REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #25: HAMILTON
AND JEFFERSON COUNTIES

FINANCIAL AUDIT
For the Year Ended: June 30, 2015

Release Date: March 17, 2016

FINDINGS THIS AUDIT: 5

CATEGORY: NEW -- REPEAT -- TOTAL
Category 1: 0 -- 1 -- 1
Category 2: 0 -- 2 -- 2
Category 3: 2 -- 0 -- 2
TOTAL: 2 -- 3 -- 5

FINDINGS LAST AUDIT: 5

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

SYNOPSIS

• (15-1) The Regional Office of Education
#25 did not have sufficient internal
controls over the financial reporting
process.
• (15-2) The Regional Office of Education
#25 did not have adequate internal
controls over payroll and grant
compliance.
• (15-3) The Regional Office of Education
#25 did not have adequate internal
controls over cash.
• (15-4) The Regional Office of Education
#25 did not have controls over compliance
with laws and regulations.
• (15-5) The Regional Office of Education
#25 did not have internal controls over
grant compliance.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #25 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 #25 did
not have sufficient internal controls over
the financial reporting process. The
Regional Office maintains its accounting
records on the cash basis of accounting
and posts year-end accrual entries for
financial statement purposes. The Regional
Office did not have sufficient internal
controls over the processing of some
accounting transactions. There were not
sufficient controls over the preparation/
review 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
errors and omissions in a timely manner.

Auditors noted the Regional Office did not
have adequate controls to record and
report the Regional Office’s net pension
liabilities/assets, deferred outflows of
resources, deferred inflows of resources,
and pension expenses in accordance with
GAAP. Numerous other adjustments were
required to present financial statements
in accordance with generally accepted
accounting principles.

According to Regional Office management,
the limited resources of the office have
led to the bookkeeper being employed on a
part-time basis. The office is continuing
to learn the required procedures to
properly maintain internal controls and
GAAP based financial reporting. In
addition, the complex requirements of GASB
Statements No. 68 and 71 were new for
fiscal year 2015 and will require time and
training before the Regional Office can
fully implement the requirements on its
own. (Finding 2015-001, pages 10-11) This
finding was first reported in 2007.

The auditors recommended that since the
Regional Office of Education No. 25 has
been dissolved and its counties are being
merged into other Regional Offices,
Regional Offices of Education No. 13 and
No. 20 should implement comprehensive
preparation and/or review procedures as a
part of their internal control over the
preparation of 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 #25
responded that it understands the nature
of this finding and realizes that this
circumstance is not unusual for an
organization of this size. The Regional
Office accepts the degree of risk
associated with this condition because the
added cost of employing a full-time
accountant to prepare and review financial
statements would take away from the funds
available to provide educational services
to the schools in the region. With the
consolidation of offices, Regional Offices
of Education No. 13 and No. 20 will
continue to receive training for GAAP
accounting procedures. (For previous
Regional Office response, see Digest
Footnote #1.)

INTERNAL CONTROLS OVER PAYROLL AND GRANT
COMPLIANCE

The Regional Office of Education (ROE)
Accounting Manual’s (Section XIV) states
that all payroll costs should be supported
by time and effort attendance records
(prepared at least monthly and signed by
the employee) that account for the total
activity for which each employee is
compensated. Only actual payroll costs
supported by time sheets should be charged
to each Source of Funds.

During the course of the audit, auditors
noted that certain employees’ assigned
functions included tasks for various
programs. For employees who were assigned
functions spanning multiple funds, the
Regional Office allocated salaries across
the various grants at the beginning of the
fiscal year based on expected time and
effort to be spent on each of the
programs. Because employees did not track
time spent on individual grants, there was
no documentation to verify if actual time
and effort spent on programs correlated
with the expected amount.

During the review of payroll, auditors
tested twenty-five (25) employees,
covering twenty-four (24) payroll periods.
Auditors noted of the eight (8) employees
assigned functions spanning multiple
funds, three (3) employees’ records (38%)
were deficient in providing adequate
documentation to verify that the salary
allocations to individual funds correlated
with actual time spent on activities in
such funds.

According to Regional Office staff, they
felt the allocation of salaries across
funds was a proper representation of
employees’ time spent on each fund. They
did not believe it would be cost effective
for each employee to keep track of time
spent on activities on a daily basis.
(Finding 2015-002, pages 12-13) This
finding was first reported in 2011.

The auditors recommended that since the
Regional Office of Education #25 has been
dissolved and its counties are being
merged into other Regional Offices,
Regional Offices of Education No. 13 and
No. 20 should implement proper controls
over payroll. Time and effort sheets
should be completed and maintained to
allocate actual costs to each fund,
including grants, accordingly. The
Regional Superintendent should approve
payroll only after proper fund allocation
has been determined.

The Regional Office of Education #25
responded that the Regional Superintendent
always approves all salaries paid to
employees. With limited resources, several
employees are paid from multiple grant and
funding sources. Although the work load
for each assignment may vary year to year,
the employee still completed the assigned
tasks required by the program. With the
consolidation of offices, Regional Offices
of Education No. 13 and No. 20 will
continue to determine the best method to
monitor time and effort. (For previous
Regional Office response, see Digest
Footnote #2.)

