REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #26: FULTON,
HANCOCK, MCDONOUGH, AND SCHUYLER COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2017

Release Date:  MAY 3, 2018

FINDINGS THIS AUDIT:  4

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

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

SYNOPSIS

• (17-1) The Regional Office of Education #26
did not have sufficient internal controls
over the financial reporting process.

• (17-2) The Regional Office of Education #26
did not have adequate internal control
procedures.

• (17-3) The Regional Office of Education #26
had inadequate internal controls over
inventory.

• (17-4) The Regional Office of Education #26
had inadequate internal controls over
accounting processes such as transfers and
fund balances.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #26 (ROE)
did not have sufficient internal controls
over the financial reporting process. The ROE
maintains its accounting records using cash
basis accounting during the fiscal year and
posts year-end accrual entries for financial
statement purposes. While the ROE maintains
controls over the processing of most
accounting transactions, there were not
sufficient controls over the preparation of
generally accepted accounting principles
(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.

The Regional Office is required to maintain a
system of controls over the preparation of
financial statements in accordance with GAAP.
The ROE’s 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).

During review of the financial information
prepared by the ROE, auditors noted the
following:

• The ROE did not have adequate controls over
the maintenance of complete records of
accounts receivable, accounts payable, or
unearned revenue. While the ROE did maintain
records to indicate the balances of accounts
receivable, accounts payable, and unearned
revenue, no entries were provided to
reconcile the ROE’s grant activity, such as
posting grant receivables and unearned
revenue.

• Numerous material adjustments were needed
to make the financial statements comply with
GAAP.

• The ROE did not have adequate controls to
record and report the ROE’s net accrued
pension liabilities/assets, deferred outflows
of resources, deferred inflows of resources,
and pension expenses in accordance with GAAP.
Proposed adjusting entries by auditors were
approved and accepted by the ROE’s
management.

According to the Regional Office management,
current funding levels were not adequate to
hire and/or train accounting personnel in
order to comply with these requirements.
(Finding 2017-001, pages 12a-12c) This
finding was first reported in 2007.

The auditors recommended that as part of
internal control over the preparation of
financial statements, the ROE should
implement comprehensive preparation
procedures to ensure the financial statements
are complete and accurate.  These procedures
should be performed by a properly trained
individual(s) possessing a thorough
understanding of applicable GAAP, GASB
pronouncements, and knowledge of the ROE’s
activities and operations.

ROE Response: The ROE accepts the degree of
risk associated with this condition because
the additional expense to seek outside
accounting expertise to prepare and/or review
financial statements would take away from the
limited funds available to provide
educational services for the schools in the
region.

The ROE will continue to work with other
Regional Offices to determine the most
effective method of ensuring that its
employees possess the knowledge required to
compile the necessary GAAP-based financial
statements. ROEs are simply not resourced at
an adequate nor equitable levels to comply
with the mounting GAAP standards.

Prior Year ROE Response: The ROE accepts the
degree of risk associated with this condition
because the additional expense to seek
outside accounting expertise to prepare and/
or review financial statements would take
away from the funds available to provide
educational services for the schools in the
region.

The ROE will continue to work with the other
Regional Offices to determine the most
effective method of ensuring that its
employees possess the knowledge required to
compile the necessary GAAP-based financial
statements. The organization will also
research the possibility of having another
accounting company prepare financial
statements independent of the auditors.

INADEQUATE INTERNAL CONTROL PROCEDURES

Auditors noted the following weaknesses in
the Regional Office’s internal control system
for which there were no mitigating controls:

• There is inadequate segregation of duties
over cash receipts. Payments received by
check are given to the individual who records
them in the accounting system.

The individual who records receipts should
not have physical custody of the receipts.

• Several items totaling $8,853 were
appropriately included as capital assets in
the general ledger; however, these items were
not included in the capital asset schedule
presented to auditors.

The Regional Superintendent of Schools is
responsible for establishing and maintaining
an internal control system over accounting
transactions to prevent errors and fraud.

According to Regional Office management, the
ROE had not established or documented
sufficient internal control procedures.
(Finding 2017-002, pages 12d-12e) This
finding was first reported in 2012.

