REPORT DIGEST

 

ILLINOIS STATE BOARD OF EDUCATION

 

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

 

For the Year Ended:

June 30, 2004

 

Summary of Findings:

Total this audit                      15

Total last audit                      13

Repeated from last audit       10

 

Release Date:

March 31, 2005 

 

 

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 is also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

SYNOPSIS

 

¨       The Agency did not properly communicate essential financial reporting information between the financial reporting division and other divisions.

 

¨       The Agency did not maintain sufficient controls over its accounts receivable reporting and recordkeeping.

 

¨       The Agency did not properly perform reconciliations of cash receipts and cash balances.

 

¨       The Agency did not maintain adequate controls over, or devote proper time or resources, to its financial reporting process.

 

¨       The Agency did not comply with certain duties mandated by State statute.

 

¨       The Agency did not report all information as required by the School Code to the Governor and General Assembly.

 

¨       The Agency did not maintain proper controls over contract requirements.

 

¨       The Agency did not properly report the fees collected on the 2004 Agency Fee Imposition Report submitted to the Office of the State Comptroller.

 

¨       The Agency did not provide adequate oversight of the Regional Offices of Education and Intermediate Service Centers. 

 

¨       The Agency did not comply with all provisions of the Agricultural Fair Act.

 

¨       The Agency did not fully implement the recommendations of the Management Audit of the Teachers Academy for Mathematics and Science.

 

 

 

 

{Expenditures and Activity Measures are summarized on the reverse page.}

 

                                                                             


 

 

STATE BOARD OF EDUCATION

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

FOR THE YEAR ENDED JUNE 30, 2004

(Comparative Data Shown for Fiscal Year Ending June 30, 2003)

 

EXPENDITURE STATISTICS

FY 2004

FY 2003

 

·         Total Expenditures (All Funds)............................

 

       OPERATIONS TOTAL........................................

             % of Total Expenditures..................................

 

             Personal Services.............................................

             % of Operations Expenditures...........................

             Average No. of Employees...............................

 

             Other Payroll Costs (FICA, Retirement)............

             % of Operations Expenditures...........................

 

             Contractual Services.........................................

             % of Operations Expenditures...........................

 

             All Other Operations Items...............................

             % of Operations Expenditures...........................

 

       GRANTS, REFUNDS, OTHER.............................

             % of Total Expenditures..................................

 

       Federal Expenditures Passed Through to Other Entities 

             % of Total Expenditures..................................

 

·         Cost of Property and Equipment...........................

 

 

$7,130,721,498

 

$136,047,898

1.91%

 

$27,657,617

20.33%

502

 

$6,462,538

4.75%

 

$8,826,912

6.49%

 

$93,100,831

68.43%

 

$5,373,054,297

75.35%

 

$1,621,619,303

22.74%

 

$17,556,048

 

$6,702,830,387

 

$268,166,801

4.00%

 

$36,269,998

13.52%

606

 

$6,318,569

2.36%

 

$8,200,434

3.06%

 

$217,377,800

81.06%

 

$4,909,400,973

73.24%

 

$1,525,262,613

22.76%

 

$18,294,445

SELECTED ACTIVITY MEASURES – UNAUDITED

FY 2004

FY 2003

Number of Operating School Districts............................

Number of Schools With Report Card Information..........

Enrollment (in thousands)..............................................

Dropout Rate................................................................

Attendance Rate...........................................................

Graduation Rate............................................................

Total Number of Teachers (FTE)..................................

Students Per Teacher (Elementary)...............................

Students Per Teacher (Secondary).................................

Students Per Administrator............................................

Instructional Expenditures Per Pupil...............................

Operational Expenditures Per Pupil................................

