood Block Grant program
(2013-3705-01) reported total expenditures
related to employee benefits of $24,173 while
the general ledger reported total employee
benefits expenditures of $22,555, a total
difference of $1,618.

• The expenditure report submitted to ISBE for
the ROE/ISC Operations program (2013-3730-00)
reported total expenditures related to
purchased services of $3,039 while the general
ledger reported total purchased services
expenditures of $2,776, a difference of $263.

According to Regional Office of Education #19
officials, the personnel responsible for
expenditure reports and reimbursement requests
prepared the reports based on numbers that
were not adjusted for year-end entries and
previous audit entries.  (Finding 2013-003,
pages 20-22) This finding was first reported
in 2011.

The auditors recommended that the Regional
Office of Education #19 personnel responsible
for preparing the expenditure reports and
reimbursement requests should ensure all
expenditure reports and reimbursement requests
are supported by the appropriate documentation
and by the adjusted general ledger maintained
in the Regional Office’s accounting software.

The Regional Office of Education #19 responded
that it will require quarterly reviews to be
completed by each of the Project Managers to
review and correct items charged to the grant
in error.  The Regional Office stated that any
necessary journal entries will be written
promptly and adequately explained and
identified to the proper year on the general
ledger report.  A reconciliation will be
prepared thoroughly documenting the
differences between the expenditure report and
the general ledger report, including all
accruals for the previous year and upcoming
year.  The ROE noted that it is currently
working to make the year-end entries and the
previous audit adjustments to the financial
and general ledger systems in a more timely
manner.  (For previous Regional Office
response, see Digest Footnote #3.)

INADEQUATE DOCUMENTATION OF PAYROLL
EXPENDITURES

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 with State and local governments
and federally recognized Indian tribal
governments.  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.

During review of 16 payroll transactions for
12 separate employees, auditors noted that 5
of 16 (31%) payroll transactions were not
adequately supported by personnel activity
reports or equivalent documentation.  Further,
the Regional Office did not have a system in
place to allocate the salaries of individuals
that assist in the administration of multiple
programs.

Failure to document authorized pay rates and
to prepare personnel activity reports did not
provide a sufficient basis for the allocation
of actual payroll charges incurred by the
program, which may result in a program being
over or under charged for salary and benefits.
Also, noncompliance with the Allowable
Costs/Cost Principles of OMB Circular A-87,
Cost Principles for State, Local and Indian
Tribal Governments may result in the federal
funds being expended for unallowable purposes.

The Regional Office of Education #19 did not
have established policies and procedures
regarding salaries and benefits that
incorporates the requirements of Allowable
Costs/Cost Principles of OMB Circular A-87,
Cost Principles for State, Local and Indian
Tribal Governments for compensation for
personnel services. (Finding 2013-004, pages
23-26) This finding was first reported in
2011.

The auditors recommended that the Regional
Office of Education #19 should develop and
implement adequate policies and procedures to
ensure compliance with the Allowable
Costs/Cost Principles of OMB Circular A-87,
Cost Principles for State, Local and Indian
Tribal Governments for compensation for
personnel services.  These policies and
procedures should include requiring staff
involved in multiple programs to submit and
sign personnel activity reports 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 #19 responded
that the Payroll Cost Allocation Policy 4:51
was written June 2013 and implemented after a
series of meetings for training purposes with
all employee groups and service providers
(consultants) in October 2013 with
implementation for the time sheets effective
November 2013.  The ROE noted that the
meetings were to insure compliance with all of
the requirements of the OMB Circular A-87.
Furthermore, time logs then also were required
to be provided on a monthly basis to indicate
the work done by each person, whether employee
or service provider.  The Regional Office
stated that in order to obtain consistency for
the time logs, the DuPage County Chief Auditor
was consulted in developing a work log
specifically for the Regional Office; in
addition, the Illinois State Board of
Education was also contacted for their Cost
Allocation process, with implementation July
2015. (For previous Regional Office response,
see Digest Footnote #4.)

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #19’s financial statements as of
June 30, 2013 are fairly presented in all
material respects.

WILLIAM G. HOLLAND
Auditor General

WGH:KJM

AUDITORS ASSIGNED:  Sikich LLP were our
special assistant auditors.


DIGEST FOOTNOTES

#1: Controls Over Financial Statement
Preparation - Previous Regional Office
Response
The Regional Office of Education #19 responded
that it will continue its relationship with a
private Certified Public Accounting Company to
prepare (GAAP based) financial statements that
will include all disclosures required by the
Governmental Accounting Standards Board.  The
Project Managers will play a key role because
they will be responsible along with the
Finance Office in the review of their
respective financial documents.  The ROE
stated that these reviews will be completed at
the end of each quarter.  In addition, the
Regional Office’s accounting personnel will
receive training in detecting disclosure
omissions and misstatements in a timely
manner.

#2:  Inadequate Internal Control Procedures-
Previous Regional Office Response
The Regional Office of Education #19 responded
that it has completed a thorough review to
accomplish the maximum segregation of duties
possible with the two full time and two part
time members in the Finance Office.  The
Regional Office stated that segregation of
duties concerning cash receipts and accounting
process occurred immediately after the FY11
audit became available to the Regional Office.
Policy 4:50 concerning Purchase Orders,
Process Steps, and Payment Procedures was
written in June 2013 with implementation
beginning July 2013.  The ROE noted that
beginning later in the Spring of 2014,
training will be provided in the on-line
purchase order process so that purchase order
approvals and processing can be done
electronically.  In order to streamline the
procedure, the FileMaker process for Purchase
Orders will no longer be used effective July
2014.  Once the system is implemented, an
updated policy will be written.

#3:  Expenditure Reports Do Not Agree to
General Ledger-Previous Regional Office
Response
The Regional Office of Education #19 responded
that it will require quarterly reviews to be
completed by each of the Project Managers to
review and correct items charged to the grant
in error.  The Regional Office stated that any
necessary journal entries will be written
promptly and adequately explained and
identified to the proper year on the general
ledger report.  A reconciliation will be
prepared thoroughly documenting the
differences between the expenditure report and
the general ledger report, including all
accruals for the previous year and upcoming
year.  General ledger accounts specifying the
correct grant year have been implemented after
the delivery of the fiscal year 2011 audit.

#4:  Inadequate Documentation of Payroll
Expenditures-Previous Regional Office Response
The Regional Office of Education #19 responded
that the Payroll Cost Allocation Policy 4:51
was written June 2013 and implemented after a
series of meetings for training purposes with
all employee groups and service providers
(consultants) in October 2013 with
implementation for the time sheets effective
November 2013.  The ROE noted that the
meetings were to insure compliance with all of
the requirements of the OMB Circular A-87.
Furthermore, time logs then also were required
to be provided on a monthly basis to indicate
the work done by each person whether employee
or service provider.  The Regional Office
stated that in order to obtain consistency for
the time logs, the DuPage County Chief Auditor
was consulted in developing a work log
specifically for the Regional Office, with
implementation July 2014.