The auditors recommended the individual
responsible for recording cash receipts
should not be given physical access to the
receipts. An individual independent of the
recording process should make cash deposits
and verify the amounts recorded agree to the
deposit records. The auditors also
recommended the ROE should establish
procedures to ensure its capital asset
schedule is maintained in accordance with the
ROE’s capital asset policy. The capital asset
schedule should be reconciled to the general
ledger capital asset and capital outlay
accounts.

ROE Response: As noted in the procedures
statement presented to the ROE during the
audit, it was established that the ROE
separates the duties of the cash receipts and
system entry as much as possible with the
available staff.

The ROE will review the current auditors’
recommendation and will revise the ROE’s
policies, procedures, and/or practices to
address the finding noted as needed.

Prior Year ROE Response: The ROE will review
the current auditors’ recommendations and
will revise the Regional Office’s policies,
procedures, and/or practices to address the
findings noted as needed.

INADEQUATE INTERNAL CONTROLS OVER INVENTORY

The Regional Office was not able to provide
auditors with documentation to support the
provided inventory value. In addition, the
inventory value recorded in the ROE’s general
ledger was not adjusted to the year-end
value.

The Regional Superintendent of Schools is
responsible for establishing and maintaining
an internal control system over accounting
transactions, including inventory, to prevent
errors and fraud.

According to Regional Office management, the
Western Area Purchasing Co-op did not perform
a physical inventory count at year end;
rather, they performed a physical count after
most inventory had been delivered to Co-op
members and calculated the year-end inventory
value from supporting documents, such as
vendor invoices, shipping manifests, and
receipts of delivery to Co-op members.  These
documents did not support the inventory value
reported by the Co-op. (Finding 2017-003,
pages 12f-12g) This finding was first
reported in 2015.

The auditors recommended that the Western
Area Purchasing Co-op staff perform a
physical inventory count on or near the
fiscal year end or should maintain adequate
documentation to support the calculated year-
end value. The accurate inventory value
should be recorded in the ROE’s general
ledger.

ROE Response: The ROE agrees with this
finding after review of the documentation
that the Western Area Purchasing Co-op
provided. The ROE will discuss with the
Western Area Purchasing Co-op the need to
create and maintain adequate documentation or
inventory system to support the calculated
year-end inventory value.

Prior Year ROE Response: The ROE will review
the current auditors’ recommendations and
will revise the Regional Office’s and Western
Area Purchasing Cooperative’s policies,
procedures, and/or practices to address the
findings noted as needed.

TRANSFERS AND FUND BALANCE

Auditors noted issues related to the initial
transfer in, transfer out, and fund balances
provided by the ROE.

Auditors noted transfer in accounts totaled
$362,733 and transfer out accounts totaled
$833,640, which resulted in transfer in and
transfer out accounts being out of balance by
$470,907. Auditors also noted that twenty-
nine (29) of thirty-eight (38) beginning fund
account balances did not agree with the
ending account balances from June 30, 2016.
In addition, the ROE’s beginning fund balance
in total was $112,549 less than the total
ending fund balance at June 30, 2016.

The Regional Superintendent of Schools is
responsible for establishing and maintaining
an internal control system over accounting
processes, including consolidation of
accounting records, to ensure accurate
financial information.

According to Regional Office officials, the
employee(s) responsible for consolidating the
accounting records of ROE #22 into accounting
records of ROE #26 in FY16 and FY17 did not
possess the appropriate knowledge and
expertise related to the applicable
accounting principles. (Finding 2017-004,
page 12h)

The auditors recommended that the ROE should
implement comprehensive procedures to ensure
that the financial information is complete
and accurate. As complex accounting issues
arise, the Regional Office should engage the
services of an independent accountant with
significant governmental accounting
experience to assist.

ROE Response: The ROE consulted with the
accounting software vendor about
consolidating accounting records and
interpreted that transfers in and out with
proper description would define transactions
needed between old and new accounting
systems. The ROE finds this situation unique
due to the consolidation of ROEs in the
State. Should any similar situation arise
again in the future, the ROE will establish
an independent accountant to assist with the
consolidating of accounting systems to ensure
correct account balances.


AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #26’s financial statements, except
for the Business-Type Activities and the
Western Area Purchasing Co-op, as of June 30,
2017 are fairly presented in all material
respects.

This financial report was conducted by the
firm of Kemper CPA Group LLP.

AMEEN DADA
Division Director

This report is transmitted in accordance with
Section 3-14 of the Illinois State Auditing
Act.

FRANK J. MAUTINO
Auditor General

FJM:JRB