REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #33:
HENDERSON, KNOX, MERCER, AND WARREN
COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2018

Release Date:  April 4, 2019

FINDINGS THIS AUDIT:  5

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

FINDINGS LAST AUDIT: 2

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

• (18-1) The Regional Office of Education
#33 did not have sufficient internal
controls over the financial reporting
process.

• (18-2) The Regional Office of Education
#33 did not have adequate internal control
procedures.

• (18-3) The Regional Office of Education
#33 did not have adequate controls over
capital assets.

• (18-4) The Regional Office of Education
#33 did not provide completed financial
statements in auditable form and in
accordance with GAAP by the August 31
deadline.

• (18-5) The Regional Office of Education
#33 did not obtain sufficient collateral
for its deposits.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #33 (ROE)
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 were not sufficient
controls over the preparation of the
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. For example,
during review of the ROE’s accounting
records, auditors noted the ROE’s financial
information required several adjusting
entries to present the financial statements
in accordance with GAAP.

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

In addition, the Regional Office did not
have adequate controls to record and report
its net accrued pension or other post-
employment benefits (OPEB) liability/asset,
deferred outflows and inflows of resources,
and pension or OPEB expense in accordance
with GAAP. Proposed adjusting entries were
approved and accepted by the ROE’s
management.

According to Regional Office officials, it
lacked funding to secure the appropriate
expertise to properly prepare full
financial statements in FY18 or to provide
the appropriate training to in house
personnel (Finding 2018-001, pages 11a –
11b) This finding was first reported in
2007.

The auditors recommended that as part of
the ROE’s internal control over the
preparation of financial statements,
including disclosures, the ROE should
implement a comprehensive preparation and/
or review procedure to ensure 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 GAAP, GASB
pronouncements, and knowledge of the ROE’s
activities and operations.

ROE Response: The ROE understands the
nature of this finding and realizes that
this circumstance is not unusual in an
organization of this size. The Regional
Office’s management attempted to hire a
firm to prepare the GAAP financial
statements as required, these prepared
statements were inadequate for the audit.
The ROE has formed an agreement with
another accounting firm for future
preparation of financial statements.

Prior Year ROE Response:  The ROE
understands the nature of this finding and
realizes this circumstance is not unusual
in an organization of this size. The
Regional Office management is confident
with the accounting staff and the
preparation of financial information.  When
fiscally possible, additional training or
hiring of additional staff will be pursued.

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education #33 (ROE)
did not have adequate internal control
procedures. Auditors noted the following
weaknesses in the ROE’s internal control
system for which there were no mitigating
controls:

• No documented evidence of independent
review of completed bank reconciliations.
• During testing of transactions, auditors
noted two instances where the ROE paid
sales tax in the amount of $19.16.
• The Regional Safe School grant’s first
quarter expenditure report was filed
seventeen days late.
• One instance was noted of the ROE
incurring a late fee and interest charges
on a credit card statement in the amount of
$400.61.

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 officials, the
ROE has not established or documented
sufficient internal control procedures
(Finding 18-002, pages 11c – 11d). This
finding was first reported in 2016.

The auditors recommended the following:
• The ROE should have an individual,
independent of the general ledger
processes, review the bank reconciliation
to ensure timely completion and agreement
to the general ledger. This review should
be documented.
• The ROE should develop internal controls
to ensure sales tax is not paid.
• The ROE should also develop internal
controls to ensure expenditure reports are
submitted by the grantor’s due date.
• The ROE should also ensure all credit
card statements are paid timely to avoid
late fees and interest.

ROE Response:  The ROE agrees with the
auditor’s recommendations. In addition, the
ROE has already corrected many of the
internal control issues noted and continues
to work on improving controls over our
financial processes.

Prior Year ROE Response:  The ROE agrees
with the auditor’s recommendations. In
addition, the ROE has already corrected
many of the internal control issues noted
and continues to work on improving controls
over our financial processes.

INADEQUATE CONTROLS OVER CAPITAL ASSETS

The Regional Office of Education #33 (ROE)
did not have adequate controls over fixed
assets.

The equipment listing provided by the ROE
was inaccurate and incomplete. Auditors
noted the following in tests of fixed
assets:
• The ROE did not maintain accurate
individual department capital asset
listings or an aggregated capital asset
listing for all departments.
• The ROE did not consistently tag all
assets with asset tags or take a periodic
inventory of assets to ensure the assets
are present.
• Current year supplies purchases in the
amount of $441 were recorded by the ROE as
capital outlay.
• Capital asset purchases in the amount of
$7,155 were incorrectly recorded to
supplies and purchased services and were
omitted from the ROE’s asset listings.

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

The ROE Accounting Manual also states that
the fixed asset inventory records should
include: the inventory control number (tag
number); major asset class; function and
activity; reference to the acquisition
source document; acquisition date; vendor;
a short description of the asset; unit
charged with custody; location; fund and
account from which purchased; method of
acquisition; estimated useful life and
method of depreciation; estimated salvage
value; and date, method, and authorization
of disposition.

In addition, sound internal controls
require that policies and procedures on
fixed assets should cover acquisition and
tagging, recording and reporting,
depreciation (if applicable), transfers and
dispositions, and annual physical
inventory, and that they should be formally
documented and consistently applied.