INTERNAL CONTROLS OVER CASH

The Regional Office of Education (ROE)
Accounting Manual (Foreword) establishes
that the Regional Superintendent of
Schools is responsible for establishing
and maintaining an internal control system
that provides reasonable assurance about
the reliability of its GAAP financial
statements, operational compliance with
legal and contractual provisions,
safeguarding of assets, and effectiveness
and efficiency of ROE operations.

Illinois statute (105 ILCS 5/3-12)
restricts the use of Institute Fund monies
to defray expenses associated with the
work of the regional professional
development review committees; to defray
expenses connected with improving the
technology necessary for the efficient
processing of licenses; to defray all
costs associated with the administration
of teaching licenses; 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 meeting of teachers or school
personnel of the region, which has been
approved by the regional superintendent.

During the course of the audit, auditors
noted various issues related to controls
over cash:

• A total of eighteen (18) checks were
incorrectly numbered in the general
ledger. Due to this sequencing issue, six
checks cleared the bank with different
payees and amounts than what was reported
in the general ledger. The rest of the
checks associated with the incorrect check
numbers recorded in the general ledger
were voided.
• An entry was not recorded in the general
ledger to record the closing transfer from
the Eastern Illinois University (EIU) cash
account to the pooled cash account. The
final bank reconciliation for the EIU bank
account and the related general ledger
account indicated an available cash
balance of $950 despite the account having
been closed. This amount was recorded as
transferred into the operating account but
not as transferred out of the closed
account.
• Checks totaling $18,648 were written
after year-end but were backdated to June
30, 2015 to be reported as expenses of the
2015 fiscal year. These amounts should
have been recorded as accounts payable if
not paid until after the end of the fiscal
year.
• The Regional office pools most of its
cash in one bank account. With such an
account, funds with deficit cash balances
are considered to have borrowed cash from
other funds to cover their expenditures.
The Regional Office reported deficit cash
balances in several of its funds at June
30, 2015. Prior to proposed audit
adjustments, cash from the Institute Fund
was reduced by $13,719 to cover these
deficit balances even though unrestricted
amounts were available. In addition, the
Institute Fund reported $15,000 of
transfers out to the General Fund. Neither
loans to other funds nor transfers are
authorized uses of Institute Fund monies.
Audit adjustments proposed by the auditors
and approved by Regional Office of
Education No. 25 personnel have been
posted to correct these errors.
• Auditors noted nineteen (19) checks that
were not adequately voided in order to
prevent them being presented for payment.
One of the nineteen (19) checks had
already been signed by the Regional
Superintendent and the Assistant Regional
Superintendent and could have been
presented for payment.

According to the Regional Office:
• The incorrectly numbered checks were due
to printing issues, and the accounting
software does not allow the check numbers
to be edited once printed.
• The entry to complete the transfer of
cash from the EIU cash account was
inadvertently omitted.
• Due to the impending dissolution on July
1, 2015, the Regional Office wanted to
have all bills paid by June 30, 2015 to
avoid reporting payables at year-end. The
bookkeeper also noted that funds were not
available to pay the outstanding balances
until the last days of the fiscal year.
Due to her part-time schedule, the
obligations were not able to be processed
and paid until July.
• The use of restricted funds was an error
when adjustments were prepared to clear
deficit cash balances. The Regional Office
did not realize the transfers out of the
Institute Fund are an unauthorized use of
such monies.
• Regional Office staff felt the notations
used on the voided checks were sufficient
to present them from being presented for
payment. (Finding 2015-003, pages 14-16)

The auditors recommended that since the
Regional Office of Education #25 has been
dissolved and its counties are being
merged into other Regional Offices,
Regional Offices of Education No. 13 and
No. 20 management should design and
implement an adequate system of internal
controls over cash to prevent errors.
Accounting personnel should ensure that
closed accounts are properly reflected in
the general ledger and transfers agree
between funds. All disbursements related
to the fiscal year made after year-end
should be recorded as payables at year-
end. The Regional Offices should initiate
procedures to monitor cash and ensure that
Institute Fund cash is expended only for
purposes as noted in Illinois statute 105
ILCS 5/3-12. Checks should be sufficiently
voided to prevent processing.

The Regional Office of Education #25
responded that it understands the nature
of the finding. Several minor procedural
errors were made by staff. With limited
resources, the Institute Fund was
inadvertently used to clear deficit cash
balances. (For previous Regional Office
response, see Digest Footnote #3.)

CONTROLS OVER COMPLIANCE WITH LAWS AND
REGULATIONS

The Illinois School Code 105 ILCS 5/17-19
allows a Regional Superintendent to take
out a line of credit in anticipation of
revenues. However, the Regional
Superintendent is only allowed to borrow
up to 85 percent of current year
anticipated grant revenue or 50 percent of
next fiscal year anticipated grant
revenue, as certified by the State
Superintendent. The Regional
Superintendent shall authorize this line
of credit by executive order or
resolution. The executive order or
resolution shall set forth facts
demonstrating the need for the line of
credit, the amount to be borrowed, the
maximum interest rate allowed, and the
date by which the funds will be repaid.
Funds borrowed under this section are to
be repaid within 60 days after the
revenues have been received.

