REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #20: EDWARDS,
HARDIN, GALLATIN, POPE, SALINE, WABASH,
WAYNE AND
WHITE COUNTIES

FINANCIAL AUDIT
For the Year Ended: June 30, 2014

Release Date:  May 7, 2015

FINDINGS THIS AUDIT:  6

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  3 -- 1 -- 4
Category 2:  1 -- 1 -- 2
Category 3:  0 -- 0 -- 0
TOTAL:  4 -- 2 -- 6

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
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

• (14-1) The Regional Office of Education
#20 did not have adequate internal control
over the payroll process.

• (14-2) The Regional Office of Education
#20 did not have sufficient internal
controls over the financial reporting
process.

• (14-3) The Regional Office of Education
#20 was in noncompliance with the McKinney-
Vento Education for Homeless Children and
Youth federal grant.

• (14-4) The Regional Office of Education
#20 used designated grant funds to cover
deficit cash balances in other funds.

• (14-5) The Regional Office of Education
#20 did not prepare monthly bank
reconciliations.

• (14-6) The Regional Office of Education
#20 did not have adequate internal controls
over Institute Fund expenditures.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE INTERNAL CONTROL OVER FINANCIAL
PROCESSES

The Regional Superintendent of Schools is
responsible for establishing and maintaining
an internal control system over the payroll
process to prevent errors or fraud.

Auditors noted the following weaknesses in
the Regional Office’s internal controls:

• The salary, as stated on the contract, did
not match the amount the employee was paid
in 2 out of 40 (5%) individuals tested.

• The Regional Superintendent did not review
the payroll register after payroll was
processed and before checks were signed and
dispersed.

The Regional Office of Education #20 did not
have adequate controls in place over the
payroll process.  Unauthorized payroll and
changes in payroll rates could result in
employees receiving incorrect payment for
their services.

According to Regional Office of Education
#20 officials, Regional Office employees
were not aware that the contracts did not
match the salary for employees and did not
realize it was necessary for the Regional
Superintendent to review the payroll
register after the payroll was processed and
before checks were signed. (Finding
2014-001, page 11a) This finding was first
reported in 2011.

Auditors recommended that the Regional
Office of Education #20 should establish and
implement controls over the payroll process
to ensure every employee has a contract in
their personnel file that matches the
employee’s current rate of pay.  In
addition, the Regional Superintendent should
review the payroll register after the
payroll is processed to ensure employees are
receiving accurate payments as specified in
their approved contract.

The Regional Office of Education #20
responded that all contracts are now
reviewed by the Regional Superintendent and
updated as needed to ensure accuracy of
contracts and salaries.  The Regional Office
noted that previously, the Regional
Superintendent signed all checks.
Currently, the majority of employees are
paid by electronic deposit, which is a
change in procedures.  The Regional
Superintendent is now approving each payroll
register before the salaries are disbursed.
(For previous Regional Office response, see
Digest Footnote #1.)
CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #20 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, skills and
experience to prepare GAAP based financial
statements and include all disclosures as
required by the Governmental Accounting
Standards Board (GASB).

The Regional Office of Education #20 did not
have sufficient internal controls over the
financial reporting process.  While the
Regional Office maintains controls over the
processing of most accounting transactions,
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 review of the Regional Office’s
financial information prepared by the
Regional Office of Education #20, auditors
noted the following:

• The Regional Office’s financial
information required material adjusting
entries to accounts receivable and unearned
revenue in order to present its financial
statements in accordance with generally
accepted accounting principles.  Proposed
adjusting entries were approved and accepted
by Regional Office management.
• There was not sufficient documentary
evidence maintained to adequately support
adjusting journal entries.

According to Regional Office officials, the
bookkeeping staff did not reconcile bank
accounts until they prepared for the annual
audit at year end which did not allow time
for analysis and review before submission to
auditors.  Further, the bookkeeping staff
did not keep support for journal entries.
(Finding 2014-002, pages 11b-11c) This
finding was first reported in 2011.

The auditors recommended that, as part of
internal control over the preparation of
financial statements, the Regional Office of
Education #20 should implement comprehensive
preparation procedures 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
applicable GAAP, GASB pronouncements, and
knowledge of the Regional Office of
Education #20’s activities and operations.
Finally, the Regional Office should maintain
supporting documentation for all journal
entries that are made throughout the year.

The Regional Office of Education #20
responded that it is completing actions,
with regards to the preparation of the
financial statements, on a timely manner,
and not waiting until the end of the year in
preparation for the annual audit.  The
Regional Office stated that monthly and
quarterly duties are performed timely and
approved by the Regional Superintendent.
Extra training is not deemed possible due to
the added cost of the training, but it is
taking into account all of the suggestions
of its auditors and implementing any and all
suggestions that they may provide.  The
Regional Office noted that once the cost of
additional training is plausible, the proper
employees will received the necessary
training.  The Regional Office of Education
is adding additional information to support
the adjusting journal entries. (For previous
Regional Office response, see Digest
Footnote #2.)

CONTROLS OVER GRANT COMPLIANCE

As a recipient of federal, State, and local
funds from various granting agencies, the
Regional Office must incorporate certain
procedures into their operations in order to
comply with grant agreements with these
entities.

