REPORT DIGEST ILLINOIS STATE BOARD OF EDUCATION FINANCIAL AUDIT For the Year Ended: June 30, 2013 Release Date: January 16, 2014 Summary of Findings: Total this audit: 2 Total last audit: 1 Repeated from last audit: 1 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 www.auditor.illinois.gov INTRODUCTION This report contains only findings pertaining to the Financial Statement Audit and agreed-upon procedures regarding reported school dropout rates for the Illinois State Board of Education (Board) for the year ended June 30, 2013. Our next engagement will include a financial audit for the year ended June 30, 2014 and a compliance examination for the two years ended June 30, 2014. SYNOPSIS • The Board did not identify or prevent misstatements in financial reporting. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS NEED TO IMPROVE FINANCIAL REPORTING The Illinois State Board of Education (Board) did not identify or prevent misstatements in the Generally Accepted Accounting Principles (GAAP) Reporting Package and the draft financial statements provided to auditors. • The Board understated fiscal year 2013 expenditures, liabilities, and federal receivables by $16,963,347 due to the inaccurate calculation of adjustments to grant expenses and liabilities as of fiscal year-end for subrecipients. This also resulted in an understatement of $21,478,388 in unavailable deferred revenue and overstatement of $4,515,041 in federal operating grants revenue. • The Board did not report the cost of grants provided to sub-recipients totaling $51,557,728 for noncash and cash grants in the Grant/Contract Analysis Form of the GAAP Reporting Package. (Finding 1, Pages 41-42) This finding was first reported in 2011. We recommended the Board review its current process for preparation and review of the annual financial statements and GAAP Reporting Package to ensure that financial information is complete and accurate. Board management agreed with the finding and stated they plan to automate the liability calculation and perform data analyses to ensure calculations are reasonable. Management also stated they will ensure proper reporting of sub- recipient amounts in the future. (For the previous Board response, see Digest Footnote #1.) OTHER FINDING The remaining finding pertaining to inaccurate reporting of reasons for exiting Limited English Proficient Programs is reportedly being given attention by the Board. We will review the Board’s progress towards the implementation of our recommendations in our next engagement. AUDITOR’S OPINION Our special assistant auditors stated that the Board’s financial statements of the governmental activities, the major fund, and the aggregate remaining fund information, as of and for the year ended June 30, 2013, are fairly stated in all material respects. WILLIAM G. HOLLAND Auditor General WGH:LKW:rb AUDITORS ASSIGNED Our special assistant auditor for this engagement was E.C. Ortiz & Co., LLP. DIGEST FOOTNOTE #1 Need to Improve Financial Reporting - Previous Board Response Agency management agrees with the finding. The Agency will implement modifications to the Electronic Expenditure Reporting System. Beginning with all fiscal year 2013 federal grant budget based programs, Local Education Agencies (LEAs) will be allowed to enter and confirm outstanding obligations on all June 30 required expenditure reports. Further, as cumulative cash basis expenditure reports are submitted for periods after June 30, LEAs will be required to split and confirm the calculated payment to reflect the portion attributed to the liquidation of obligations as of June 30 and prior from the portion attributed to expenditures for activities and obligations that occur July 1 and later. The fiscal year distinction will also be required and confirmed of any advances that are entered by the LEAs. Preliminary discussions have already occurred to implement these changes. The Agency will modify the State and Federal Grant Administration Policy, Fiscal Requirements and Procedures to reflect these changes as well as communicate the new requirements via webinars and other Agency communication channels to all LEAs that will be submitting June 30 expenditure reports. In addition, the Agency will ensure that the liability for the reorganization incentive liability will be classified properly on future financial statements.