REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #44: MCHENRY
COUNTY

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2019

Release Date:  December 16, 2020

FINDINGS THIS AUDIT:  5

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 4 -- 4
Category 2:  0 -- 0 -- 0
Category 3:  0 -- 1 -- 1
TOTAL:  0 -- 5 -- 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

• (19-1) The Regional Office of Education
#44 did not have sufficient internal
controls over the financial reporting
process.

• (19-2) The Regional Office of Education
#44 did not comply with grant
requirements.

• (19-3) The Regional Office of Education
#44 did not properly account for grant
funds.

• (19-4) The Regional Office of Education
#44 did not have adequate internal
control procedures over cash.

• (19-5) The Regional Office of Education
#44 did not provide completed financial
statements in an auditable form by the
August 31 deadline.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #44
(ROE) did not have sufficient internal
controls over the financial reporting
process. The ROE maintained its
accounting records on the cash basis of
accounting. While the ROE maintained
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).

The auditors noted the following in the
review of the Regional Office’s
accounting records:

• The ROE’s trial balance from its
accounting system did not agree to the
amounts reported in the financial
statements. Funds reported in the
financial statements were not set up in
the accounting system to account for the
transactions by fund and as such fund
balances did not roll forward correctly
from the prior year and were out of
balance as there were no correct
allocations to funds/programs.
• The ROE provided the financial
statement preparer adjustments and
details supporting the financial
statements, but there was no clear
reconciliation between the accounting
system balances and the adjusted balances
reported.
• Auditors noted transactions for Fiscal
Year 2019 that had incorrect posting
dates in the accounting system; some
posting dates were after June 30, 2019.
In addition, duplicate entries were noted
that were not adjusted as of June 30,
2019.
• The ROE improperly classified the
Fingerprinting Fund (Fund) activities
under the General Fund which is reported
as governmental activities instead of a
non-major proprietary fund that should be
reported as business-type activities.
Accordingly, no statement of cash flows
was reported for this non-major
proprietary fund. Revenues for Fiscal
Year 2019 totaled $9,999. There were no
associated expenses and liabilities
recorded during the year. Total assets as
of June 30, 2019 were $9,999. Total net
position as of June 30, 2019 was $9,999.

Auditors also noted misclassifications
totaling $151,956 and unreported
transactions totaling $243,726 in the
originally submitted financial
statements. The ROE subsequently adjusted
the financial statements to correct these
errors.

Regional Office management indicated the
ROE did not have adequate funding to hire
and/or train accounting personnel with
the knowledge, skills and experience to
prepare GAAP based financial statements.
Also, the ROE reported the transactions
under the General Fund and did not
realize the adjustment was not made to
report the activities of the Fingerprint
Fund as business-type activities at year-
end. (Finding 19-001, pages 11 – 14) This
finding was first reported in 2014.

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.

Additionally, the auditors recommended
the ROE should implement procedures to
ensure proper analysis of fund activities
are made when new funds are set up or
when transactions are recorded in an
existing fund for proper classification
and reporting in accordance with GASB
Statement No. 34.

ROE Response: The ROE agrees with this
finding and has secured the services of
an accounting consultant that has
significant experience with Regional
Offices of Education to prepare a
compilation of their financial statements
and notes in accordance with generally
accepted accounting principles for fiscal
year 2020. The consultant was hired in
July 2020 and will prepare the FY20
financial statements and will be
responsible for the monitoring and
reconciliation of the general ledger and
bank statements on a monthly basis,
ensure all fund activities are recorded
properly and provide training to all
staff on fraud detection and prevention.

NONCOMPLIANCE WITH GRANT REQUIREMENTS

The Regional Office of Education #44
(ROE) did not properly report actual
grant expenditures. The Regional Safe
Schools, Title II – Teacher Quality –
Leadership, and Regional Safe Schools
Cooperative grant programs’ budgets and
final expenditure reports indicated the
ROE expended purchased services and
supplies and materials. However, all of
the funding was forwarded to other
entities as payments to other governments
to administer the programs; therefore,
the expenditure reports were completed
based on budget versus actual general
ledger detail.

The Regional Office must comply with
grant accounting and reporting
requirements established by grant
agreements with the Illinois State Board
of Education (ISBE) and other grantors in
addition to the requirements established
by ISBE’s  fiscal policies and procedures
for grantees. Among these requirements
are accurate, current, and complete
disclosure of grant financial activity to
the grantor.

Regional Office management indicated that
due to vacancy of the bookkeeper
position, expenditure reports were
completed based on budget versus actual
general ledger detail. (Finding 2019-002,
pages 15-16) This finding was first
reported in 2016.

The auditors recommended the ROE should
ensure grant budgets and expenditure
reports are prepared using current and
accurate financial data based on reports
obtained from the ROE’s accounting
system.