886

3,907

2,060

4.6%

94.2%

86.5%

125,702

19.4

18.8

208.7

$5,022

$8,482

892

3,919

2,044

4.9%

94.0%

86.0%

129,068

18.4

18.2

220.8

$4,842

$8,181

 

STATE SUPERINTENDENT OF EDUCATION

During Audit Period:      Dr. Robert E. Schiller, Dr. Randy Dunn (effective 9-20-04)

Currently:                      Dr. Randy Dunn



 

 

 

 

 

 

 

Failure to properly communicate essential financial reporting information

 

 

 

 

 


Inadequate communication among divisions was not conducive to providing management with necessary financial reporting information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inadequate controls over accounts receivable totaling $17.2 million

 

 

 

 

 

Inaccurate reporting at June 30, 2004

 

 

 

 

 

 

Problems in implementing new loan system

 

 

 

 

 

 

Amounts for principal and interest in new loan system inconsistent with system used for active loans

 

 

 

 

 

 

 

 

 

Information not included in financial reporting

 

 

 

 

 

 

 

 

 

 

Need to establish Agency-wide internal controls for accounts receivable reporting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Cash in-transit and cash on-hand not properly included in reconciliations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Insufficient time and resources devoted to the financial reporting process

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Noncompliance with various School Code requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All information not properly reported to Governor and General Assembly

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Inadequate controls over contract requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees not properly classified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Lack of adequate oversight provided to Regional Offices of Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Parts of Agricultural Fair Act not complied with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six of seven prior  recommendations not fully implemented

 

 

 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

IMPACT OF ORGANIZATIONAL STRUCTURE

 

The Agency’s decentralized organizational structure led to the failure to properly communicate essential financial reporting information such as accounts and loans receivable and grant program details between the financial reporting division and other divisions.

 

Throughout the audit process, we noted several instances where the Agency’s organizational structure directly impacted its ability to communicate and process essential information.  For example, we noted:

 

·        Divisions within the Agency did not communicate with one another regarding litigation, legislation, receipts, accounts receivable, payroll and federal and state programs.

 

·        Management did not ensure the Agency’s various computer systems and the divisions responsible for maintaining those systems were providing the financial reporting division with accurate and timely information.

 

·        Management did not centrally assign the responsibility for monitoring new mandates or track changes in individual responsibilities and the location of records during staff reductions, staffing changes and physical moves.

 

·        Management did not ensure all supervisors were effectively overseeing Agency activities and that the supervision was taking place on a timely basis.  (Finding 1, pages 16-18)  This finding was first reported in 2002.

 

      We recommended the Agency establish policies and procedures to ensure effective communication among all divisions to provide management with the information necessary to evaluate the financial reporting impact of all events and transactions affecting the Agency. 

 

 

      Agency officials agreed with our recommendation and stated the new Agency administration will review policies and procedures in an effort to ensure that more effective communication exists among divisions to provide management with the necessary information.  (For the previous agency response, see Digest Footnote #1.)

 

NEED TO IMPROVE CONTROLS OVER ACCOUNTS RECEIVABLE REPORTING AND RECORDKEEPING

 

      The Agency did not have sufficient controls over its accounts receivable reporting and recordkeeping.  During the audit period, the Agency was required to file quarterly accounts receivable reports with the Office of the State Comptroller for several funds.  At June 30, 2004, accounts receivable for these funds totaled $17.2 million on the Agency’s financial statements.  During our testing we noted the following:

 

·        All receivables information was inaccurately reported on the June 30, 2004 Accounts Receivable Activity Report (C-97) and the Aging of Total Gross Receivables Report (C-98) for the School Technology Revolving Loan Program Fund (Fund 569).  In addition, detailed supporting documentation was not provided to facilitate compliance testing of the C-97 and C-98 for the 569 Fund and no reconciliations were performed between the Fund 569 loan system and the MIDAS system.

 

·        A new loan system was implemented during the fiscal year to maintain Fund 569 loans but the new system did not provide all essential loan information, did not agree to the old system and was not updated to include the loan payment/amortization schedules for loans made prior to the implementation of the system.  In addition, the Agency failed to ensure adequate training for operation of the new Fund 569 loan system. 

 

·        The interest and principal in the new loan system was inconsistent with amounts reported in the system used for active loans made prior to the implementation of the new system for Fund 569 loans.  In addition, the amortization schedule in 1 of 25 loans tested in Fund 569 was revised due to a lump sum payment, leading to a violation of the loan agreement and the Agency did not attempt to collect a payment, nor assess late fees, on 1 of 25 loans tested in Fund 569.  The Agency also incorrectly reported short-term and long-term receivables in Fund 569 on the June 30, 2004 Report C-97. 

 

·        The Agency administered the Illinois Virtual High School Program in the School Technology Revolving Fund (Fund 544) prior to fiscal year 2004, but failed to prepare quarterly accounts receivable reports or include the receivables in financial reporting and failed to maintain documentation to support the beginning balance of accounts receivable for the September 30, 2003 Report C-97.

