REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #38

LOGAN/MASON/MENARD COUNTIES

FINANCIAL AUDIT

For the Year Ended:

June 30, 2007

Summary of Findings:

Total this audit                   4

Total last audit                   3

Repeated from last audit    1

Release Date:

October 22, 2008

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

http://www.auditor.illinois.gov

SYNOPSIS

• The Regional Office of Education #38 did not present at the September county board meeting, and as nearly quarterly thereafter, a report of all acts.

• The Regional Office of Education #38 did not reconcile one of its cash account balances to the general ledger. 

• The Regional Office of Education #38 did not have sufficient internal controls over the financial reporting process. 

• The Regional Office of Education #38’s funds deposited at a financial institution exceeded the amount pledged as collateral by $54,348 at June 30, 2007. 

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

The Regional Office of Education #38 did not present at the September county board meeting, and as nearly quarterly thereafter, a report of all acts.

The Regional Office of Education #38 did not reconcile one of its cash account balances to the general ledger. 

The Regional Office of Education #38 did not have sufficient internal controls over the financial reporting process. 

The Regional Office of Education #38’s funds deposited at a financial institution exceeded the amount pledged as collateral by $54,348 at June 30, 2007. 

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

CONTROLS OVER COMPLIANCE WITH LAWS AND REGULATIONS

         The Illinois School Code 105 ILCS 5/3-5 requires the Regional Superintendent to present under oath or affirmation to the county board at its meeting in September and as nearly quarterly thereafter, a report of all her acts, including a list of all the schools visited with the dates of visitation.  This mandate has existed in its current form since at least 1953.

         The Regional Office of Education #38 did not present at the September county board meeting and as nearly quarterly thereafter, a report of all acts including a list of all the schools visited and dates of visitation.  While the Regional Superintendent did not attend the Menard County Board meetings during 2007, she did attend some of the Mason and Logan Counties’ board meetings in 2007.  (Finding 07-1, page 10)

         Auditors recommended that the Regional Superintendent present to the county boards in September and quarterly thereafter, a report of all her acts as county superintendent including a list of all schools visited and dates of visitation as required by 105 ILCS 5/3-5.

         The Regional Office of Education #38 responded that management is in the process of addressing this issue.  The Regional Office presented an Annual Report of Official Acts to each of its three county boards in the fall of 2007, which covered the period from July 1, 2006 through June 30, 2007.  A second quarter report, which covered the period from July 1, 2007 through December 31, 2007 was sent to each county board in the winter of 2008, and an FY08 Annual Report of Official Acts, covering July 1, 2007 through June 30, 2008 was sent in July 2008. 

RECONCILIATION OF CASH BALANCES

         The Regional Office of Education #38 did not reconcile one of its cash account balances to the general ledger.  Good internal control requires the Regional Office of Education to reconcile its cash account balances to the general ledger on a monthly basis.  (Finding 07-2, page 11)

         The auditors recommended that the Regional Office of Education #38 should reconcile cash balances on a monthly basis and make sure that bank reconciliation and book balances are the same.  The Regional Office responded that management is in the process of correcting this issue.  All account balances will be reconciled on a monthly basis and care will be taken to ensure that book balances are the same.

INTERNAL CONTROL OVER FINANCIAL STATEMENT PREPARATION

         The Regional Office of Education #38 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 #38 did not have sufficient internal controls over the financial reporting process.  The Regional Office maintains their accounting records on the cash basis of accounting.  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.

         In their review of the Regional Office’s accounting records, auditors noted that numerous adjustments were required to present financial statements in accordance with generally accepted accounting principles.  (Finding 07-3, pages 12 and 13)

         The auditors recommended that, as part of its internal control over the preparation of its financial statements, including disclosures, the Regional Office of Education #38 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 #38 responded that it understands the nature of this finding and realizes the circumstance is not unusual in an organization of this size.  The Regional Office accepts the degree of risk associated with this condition because the added expense of seeking additional 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.  As such, the Regional Office will continue to do the best they can with what they have in resources.

MONITORING OF COLLATERAL ON DEPOSITS

         The Regional Office of Education #38’s funds deposited at a financial institution exceeded the amount pledged as collateral by $54,348 at June 30, 2007.  The Public Funds Deposit Act, (30 ILCS 225/1) 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 Regional Office of Education #38’s name.  In addition, prudent business practice requires that all deposits held by financial institutions for the Regional Office of Education #38 be adequately covered by depository insurance or collateral.  (Finding 07-4, page 14)

         The auditors recommended that the Regional Office of Education #38 should periodically monitor the amount of collateral held on deposits to ensure that an adequate amount is maintained.

         The Regional Office of Education #38 responded that management understands the nature of this finding but believes that accounts for Regional Office of Education #38 have been collateralized for a number of years for those that exceed the $100,000 FDIC-insurable level.  However, management will take steps to ensure periodic monitoring of the amount of collateral held on deposits to ensure that an adequate amount is maintained.

AUDITORS’ OPINION

Our auditors state the Regional Office of Education #38’s financial statements as of June 30, 2007 are fairly presented in all material respects.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JRB

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors were Hill, Taylor Company, LLC.