The Regional Office withdrew funds from
its line of credit on July 15, 2014 and
again on September 9, 2014 following the
provisions of 105 ILCS 5/17-19. The line
of credit was not repaid within 60 days of
receiving the expected revenues. Only a
$12 principal payment was paid on the line
of credit during the fiscal year. The
balance on the line of credit at June 30,
2015 was $199,988. The line of credit was
renewed on June 30, 2015 with an
expiration date of September 30, 2015. As
the Regional Office of Education No. 25 is
being eliminated as of June 30, 2015, the
Regional Superintendent stated the
Regional Office of Education No. 13 will
be reporting this debt after June 30,
2015.

According to the Regional Office, it did
not have the available funds to cover both
operating costs and repay the line of
credit when revenues were received.
(Finding 2015-004, page 17)

The auditors recommended that since the
Regional Office of Education No. 25 has
been dissolved and its counties are being
merged into other Regional Offices,
Regional Offices of Education No. 13 and
No. 20 should comply with the requirements
of 105 ILCS 5/17-19.

The Regional Office of Education #25
responded that it understands the nature
of the finding. With limited resources,
revenues were needed to cover current
operating expenses of the Regional Office
rather than paying off the line of credit.
As delayed state and grant funding became
available, funds were applied to the line
of credit.

INTERNAL CONTROL OVER GRANT COMPLIANCE

As a recipient of federal, State, and
local funds from various grantor agencies,
the Regional Office must incorporate
certain procedures into their operations
in order to comply with the grant
agreements with these entities. The
Regional Office is responsible for
establishing and maintaining an internal
control system over receipts and
disbursements sufficient to complete
accurate and timely quarterly expenditure
reports required for grants administered
by the Illinois State Board of Education
and passed through other entities to the
Regional Office.

During the course of the audit, auditors
noted the following related to internal
control over grant compliance:

• The Regional Office’s general ledger for
the McKinney Education for Homeless
Children program did not agree to the
final expenditure report. Supplies
totaling $1,771 were incorrectly
classified as purchased services and
$2,487 of other expenditures reported on
the expenditure report were not recorded
in the general ledger.
• The final expenditure report for the
System of Support program was not
consistent with the Regional Office’s
general ledger. The expenditure report
showed purchased services and supplies of
$5,849 and $296, respectively, greater
than the general ledger. After posting
adjusting journal entries, the general
ledger reflects $489 less, overall, in
expenditures for this program than the
expenditure report.

According to the Regional Office:
• The program coordinator had prepared a
correct version of the expenditure report.
However, the program coordinator and the
bookkeeper had a miscommunication about
necessary changes to reconcile the general
ledger and the expenditure report.
• The part-time bookkeeper did not have
adequate time to review the expenditure
report and reconcile it to the general
ledger. (Finding 2015-005, pages 18-19)

The auditors recommended that since the
Regional Office of Education #25 has been
dissolved and its counties are being
merged into other Regional Offices,
Regional Offices of Education No. 13 and
No. 20 should ensure that expenditure
reports agree to the general ledger and
are an accurate report of the grants’
activities.

The Regional Office of Education #25
responded that it understands the nature
of the finding. With all of the accounting
required for the closing and consolidation
of the Regional Office of Education No. 25
and the late in the year adjustments made
to the grants, minor procedural errors
were made by staff.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #25’s financial statements as of
June 30, 2015 are fairly presented in all
material respects.

FRANK J. MAUTINO
Auditor General

FJM:KJM

AUDITORS ASSIGNED: West & Company, LLC
were our special assistant auditors.

DIGEST FOOTNOTES

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

In its prior response in 2014, the
Regional Office of Education #25 responded
that it understands the nature of this
finding with a part-time bookkeeper. The
Regional Office will continue to receive
training for GAAP accounting procedures
and has employed an individual accountant
to help prepare and review the Regional
Office’s financial statements.

#2: Internal Controls Over Payroll and
Grant Compliance—Previous Regional Office
Responses

In its prior response in 2014, the
Regional Office of Education #25 responded
that the Regional Superintendent always
approves any salary paid to employees. At
the beginning of fiscal year 2014, grant
and State funding levels were not known.
When the financial funding was known, a
decrease in salaries was made by the
Regional Superintendent and contracts were
reduced from the previous year. With
limited resources, several employees are
paid from multiple grant and funding
sources. The Regional Office stated that
although the work load for each assignment
may vary year to year, the employee still
completes the assigned tasks required by
the program. The ROE noted that it will
continue to work with auditors to
determine the best method to monitor time
commitments.

#3: Internal Controls Over Cash—Previous
Regional Office Response

In its prior response in 2014, the
Regional Office of Education #25 responded
there are no disbursements made without
the Regional Superintendent’s approval.
The Regional Office stated that purchases
have always been pre-approved, either
verbally or in writing. The ROE stated
that it will adjust its policy and
procedures to ensure purchases include a
written prior approval.