 

·        The Agency did not report the correct number of accounts for gross receivables on the C-97 Reports in Fund 567, incorrectly reported short-term and long-term receivables in Fund 605, and understated interest receivable in Fund 130. 

 

·        A thorough supervisory review was not performed for accounts receivable reporting.  In addition, no Agency-wide system of controls was established to ensure the reporting of all receivables or to ensure the accuracy of the information reported.  (Finding 2, pages 19-22)  This finding was first reported in 2002.

 

We recommended the Agency establish and implement formal policies and procedures to ensure accounts receivable are reported in accordance with Statewide Accounting Management System’s procedures, proper records are maintained and a supervisory review is performed of the C-97 and C-98 Forms prior to submission to the Comptroller’s office.  Further, the Agency should implement a system encouraging collaboration between divisions to ensure the accurate reporting of all receivables for compliance and financial reporting purposes. 

 

      Agency officials agreed to improve its internal procedures to ensure that accounts receivable will be reported as required by the SAMS.  Agency officials also stated the transition to a new accounts receivable system has begun and adjustments to the reporting capabilities are being completed.  (For the previous agency response, see Digest Footnote #2.)

 

FAILURE TO RECONCILE CASH RECEIPTS AND CASH BALANCES

 

      The Agency did not properly perform reconciliations of cash receipts or cash balances.  During our testing of reconciliations, we noted the following:

 

·        The Agency did not reconcile amounts in the Management Information Database Accounting System (MIDAS) and the State Comptroller reports to the proper fund balance at June 30, 2004.  The fund balance reconciliations for Funds 016, 159, and 161 did not include cash in-transit totaling $10,198, $232, and $2,602, respectively.  The fund balance reconciliation for Fund 569 did not include cash on-hand totaling $1,187,714. 

 

·        The Agency lacks formal policies and procedures to provide guidance for proper reconciliations.  (Finding 3, page 23-24)  This finding was first reported in 2002.

 

      We recommended the Agency ensure cash receipt and cash balance reconciliations be performed in accordance with Statewide Accounting Management Systems (SAMS) procedures and ensure a thorough and timely supervisory review of the reconciliations is performed. 

 

      Agency personnel agreed with our recommendation and stated they are continually improving the process of reconciling cash receipts as required by SAMS.  The Agency will review SAMS procedures and Agency processes to ensure that cash receipts are treated appropriately.  (For the previous agency response, see Digest Footnote #3.)  

 

NEED TO IMPROVE CONTROLS OVER THE FINANCIAL REPORTING PROCESS

 

      The Agency did not maintain adequate controls over the financial reporting process and did not devote the proper time and resources to this function.  We noted financial statements, related footnotes, and financial related schedules were not prepared timely.  We also noted several errors in Agency prepared accounting reports transmitting financial information to the Office of the State Comptroller in accordance with generally accepted accounting principals (GAAP).  As a result, many adjusting entries and revisions were necessary.  (Finding 4, pages 25-27)  This finding was first reported in 2002.

 

We recommended the Agency establish and maintain effective controls over the GAAP and financial reporting process to ensure the timely and accurate submission of financial data. 

 

      Agency officials agreed with our recommendation and stated they will continue to improve their controls for GAAP and financial reporting processes.  (For the previous agency response, see Digest Footnote #4.)

 

 

NONCOMPLIANCE WITH MANDATED DUTIES SET FORTH IN STATE LAW

 

      The Agency did not comply with duties mandated by State statute.  We noted the Agency did not:

 

·        initiate and maintain an annual Governor’s Recognition Program;

·        develop a model curriculum;

·        make computer literacy and high-tech competency grants available to qualifying school districts;

·        prepare or make available all provisions of family life instruction courses and evaluation procedures;

·        establish a State-level Committee of Cooperative Services;

·        prepare fiscal notes timely as requested by the General Assembly;

·        review, approve and process Safety Survey Reports timely;

·        issue a Certificate of Approval for the Expenditure of Fire Prevention and Safety Funds timely;

·        adequately assess the performance progress for Reading Improvement Block Grant Programs;

·        maintain documentation demonstrating teacher coordinators of the Work Experience and Career Exploration Program possessed the educational experience;

·        notify school districts of a link on the Agency’s website to homework assistance websites;

·        compile data by school district on attacks on school personnel; or,

·        maintain documentation that the behavioral intervention guidelines were reviewed in the last three years.  (Finding 6, pages 30-35)  This finding was first reported in 2000.     