ROE Response: The ROE agrees with this
finding and will make necessary changes
to their chart of accounts to ensure the
grant budget and expenditure reports are
prepared using their current and accurate
financial data using the reports
generated from their accounting system.
The ROE has worked with their accounting
consultant to complete an analysis of
their financial activities to ensure all
grant programs and budget are reported
properly and that they are following
fiscal policies. The ROE was able to make
the necessary corrections for one of the
grants for FY20 and full implementation
for FY21.

IMPROPER ACCOUNTING OF GRANT FUNDS

The Regional Office of Education # 44
(ROE) did not properly record and track
grant funds received.  ROE/ISC
Operations, Regional Safe Schools
Program, and Regional Safe Schools
Cooperative funding was recorded in the
ROE’s distributive fund as general
revenue when received and as a general
expenditure when the funding was sent to
the subrecipient. These grants are
written and reported in the ROE’s name
and federal identification number, but
are not segregated based on the grant
funding source and expenditure
classification in the ROE’s accounting
system.

The ROE is required by the Illinois State
Board of Education (ISBE) to maintain its
accounting system consistent with the
ISBE Regional Office of Education
Accounting Manual (manual). The manual
requires the ROE to track grant funding
activity separately by funding source in
a set of self-balancing accounts.

Regional Office management indicated the
ROE replaced its accounting package and
intended to incorporate established ISBE
fiscal policies and require each grant to
be coded separately. However, due to the
vacancy of the bookkeeper position, the
Federal and State revenues and
expenditures were not tracked separately
in the accounting system. (Finding
2019-003, page 17) This finding was first
reported in 2016.

Auditors recommended that the Regional
Office should identify and record grant
funds in accordance with requirements set
forth in the ISBE Regional Office of
Education Accounting Manual.

ROE Response: The ROE agrees with this
finding and has updated their chart of
accounts to maintain the accuracy and
proper recording of grant revenues and
expenditures in accordance with the
requirements set forth in the “ISBE
Regional Office of Education Accounting
Manual”. This correction will be
reflected on the FY20 financial
statements.

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education #44
(ROE) did not have adequate internal
control procedures over cash. Auditors
noted the following weaknesses in the
ROE’s internal control system for which
there were no mitigating controls:

• Individual responsible for reconciling
cash accounts can accept over-the-counter
cash receipts;
• Missing deposit slips for
fingerprinting receipt transactions;
• No documented evidence of independent
review of completed bank reconciliations;
• Untimely and inaccurate performance of
monthly bank reconciliations; and
• Missing monthly bank reconciliations.

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

Regional Office management indicated the
ROE developed detailed procedures for the
ROE’s receipts process that strengthens
the internal controls and segregation of
duties related to this process. These
procedures have been formalized in the
ROE’s financial policies and procedures,
but due to limited staff, these
procedures were not implemented. In
addition, the inadequate control
procedures related to bank
reconciliations were also due to the
vacancy of the bookkeeper position.
(Finding 2019-004, pages 18-19) This
finding was first reported in 2016.

The auditors recommended that the ROE
should ensure the individual responsible
for reconciling cash accounts does not
accept over-the-counter cash receipts. In
addition, the ROE should ensure deposit
slips for fingerprinting receipt
transactions are maintained; monthly bank
reconciliations are performed for all
bank accounts accurately and timely; and
document evidence of independent review.

ROE Response: The ROE agrees with this
finding and has secured an independent
accounting consultant to complete monthly
internal reviews and reconciliations of
all bank accounts and general ledgers to
ensure any errors are identified and
corrected in a timely manner, including
maintenance of supporting deposit slips
for fingerprinting receipt transactions.
The ROE will update the policies and
procedures for accepting and reconciling
cash to strengthen the internal controls
and segregation of duties. The ROE will
also provide annual training to its staff
to help detect and prevent fraud.

DELAY OF AUDIT

The Regional Office of Education #44
(ROE) did not provide completed financial
statements in an auditable form by the
August 31 deadline. The completed
financial statements were provided on May
21, 2020.

The Regional Office 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 Government Auditing
Standards.

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 generally accepted
accounting principles (GAAP).

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

Regional Office management indicated the
Regional Superintendent’s late hiring of
the CPA firm caused for a delay in the
FY19 financial statements being
completed. Lack of sufficient staffing
made audit preparation difficult. The
ROE’s bookkeeper’s position remained
vacant during the year. (Finding 19-005,
pages 20 – 21)

The auditors recommended that 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 agrees with this
finding and will implement procedures to
ensure compliance with 105 ILCS 5/2-3.17a
and 74 Ill. Adm. Code 420.320 (c) (2).
Annual financial statements will be
compiled on an accrual basis of
accounting in accordance with GAAP. These
financial statements will be available to
the Auditor General by August 31
deadline. We expect to have the FY21
financial statements available to the
Auditor General by the deadline of August
31.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #44’s financial statements as
of June 30, 2019 are fairly stated in all
material respects.

This financial audit was conducted by the
firm of Adelfia LLC.

JOE BUTCHER
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