REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #40
CALHOUN/GREENE/JERSEY/MACOUPIN COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2017

Release Date:  MAY 30, 2018

FINDINGS THIS AUDIT:  4

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

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

• (17-1) The Regional Office of Education #40
did not have sufficient internal controls
over the financial reporting process.

• (17-2) The Regional Office of Education #40
did not have sufficient internal controls
over grant compliance requirements to ensure
grant reporting is accurate.

• (17-3) The Regional Office of Education #40
did not have sufficient internal controls
over the preparation of journal entries.

• (17-4) The Regional Office of Education #40
did not have sufficient internal controls
over expenditures purchased with the Office’s
credit cards.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #40 (ROE)
did not have sufficient internal controls
over the financial reporting process. The ROE
maintains its accounting records on the cash
basis of accounting during the fiscal year
and posts year-end accrual and other
applicable entries for financial statement
purposes. The ROE did not have sufficient
internal controls over the processing of some
accounting transactions. There were not
sufficient controls over the preparation/
review 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 errors and
omissions in a timely manner.

The ROE 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 ROE’s accounting
records, the auditors noted the following:

• The ROE did not have adequate controls over
the maintenance of complete records of
revenue, receivables, payables, unearned
revenue, and unavailable revenue.

• The ROE did not have adequate controls to
record and report the ROE’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 GAAP.

According to ROE management, they did not
have adequate funding to hire a certified
public accountant or other financial
professionals with the appropriate training
and expertise as full-time staff.

Additionally, the complex requirements of
GASB Statements No. 68 and 71 will require
additional time and training before the ROE
can fully implement the requirements on its
own. (Finding 2017-001, pages10-11) This
finding was first reported in 2007.

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

ROE Response: At this time, the ROE did not
have available funding to hire an individual
to assist with financial statement
preparation; however, fiscal personnel of the
ROE will strive to do their best to prepare
the financial statements in accordance with
GAAP.

Prior Year ROE Response: At this time, the
ROE did not have available funding to hire an
individual to assist with financial statement
preparation; however, fiscal personnel of the
ROE will strive to do their best to prepare
the financial statements in accordance with
GAAP.

CONTROLS OVER GRANT COMPLIANCE

The Regional Office of Education #44 (ROE)
did not have sufficient internal controls
over grant compliance requirements. Auditors
noted the following related to the controls
over grant compliance:

• Seven of the 16 (44%) quarterly expenditure
reports required by the Illinois State Board
of Education (ISBE) were not submitted
timely. Five of the quarterly expenditure
reports were submitted six days late, and one
quarterly expenditure report was submitted 19
days late. In addition, one grant was not
approved until after the due date of the
expenditure report and the expenditure report
was submitted 43 days after the grant was
approved.

• During FY17, ISBE conducted an audit of the
Alternative Education and Safe School
Programs for School Year 2015 – 2016 and
noted audit adjustments. Due to inaccurate
reporting of school attendance statistics by
the ROE for the two programs, General State
Aid for the programs was over-claimed by
$27,873 and $734, respectively.

• Prior to adjustments for items accrued for
the prior and current fiscal years, the
expenditures reported on the final
expenditure reports for the Regional Safe
Schools, Truants Alternative/Optional
Education, and ROE/ISC Operations grants
agreed to the expenditures recorded in the
general ledger.  However, after adjustments
for the accruals, expenditures on the
Regional Safe Schools expenditure report
exceeded actual expenditures by $285. The
actual expenditures for the Truants
Alternative/Optional Education and ROE/ISC
grants exceeded the amounts per the final
expenditure reports by $127 and $498,
respectively.

• The expenditures on the Adult Education and
Family Literacy State Basic grant expenditure
report for the period ended June 30, 2017 did
not agree to the general ledger and were
overstated by $2,757 as expenditures totaling
this amount were included on the grant
expenditure report for the fiscal year 2016
grant.  In addition, the FY16 grant agreement
required at least 45 percent of the grant
must be spent on direct instruction; however,
none of the $2,757 reported was spent on
direct instruction.

• The ROE did not expend all of its Adult
Education and Family Literacy Federal Basic
grant for fiscal year 2016. While funds
totaling $23,386 were received, expenditures
totaled only $12,318, leaving $11,068 of
unspent funds. The final fiscal year 2016
expenditure report improperly reported that
all funds were expended. Though the unspent
funds were due to the Illinois Community
College Board by October 15, 2016 (FY17),
they had not been returned as of June 30,
2017.

As a recipient of federal, State, and local
funds from various grantor agencies, the ROE
must incorporate certain procedures into its
operations in order to comply with the grant
agreements with these entities. ISBE requires
expenditure reports to be filed within 20
days of the applicable end of each quarter.