 

      We recommended the Agency comply with the mandated duties. 

 

      Agency officials agreed with our recommendation and stated they will implement changes accordingly.  (For the previous agency response, see Digest Footnote #5.)

 

NONCOMPLIANCE WITH REPORTING REQUIREMENTS SET FORTH IN THE SCHOOL CODE

 

      The Agency did not properly report all information as required by the School Code to the Governor and the General Assembly.  We noted the Agency’s report to the Governor in accordance with the Vocational Education Act under the School Code did not include a statement of suggestions and recommendations with reference to the development of vocational education in the State and did not include a statement of recommendations on programs and policies to overcome sex bias and stereotyping in vocational education programming or an assessment of the State’s progress in achieving such goals.  We also noted the Agency did not timely submit the Teacher Supply and Demand Annual Report to the Governor, General Assembly and institutions of higher education as required by the School Code.  (Finding 7, pages 36-37)  This finding was first reported in 2003.  

 

      We recommended the Agency prepare and submit required reports in accordance with provisions of the School Code.

 

      Agency officials agreed with our recommendation.  (For the previous agency response, see Digest Footnote #6.)

 

LACK OF CONTROLS OVER CONTRACT REQUIREMENTS

 

      The Agency did not maintain proper controls over contract requirements.  We noted 2 of 11 (18%) professional and artistic contracts sampled were not reduced to writing before services were performed and the Agency did not file a Professional and Artistic Services Affidavit with the Office of the Comptroller and the Office of the Auditor General.  We also noted one contract over $3 million did not include the Request for Sealed Proposal Routing Record in the contract file and could not be located by the Agency.  In addition, we noted one contract did not contain dated disclosures and one contract was not signed by the Agency.  (Finding 9, pages 40-41)  This finding was first reported in 2002. 

 

      We recommended the Agency strengthen its controls to ensure compliance with all contracting rules, regulations, and statutory requirements. 

 

      Agency officials stated they will continue to enforce its controls to ensure compliance with all contracting rules, regulations and statutory requirements.  (For the previous agency response, see Digest Footnote #7.)

 

INACCURATE AGENCY FEE IMPOSITION REPORTING

 

      The Agency did not properly report the fees collected on the 2004 Agency Fee Imposition Report Form submitted to the Office of the State Comptroller.  We noted the School Bus Driver Course Fees were not properly classified.  The Agency classified all school bus driver fees as School Bus Driver refresher course fees and recorded no fees for the School Bus Driver initial classroom course in school bus driver safety.  (Finding 10, page 42)  This finding was first reported in 2002. 

 

      We recommended the Agency ensure Agency Fee Imposition information is accurately reported.

 

      Agency officials stated they will ensure the Agency Fee Imposition information is accurately reported.  They also stated the 2004 report was revised and submitted to the Comptroller.  (For the previous agency response, see Digest Footnote #8.)

 

INADEQUATE OVERSIGHT OF THE REGIONAL OFFICES OF EDUCATION

 

      The Agency did not provide adequate oversight of Regional Offices of Education (ROEs) and Intermediate Service Centers (ISCs).  We noted the Agency did not include language identifying allowable and unallowable expenditures in some grant application material.  In addition, we could not determine whether annual record reviews were performed as the reviews were not dated and the Regional Improvement Plan activity statements were not reviewed to ensure the individual responsible for conducting each activity was identified.  (Finding 11, pages 43-44)  This finding was first reported in 2002.  

 

We recommended the Agency implement policies and procedures to ensure proper oversight of the ROEs and ISCs.  These policies and procedures should include controls designed to strengthen the Agency’s oversight of the ROEs/ISCs. 

 

Agency officials stated they agreed with the recommendation and will develop guidelines for allowable and unallowable costs and incorporate them into future ROE grant application materials and will also disseminate additional guidance during FY05.  Agency officials also stated they have improved the annual record review process to include dates and an additional review step to ensure that individuals responsible for Regional Improvement Plan Activities are identified.  (For the previous agency response, see Digest Footnote #9.) 