During testing, auditors noted salaries and
benefit expenses were allocated to the
McKinney-Vento Education for Homeless
Children and Youth program using the
budgeted amount without proper documentation
of the time and effort by the employee for
this program.

The Regional Office of Education #20 did not
have a system of internal controls in place
to ensure that salary and benefit expenses
allocated to federal programs were properly
supported.  (Finding 2014-003, page 11d)

The auditors recommended that the Regional
Office of Education #20 should conduct a
time study for the employees to determine
how much time is spent on the federal
programs, such as McKinney-Vento Education
for Homeless Children and Youth program, in
order to determine the amount of salary and
benefit expenses that should be allocated to
programs.

The Regional Office of Education #20
responded that it was unaware that time and
effort sheets were needed.  Time and effort
sheets are currently being completed.

USE OF DESIGNATED GRANT BALANCES

The Regional Office of Education #20 has
several grant funded programs.  Programs
funded by State and federal grants must be
tracked and maintained separately.  The
Regional Office of Education #20 pools
program and local revenue into the same bank
account.  Cash that was granted to the
Regional Office, and designated for specific
grant purposes, was used to cover deficit
cash balances in programs other than those
for which the cash was granted.

The Regional Office of Education #20 did not
reconcile the pooled bank account monthly.
(Finding 2014-004, page 11e)

The auditors recommended that the Regional
Office of Education #20 should not use cash
designated for specific grant purposes to
cover deficit cash balances in programs
other than those for which the cash was
granted.

The Regional Office of Education #20
responded that as of July 1, 2014, it will
continue to have one main bank account for
all funds.  All bank accounts are being
reconciled on a monthly basis to ensure that
funds are being used appropriately.  The
Regional Office stated that inter-fund loans
will not be made.  Therefore, cash will be
accurately stated and this will be another
measure to make sure that funds are being
spent appropriately.  The bank
reconciliations, bank statements, and
financial reports are reviewed and approved
by the Regional Superintendent monthly.

PREPARATION OF MONTHLY BANK RECONCILIATIONS

As a basic cash management procedure, the
Regional Office of Education #20 should be
preparing bank reconciliations for each of
its cash accounts on a monthly basis.  This
procedure should be incorporated as part of
the monthly closing procedures.  During the
current fiscal year, the Regional Office of
Education #20 did not reconcile any of its
cash accounts until after the fiscal year
end in preparation for the annual audit.

The Regional Office of Education #20 did not
have monthly closing procedures that
included preparing monthly bank
reconciliations. (Finding 2014-005, page
11f)

The auditors recommended that the Regional
Office of Education #20 should develop and
implement monthly closing procedures that
include preparing a monthly bank
reconciliation for all bank accounts at the
end of each month.

The Regional Office of Education #20
responded that all bank reconciliations are
currently being completed on a monthly
basis.
INADEQUATE INTERNAL CONTROLS OVER INSTITUTE
FUND EXPENDITURES

According to Article 3 of the Illinois
School Code (105 ILCS 5/3-12), all
certificate fees and a portion of renewal
and duplicate fees are restricted to
specific uses, including to defray expenses
connected with improving technology
necessary for the efficient processing of
certificates, to defray all costs associated
with the administration of teaching
certificates and to defray expenses
incidental to teachers’ institutes,
workshops, or meetings of a professional
nature that are designed to promote the
professional growth of teachers or to defray
the expense of any general or special
meetings of teachers or school personnel of
the region that has been approved by the
Regional Superintendent.

The Regional Office of Education #20 allowed
$24,277 of funds generated from
certification, renewal and duplicate fees to
be loaned to other funds.  The Regional
Office was not in compliance with Article 3
of the Illinois School Code (105 ILCS
5/3-12).

The Regional Superintendent did not realize
funds from the Institute Fund had been
loaned to other funds.  (Finding 2014-006,
page 11g)

The auditors recommended that the Regional
Office of Education #20 should review the
State statute and consult with the Illinois
State Board of Education or legal counsel if
there is uncertainty as to whether a
particular expenditure is permitted for the
Institute Fund under Article 3 of the
Illinois School Code.

The Regional Office of Education #20
responded that to ensure the proper money is
in the Institute Fund and loans to other
funds are no longer being made, the Regional
Office of Education will open a separate
bank account for the Institute Fund.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #20’s financial statements as of
June 30, 2014 are fairly presented in all
material respects.

WILLIAM G. HOLLAND
Auditor General

WGH:JRB

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

DIGEST FOOTNOTES

#1: Inadequate Internal Control Over
Financial Processes - Previous Regional
Office Response

In its prior response in 2013, the Regional
Office of Education #20 responded that as of
July 1, 2013, a salary and benefits
statement for each employee had been
approved, signed, and dated by the Regional
Superintendent.  The Regional Office noted
that this will reflect salaries and benefits
for each employee.  Any changes to an
employee’s salary or compensation throughout
the year will be reflected in a similar
document.

#2: Controls Over Financial Statement
Preparation - Previous Regional Office
Response

In its prior response in 2013, the Regional
Office of Education #20 responded that as of
July 1, 2013, it is reconciling bank
accounts, recording receipts, receivables,
payables and fixed asset schedules on a
timely basis, instead of recording them in
preparation for the annual yearend audit.
The Regional Office stated that a binder
containing all journal entries with backup
is being kept.  The School Facility Tax
revenue is no longer being netted with
expenses.