According to Regional Office officials,
maintenance of the capital asset schedule
is decentralized by departments. The
schedules are updated by multiple
personnel, which makes it difficult for the
ROE to ensure the schedules are complete
and updated timely. No periodic inventory
of assets is completed (Finding 18-003,
pages 11e – 11f).

The auditors recommended that the ROE
should adhere to the ROE Accounting Manual
fixed asset policy and procedures to
effectively and efficiently monitor
property acquisitions, transfers and
disposals, and provide for accurate
reporting of fixed asset balances.

The ROE should assign responsibility to one
individual to ensure that the capital
assets are tagged, schedules are regularly
maintained, and current year activity is
periodically reconciled to the capital
asset listing. An inventory count should be
taken periodically and compared to the
items on the capital asset list, and
significant differences investigated. The
fixed asset listing should be completed to
include all details required by the ROE
Accounting Manual.

ROE Response: The ROE has assigned
responsibility to one individual to ensure
that the capital assets are tagged,
maintained, and reviewed. A periodic check
will be conducted. The listing will include
all the details required by the ROE
Accounting Manual.

DELAY OF AUDIT

The Regional Office of Education #33 (ROE)
did not provide completed financial
statements in auditable form by the August
31 deadline. Financial records provided
were not prepared on an accrual basis in
accordance with generally accepted
accounting principles (GAAP).

Auditors noted the following deficiencies
in the records provided by the ROE:

• The initial trial balance provided by the
ROE was not fully adjusted. The ROE
provided journal entries made by its
contractor late the first day of fieldwork,
November 5, 2018; however, several
additional material journal entries were
required to adjust the balances to be
recorded in accordance with GAAP.
• A complete draft of the GAAP financial
statements with all required disclosures
was not provided.
• The ROE did not receive a timely or
accurate OPEB actuary valuation from the
firm hired to do the valuation.

ROE #33 is subject to 105 ILCS 5/2-3.17a
which requires the Auditor General’s office
to cause an audit to be made, as of June
30th of each year, of the financial
statements of all accounts, funds, and
other moneys in the care, custody or
control of the regional superintendent of
schools of each educational service region
in the State and of each educational
service center established in the School
Code. The audit is to be conducted in
accordance with Generally Accepted
Governmental Auditing Standards (GAGAS).

In accordance with 105 ILCS 5/2-3.17a, the
Auditor General has promulgated
administrative rules and regulations to
govern this process. Those rules, 74 Ill.
Adm. Code 420.320 (c) (2), state that for
audit purposes, each regional office of
education and educational service center
shall make available to the Auditor General
or his designee all books and records
deemed necessary to make and complete the
required audits. The records shall be in
auditable form by August 15 of the
succeeding fiscal year. Financial reports
are to be available no later than August 31
in order for the annual audit to be
completed by an independent auditor
selected by the Auditor General. Annual
financial statements are to be prepared on
an accrual basis of accounting in
accordance with GAAP.

In addition, prudent business practices and
transparency require timely preparation and
completion of financial statements.

According to Regional Office officials, the
ROE contracted with an accounting firm too
late in the year and was unable to provide
essential audit items in a timely manner
(Finding 18-004, pages 11g – 11h).

The auditors recommended the ROE should
implement procedures to ensure compliance
with 105 ILCS 5/2-3.17a and 74 Ill. Adm.
Code 420.320 (c) (2). Annual financial
statements should be compiled on an accrual
basis of accounting in accordance with
GAAP. These financial statements need to be
presented to the Auditor General’s
independent auditors for audit by the
August 31 deadline.

ROE Response: The ROE has formed an
agreement with an outside accounting firm
to prepare annual financial statements.

UNCOLLATERALIZED DEPOSITS

The Regional Office of Education #33 (ROE)
did not obtain sufficient collateral for
its deposits at one of the financial
institutions utilized by the ROE. As of
June 30, 2018, the ROE had deposits of
$420,717 that were uncollateralized.

The ROE is required to follow the Illinois
Public Funds Investment Act (30 ILCS 235/6
(d)) (Act). The Act gives the authorization
for deposits in excess of the federally
insured limit to be covered by pledged
collateral held by the financial
institutions’ trust departments in the
ROE’s name. In addition, prudent business
practice requires that all cash and
investments held by the financial
institutions for the ROE be adequately
covered by depository insurance or
collateral.

According to Regional Office officials,
collateralization of deposits in excess of
FDIC insurance and pledged collateral was
due to a significant drop in the value of
the pledged collateral over the course of
the fiscal year without the financial
institution taking corrective action
(Finding 18-005, page 11i).

The auditors recommended the ROE should
monitor pledged collateral and instruct the
financial institution to ensure the value
of collateral remains adequate for the
balance of the ROE’s accounts according to
the agreement in place.

ROE Response: The ROE will monitor pledged
collateral and instruct the financial
institution to ensure the value of
collateral remains adequate for the
balances of accounts.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #33’s financial statements as of
June 30, 2018 are fairly presented in all
material respects.

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

KELLY MITTELSTAEDT
Audit Manager

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

FRANK J. MAUTINO
Auditor General

FJM:BAO