     

FAILURE TO ENSURE PREMIUM LIST CERTIFICATIONS

 

      The Agency did not comply with the Agricultural Fair Act.  We noted all premium list certifications and financial statements did not contain all required information and were not signed and notarized by the fair supervisor.  In addition, the Agency did not maintain documentation that financial statements were forwarded to the Department of Agriculture within 30 days after the close of the fair and a thorough supervisory review to ensure compliance with the Act was not performed.  (Finding 12, pages 45-46)  This finding was first reported in 2002.

 

      We recommended the Agency ensure its mandated duties are fulfilled by establishing and implementing policies and procedures to ensure compliance with all applicable requirements of the Agricultural Fair Act.

 

      Agency officials agreed with our recommendation and stated since the program has been jointly administered by the Department of Agriculture, which carries out most of the program’s functions, both Agencies agreed that it would be appropriate for the Department of Agriculture to have sole responsibility for the program.  Agency officials also stated they will follow the progress of legislation introduced to amend the statute and continue to work with the Department of Agriculture to ensure that all issues are resolved.  (For the previous agency response, see Digest Footnote #10.)

 

FOLLOW-UP TO FINANCIAL AND MANAGEMENT AUDIT OF THE TEACHERS ACADEMY FOR MATHEMATICS AND SCIENCE

 

      The Agency did not fully implement six of seven recommendations noted in the financial and management audit of the Teachers Academy for Mathematics and Science (Academy).  However, it should be noted that the Academy did not receive any funding from the Agency during FY04.  The Academy is provided Agency funds in the FY05 State budget and the issues noted below will be followed up on during the next engagement of the Agency.  The following was noted:

 

·        The Agency did not develop a formal grant agreement with the Academy that includes information on what are appropriate and inappropriate uses of the funds, program specifications, budget guidelines and terms for the grant. 

 

·        The Agency did not provide the Academy with documented outcome goals prior to the fiscal year in return for funding levels received from the State and did not monitor the Academy’s performance to ensure State resources are being used for the purposes intended. 

 

·        The Agency did not establish a system to monitor the performance of the Academy by developing and implementing procedures governing the review of Academy prepared documents and did not verify the information presented in the Academy’s evaluation reports and determine whether the increases in test scores are commensurate for the funding level received by the Academy. 

 

·        The Agency did not develop administrative rules that identify what are allowable and unallowable uses of State funds provided to grantees, including the Academy, and did not follow up on questioned expenditures to see if there is any need to recover State funds. 

 

·        The Agency did not monitor the use of interest income on State funds to ensure that these funds are used for the same purpose as the principal of the grant and the Agency did not examine the Academy’s use of interest revenue and recover any funds that were used for non-grant purposes.  In March 2004, the Agency requested an Attorney General opinion on the uses for interest earned with State funds.

 

·        The Agency did not develop criteria to be included in formal grant agreements with the Academy that returns fixed assets purchased with State funds by the Academy to the State in the event the Agency discontinues funding of the Academy program.  The Agency is waiting for an Attorney General opinion, requested in March 2004, on remedies for disposition of fixed assets purchased with State funds.  (Finding 15, pages 50-52)

 

We recommended that the Agency continue to fully implement the remaining six audit recommendations contained in the April 2003 financial and management audit of the Teachers Academy for Mathematics and Science that were either not implemented or were partially implemented.

      Agency officials agreed with our recommendation and stated they will continue to implement the recommendations as agreed to in the previous Agency responses.

 

      Deborah Scheiter, Principal Auditor, provided the responses to our findings and recommendations.

 

AUDITORS’ OPINION

 

      Our special assistant auditors stated that the Agency’s financial statements of the governmental activities, the major fund, and the aggregate remaining fund information of the Agency, as of and for the year ended June 30, 2004, are fairly stated in all material respects.

 

 

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:JSC:pp

 

 SPECIAL ASSISTANT AUDITORS

 

      Our special assistant auditors for this audit were PTW & Co.

 

 

DIGEST FOOTNOTES

 

#1 – IMPACT OF ORGANIZATIONAL STRUCTURE – Previous Agency Response

 

2003:  The Agency does not accept the conclusion that its organizational structure led to the issues listed under this finding.  We note that the discussion of issues above does not identify any specific aspect of ISBE’s organization that is considered to have contributed to the concerns raised.  Further, the recommendation include no suggestions for changes in the organizational structure that are considered desirable in order to resolve those concerns.

