REPORT DIGEST

REGIONAL OFFICE OF EDUCATION # 21

FRANKLIN/WILLIAMSON 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                    3

Total last audit                    5

Repeated from last audit     3

Release Date:

May 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) 82-6046 or TTY (888) 261-2887

This Report Digest and Full Report are also available on

the worldwide web at

http://www.auditor.illinois.gov

SYNOPSIS

• The Regional Office of Education #21 did not remit interest earned on grant funds to the granting agency.

·         Regional Office of Education #21 did not have adequate controls over the recording and reporting of fixed assets.

• The Regional Office of Education #21 did not have sufficient internal controls over the financial reporting process. 

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

The Regional Office of Education #21 did not remit interest earned on grant funds to the granting agency.

The Regional Office of Education #21 did not have adequate controls over the recording and reporting of fixed assets.

The Regional Office of Education #21 did not have sufficient internal controls over the financial reporting process. 

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

FAILURE TO REMIT INTEREST EARNED

         The Regional Office of Education #21 did not remit interest earned on grant funds to the granting agency.  The Regional Office implemented an approved interest allocation plan during fiscal year 2008 but did not remit the interest.  The ROE earned interest on both State and federal awards that should have been remitted at least quarterly to the granting agency in the following amounts:
 

         State grants                 $387

         Federal awards           $520

         U.S. Department of Education regulations state that the annual interest earned in excess of $100 on advances of funds must be submitted promptly, at least quarterly, to the granting agency.  Additionally, the Grant Funds Recovery Act (30 ILCS 705/1 et seq.) states that interest earned on grant funds becomes part of the grant principal and is treated accordingly for all purposes unless the grant agreement and/or the grant regulations provide otherwise.  The Act further states that any grant funds not expended (or legally obligated) by the end of the grant period must be returned to the grantor.  This applies to State and federal grants. 

         The Regional Office was not in compliance with 34 Code of Federal Regulations or the Grant Funds Recovery Act.  (Finding 08-01, pages 14-15)  This is a partial repeat of a finding that was first reported in 2005.

         Auditors recommended that the Regional Office of Education #21 should follow the appropriate State and federal statutes and regulations and remit any interest earned back to the granting agency in accordance with the requirements of the Grant Funds Recovery Act and 34 Code of Federal Regulations. 

         The Regional Office of Education #21 responded that the interest earned on said grant funds had not been returned prior to the completion of audit fieldwork.  However, since that time, 100% of the interest earned for those funds requiring repayment was returned.  The funds were McKinney Vento, which received a refund of $360.29; Carl Perkins, which received a refund of $115.12; and Tech Prep, which received a refund of $164.40.

         The Regional Office also responded that with regards to the quarterly remittance of interest earned, the ROE had requested clarification from numerous sources regarding the correct process that was required.  The ROE did not ever receive information related to quarterly remittance of payments.  The ROE noted that it will move to a quarterly schedule. (For previous Regional Office response, see Digest Footnote #1.)

INADEQUATE CONTROLS OVER PROPERTY AND EQUIPMENT

         The Regional Office of Education #21 did not have adequate controls over the recording and reporting of fixed assets.  The Regional Office did not maintain a complete listing of fixed assets and did not have procedures in place to ensure that acquisitions over the established capitalization threshold were added to the Regional Office’s fixed asset records, resulting in the omission of 12 items totaling $24,887 that were inadvertently expensed.  The Regional Office also incorrectly recorded costs associated with training and web services in the purchase price for a fiscal year 2008 addition, overstating the listing of fixed assets by $10,200.

         The Regional Office attempted to create a more complete listing of fixed assets during the fiscal year; however, this resulted in using cost amounts for existing assets that were inconsistent with prior year amounts, modifying useful lives for existing assets, modifying depreciation methods for existing assets, and not documenting disposal of assets.  These actions resulted in the need for many corrections to the current year listing and corrections to prior year assets.  A prior period adjustment of $7,548 was necessary to correct the understated financial statements.