In addition, grant agreements require the ROE
to report actual expenditures incurred rather
than reporting expenditures based on the
amount budgeted in the grant agreement. The
ROE is required to spend funding in
accordance with budgets submitted to
grantors.

According to Regional Office officials, there
was a lack of communication with personnel
and a misunderstanding of accounting and
internal control procedure requirements by
program directors and their administrative
personnel. (Finding 2017-002, pages 12-14)
This finding was first reported in 2015.

The auditors recommended that the ROE should
implement adequate internal controls to
ensure that expenditure reports are filed
timely and expenditures included in grant
expenditure reports are properly adjusted for
accrued items. The ROE should also ensure
student attendance statistics submitted to
the ISBE are accurate and complete to prevent
the ROE from having to reimburse ISBE. The
ROE should thoroughly review grant agreements
and comply with all grant requirements.

ROE Response: The ROE will implement adequate
internal controls to ensure expenditure
reports are filed timely and only properly
recorded and approved expenditures are
included in grant expenditure reports. The
ROE will implement a system to ensure
accurate student attendance recording and
reporting. All expenditures reported on any
final expenditure report will match general
ledger expenditures. Management will contact
the ICCB to determine how they want to handle
the unspent funds. Management will perform a
detailed review of all expenditure reports to
ensure the expenditures are reported
correctly. Management will review all grant
agreements and ensure that the ROE complies
will all requirements.

Prior Year ROE Response: The ROE will
implement adequate internal controls to
ensure that expenditure reports are filed
timely and that only properly recorded and
approved expenditures are included in grant
expenditure reports. Loan repayments will be
properly classified and recorded as per
accounting principles. All expenditures
reported on any final expenditure reports
will match general ledger expenditures.

CONTROLS OVER PREPARATION OF JOURNAL ENTRIES

The ROE did not properly support or review
journal entries.  The ROE could not provide
supporting documentation for 4 out of 25
(16%) of the journal entries selected for
testing.  An additional 7 out of 25 (28%) of
the journal entries tested lacked the
necessary documentation for the Regional
Superintendent or Assistant Regional
Superintendent to determine if the journal
entry was appropriate during review.

The ROE is responsible for establishing and
maintaining an internal control system over
journal entries to prevent errors or fraud.
In addition, adequate controls over
compliance with laws, regulations, and grant
agreements require supervisory review of
expenditures charged to grant programs.

According to Regional Office officials, there
was a lack of communication between the
accounting personnel and a misunderstanding
of accounting and internal control procedure
requirements by management. (Finding
2017-003, page 15)

The auditors recommended that the ROE should
retain all source documents used to support
journal entries. In addition, the Regional
Superintendent or Assistant Regional
Superintendent should formally review and
approve all journal entries, along with
supporting documentation, prior to the
entries being posted to the accounting
records.

ROE Response: The ROE will retain all source
documents used to support journal entries and
all entries will be reviewed and approved
prior to being posted in the accounting
records.

CONTROLS OVER EXPENDITURES

The ROE lacked proper controls over
expenditures purchased with the ROE’s credit
cards.  The ROE improperly recorded the
purchase of supplies as purchased services
for 4 out of 60 (7%) cash disbursements
tested.   Further, during the testing of
credit card transactions, the check out date
on the ROE credit card “check out” form was
dated after the transaction date on the
credit card statement for 4 out of 17 (24%)
credit card transactions tested.

The ROE has a policy that authorized staff
must fill out a “check out” form for use of
the ROE’s credit cards. The form must be
signed by the requestor and should be
approved by the program director, Regional
Superintendent, or Assistant Regional
Superintendent.

Internal controls should ensure that
expenditures incurred by the ROE are
adequately documented, accurately recorded in
the general ledger, incurred for a business
purpose, and represent economical and
effective use of ROE resources.

According to Regional Office officials, an
internal control system of the credit card
check in and check out and the purchase of
supplies was in place but not fully
implemented. (Finding 2017-004, Pages 16-17)

The auditors recommended that the ROE’s
management should ensure the ROE designs and
implements an adequate system of internal
controls over credit card transactions and
cash disbursements to prevent errors and
fraud. All disbursements made by the ROE
should be accurately recorded in the general
ledger and supported by sufficient, accurate,
and properly approved documentation.

ROE Response: The ROE has now implemented an
adequate system of internal controls over
credit card transactions and cash
disbursements to prevent errors and fraud.
All disbursements made by the ROE will be
supported by sufficient, accurate and
properly approved documentation.


AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #40’s financial statements as of
June 30, 2017 are fairly presented in all
material respects.

This financial report was conducted by the
firm of West & Company, LLC.

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