 

Additionally, the individual items have been included under other findings in this report and the Agency has provided responses in those findings.  Most issues cited were due to the fact that the Agency lost 20 percent of its staff during fiscal year 2003 to Early Retirement, and we were fiscally unable to replace them.  

 

To conclude, the main factor that contributed to the issues listed in this finding was the significant loss of personnel the Agency experienced during fiscal year 2003.  Subsequently, staff performing new functions have received training so that they are able to execute their responsibilities appropriately.  The Agency is committed to continuing that process. 

 

Auditor’s Comments:  This is a repeat finding.  In the prior audit, we noted similar problems with a failure to communicate essential financial reporting information among divisions.  In response to the prior audit, the Agency stated that it had recently centralized and realigned its structure to improve communications. 

 

Nevertheless, we found similar problems in the current audit.  While these problems may have been exacerbated by the 2003 early retirement initiative, it is important to note that they existed prior to that time.  We leave it up to the Agency to determine, within its managerial discretion, what specific organizational structure changes will be sufficient to ensure effective communication of essential financial reporting information among its various divisions.

 

#2 – LACK OF CONTROLS OVER ACCOUNTS RECEIVABLE REPORTING AND RECORDKEEPING – Previous Agency Response

 

2003: The Agency agrees to improve its internal procedures to ensure that accounts receivable will be reported as required by the Statewide Accounting Management System (SAMS).  The finding associated with Fund 569 is the result of staff turnover in one area and is being addressed through the implementation of a consolidated accounts receivable reporting process and better staff training. 

 

#3 – FAILURE TO RECONCILE CASH RECEIPTS AND CASH BALANCES – Previous Agency Response

 

2003:  The Agency agrees with the recommendation and is continuously improving the process of reconciling cash receipts as required by SAMS.  As pointed out in the first bullet of the finding, some of the difficulties are related to the transition from the previous, outdated accounting system to the new one, which affected the Agency’s ability to perform the required reconciliations.  This was complicated by the fact that Agency lost a significant number of staff under Early Retirement and did not have the resources to address these issues as quickly as intended. 

 

#4 – INADEQUATE CONTROLS OVER GAAP AND FINANCIAL REPORTING PROCESS – Previous Agency Response

 

2003:  We believe that ISBE has adequate controls over the GAAP and financial reporting process and will continue to make every effort to provide timely and accurate financial reports.  Delays in the process are primarily due to issues outside the control of the Agency, and most of the adjusting entries that had to be made were also caused by events outside our control. 

 

·          The GAAP reports are due before all final financial data are available.  Therefore, some of the financial information is based on estimates and has to be adjusted later as the actual figures become available.  Approximately half of the adjusting journal entries noted by the auditors were the result of such unavoidable adjustments.

 

·          Some of the remaining adjusting journal entries noted by the auditors were the result of adjustments made by the Comptroller to characterize activities consistently across the state, rather than to correct errors made by the Agency.  Such adjustments and reclassification entries will always be necessary to reflect statewide activities, but they are outside the control of the Agency

 

·          All GAAP packages were submitted timely.  We were unable to provide the revised data by November 15 because we were not informed revisions were due until after that date.  We provided adjustments within two days of notification they were due.

 

Auditor’s Comments:  We agree that some of the problems noted in the GAAP and financial reporting process were caused by factors outside of the Agency’s control.  Other adjustments were due to errors in the Agency’s original submissions.  For instance, several adjusting entries were made to reclassify liability accounts that were not accurately reflected in the original submission of GAAP packages.  These entries were within the Agency’s control and were not due to the lack of availability of final financial data.  We agree, however, that some adjustments were due to factors outside of the Agency’s control, such as adjustments necessitated by actions of the State Comptroller’s Office.

 

#5 – NONCOMPLIANCE WITH MANDATED DUTIES – Previous Agency Response

 

2003:  The Agency now has a system in place to recognize and reward schools whose students perform at high levels or demonstrate outstanding improvements.  The Agency has ensured the required number of members serve on the Advisory Council for Bilingual Education.  The Agency is also pursuing legislative changes to help resolve the computer literacy and high tech grant issue as well as the Teaching Certificate suspension appeal and hearing timeframes.  Because of limited resources, the Agency will prioritize the remaining mandates and implement them in the order of their priority.