         Additionally, the Regional Office did not have a formal policy in place regarding useful lives of fixed assets and did not provide complete information as to the useful lives of the above acquisitions.

         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 require that an inventory of all fixed assets and depreciation schedules for assets meeting the capitalization threshold for reporting be maintained. 

         The absence of a sound system of internal controls over fixed assets resulted in inaccurate reporting of fixed assets and inadequate physical control for equipment items.  An incomplete fixed asset listing does not provide an adequate basis for physical control and losses may occur without being detected.  The Regional Office had insufficient controls over recording and reporting fixed assets due to turnover in the custodian position. (Finding 08-02, pages 16-17)

         Auditors recommended that the Regional Office should adhere to its fixed asset policy and procedures manual and update the fixed asset policies and procedures manual to address their standard useful lives for various types of fixed assets.

         Auditors recommended that the fixed asset listing should be checked for accuracy and existence through an annual physical inventory.  A reconciliation should be performed between the fixed asset listing and the recorded capital outlay expenditures for the year. 

         Regional Office of Education #21 responded that it has hired a new employee with an accounting degree who has experience in the area of fixed asset capitalization and depreciation who will be helping with the maintenance of fixed assets.  This employee will be utilizing a new fixed assets software program recently purchased by the ROE.  This program will facilitate the maintenance of a fixed assets inventory, the computation of annual depreciation, and the reconciliation of annual fixed asset additions to recorded capital outlay expenditures for the year.

         Regional Office of Education #21 also responded that it is in the process of updating its policy regarding maintenance of fixed assets and internal control procedures to adequately address issues regarding acquisitions, transfers, dispositions, capitalization, depreciation, useful lives, and the taking of annual inventory.  The ROE noted that due to the hiring of this employee, the ROE will be able to separate the duties of maintaining the fixed asset inventory and performing the physical walk-through which will reduce the risk of possible omission of assets.

Controls Over Financial Statement Preparation

         The Regional Office of Education #21 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 #21 did not have sufficient internal controls over the financial reporting process.  The Regional Office maintains their accounting records on the cash basis of accounting during the fiscal year and posts year end accrual entries for audit purposes. 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.  For example, auditors, in their review of the Regional Office’s accounting records, noted the following:

• Numerous adjustments were required to present financial statements in accordance with generally accepted accounting principles.

• The Regional Office did not have adequate controls over the maintenance of complete records of accounts receivable, grants receivable, accounts payable, and deferred revenues.  While the Regional Office did make entries to record year-end accruals, they were not complete. 

• The Regional Office did not report two accounts (Title III Tech Prep and Vocational Ed Tech Prep) as Education Fund accounts in prior years and, instead, reported them as Agency Funds. 

         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 08-03, pages 18-19)

         The auditors recommended that, as part of its internal control over the preparation of its financial statements, including disclosures, the Regional Office of Education #21 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 #21 responded that it will review, approve, and accept responsibility for the proposed audit adjustments and the financial statements and related notes.  The Regional Office noted that it has hired an employee with an accounting degree with governmental accounting background to serve as accounting / internal control officer.  It is believed that this will help to meet this requirement.

AUDITORS’ OPINION

         Our auditors state the Regional Office of Education    #21’s financial statements as of June 30, 2008 are fairly stated in all material respects.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KJM

SPECIAL ASSISTANT AUDITORS

         Our special assistant auditors were Sikich, LLP.

DIGEST FOOTNOTE

#1:  FAILURE TO REMIT INTEREST EARNED – Previous Regional Office Response 

In its prior response in 2007, the Regional Office responded that it developed an interest earned allocation plan in September 2007.  The interest earned in FY 2007 was calculated using this plan.  They noted that the interest for each of their accounts for FY 2008 has been deposited into an “Interest Earned” Fund in their accounting system.  They noted that this fund breaks down interest among the accounts on file. 

Complete Regional Office responses to prior findings are available upon request from the Auditor General’s Office.