 

#6 – NONCOMPLIANCE WITH REPORTING REQUIREMENTS – Previous Agency Response

 

2003:  The Agency agrees with the recommendation and has implemented the following reporting changes:

 

·          The previous format was modified to include the additional recognition requirements, which have been included in the most current 2003/2205 Condition of Education (2003 Annual Report and Proposed Budget, FY05).

 

·          The required information mandated under the Vocational Education Act included the most current 2003/2005 Condition of Education (2003 Annual Report & Proposed Budget, FY05)

 

·          In prior years ISBE reported the required information for each school district.  Information regarding recognized schools has been included in the most recent Annual Statistical Report (2002).

 

·          The 2002-03 Latch Key Report has been transmitted and documentation exists showing the transmission.

 

#7 – LACK OF CONTROLS OVER CONTRACT REQUIREMENTS – Previous Agency Response

 

2003:  This finding was caused by the improper actions of one staff member who is no longer with the Agency.  The Agency has reinforced with staff the current contracting policy.

 

#8 – INACCURATE AGENCY FEE IMPOSITION REPORT FORMS – Previous Agency Response

 

2003:  The Agency will implement the necessary processes to ensure that Agency Fee Imposition information is reviewed and accurately reported.

 

#9 – INADEQUATE OVERSIGHT OF THE REGIONAL OFFICES OF EDUCATION – Previous Agency Response

 

2003:  ROEs are elected officials.  They have their own boards they have to report to, not ISBE.  ISBE has specific statutory and regulatory responsibilities relative to the ROEs, and this finding lists some of them.  The Agency agrees to implement the following: 

 

·          The Agency is conducting the required biennial site visits of the ROEs/ISCs and plans to complete the cycle in September 2004.  Advisory Board meetings are monitored in the course of the visits.

 

·          The Agency is in the process of implementing the annual record reviews. 

 

However, the Agency does not have the authority or the requirement to fulfill the remaining recommendations.  Additionally, the Agency has limited resources due to Early Retirement and we will not be able to implement them.

 

·          The Superintendent holds regular meetings with the ROEs to exchange their views on various issues.  No formal documentation of the meetings is required.

 

·          All grant agreements with the ROEs are subject to the same expenditure requirements as those with school districts and other recipients.  These requirements are either directly stated in the agreements or addressed in standard written guidance.  No additional guidance is required or necessary.

 

·          ISBE developed the ROE Accounting Manual, in which expenditure codes are delineated.  There is no requirement in statute or rules that requires ISBE to provide training on the use of these codes.

 

ISBE has neither the responsibility nor the authority to monitor additional forms of compensation.

 

Auditor’s Comments:  The Agency has the responsibility for effectively overseeing the State’s elementary and secondary education system, as well as ensuring the proper use of the Agency’s funds.  As such, allowable and unallowable uses of grant funds need to be clearly defined.  The 2001 management audit of the Agency’s funding of Regional Offices of Education concluded that grant agreements contained few guidelines, which resulted in questionable uses of Agency funds.  Similarly, the Auditor General’s April 2003 audit of the Teachers Academy for Mathematics and Science identified a lack of such guidelines and recommended that an administrative rule be developed defining allowable and unallowable uses of State funds to grantees.

 

Good business practices suggest that minutes or other documentation of the coordinating council meetings be maintained to ensure proper monitoring and accountability, as well as ensuring that issues raised are followed-up on and addressed.  In its responses to the same finding in the office of the Auditor General’s 2002 compliance audit, the Agency attributed the lack of coordinating council documentation to an oversight.  Regarding the training of ROEs on expenditure codes, in its response to the 2001 management audit, the Agency stated it would “partner with the ROEs and provide technical assistance to address their internal training needs.”

#10 – FAILURE TO ENSURE PREMIUM LIST CERTIFICATIONS – Previous Agency Response

 

2003:  This program is administered jointly with the Department of Agriculture, which carries out most of the program’s functions.  Both Agencies agree that it would be appropriate for the Department of Agriculture to have sole responsibility for the program, and legislation to effect that change has been drafted and will be introduced.