REPORT DIGEST

INTERMEDIATE SERVICE CENTER #2: WEST
COOK

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2017

Release Date:  AUGUST 24, 2021

FINDINGS THIS AUDIT:  6

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 1 -- 2
Category 2:  2 -- 1 -- 3
Category 3:  0 -- 1 -- 1
TOTAL:  3 -- 3 -- 6

FINDINGS LAST AUDIT: 6

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 Intermediate Service
Center #2 did not provide completed
financial statements in an auditable
form by the August 31 deadline.

•  (17-2) The Intermediate Service
Center #2 did not have adequate
internal control procedures.

•  (17-3) The Intermediate Service
Center #2 did not have adequate
controls over Procurement card
transactions.

•  (17-4) The Intermediate Service
Center #2 did not have adequate
controls over payroll.

•  (17-5) The Intermediate Service
Center #2 lacked adequate controls
over the review of internal controls
over external service providers.

•  (17-6) The Intermediate Service
Center #2 lacked controls over
Illinois Municipal Retirement Fund
(IMRF) census data.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

DELAY OF AUDIT

The Intermediate Service Center #2
(ISC) did not provide completed
financial statements in an auditable
form by the August 31, 2017 deadline.

The ISC 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
executive director 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 (GAGAS).

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.

ISC management indicated they incurred
key employee turnover which has put
them behind in financial reporting.
(Finding 17-001, pages 10 – 11) This
finding was first reported in 2015.

The auditors recommended the ISC
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 and
thoroughly reviewed prior to
presentation to the Auditor General’s
independent auditors for audit by the
August 31 deadline.

ROE Response: As this writing is
occurring in FY21, we expect to see
this as an ongoing finding for audits
yet to be completed for FY18-20. We
have worked with our contracted
accountant over the past five years,
who has experience with ROE/ISC audits
and knows the requirements, to have
reports available in a timely manner
moving forward. We have also hired a
Chief School Business Official (CSBO)
who will start work here in July 2021
to address this issue and other
findings in this document.

INADEQUATE INTERNAL CONTROL PROCEDURES

Auditors noted the following
weaknesses in the Intermediate Service
Center #2’s (ISC) internal control
system for which there were no
mitigating controls:
• 1 out of 12 journal entries sampled
during audit testing lacked supporting
documentation and 1 lacked supervisory
approval.
• All transactions were not initially
posted directly to the correct funds
in the general ledger. Subsequent
adjusting entries had to be recorded
to reclassify them to the proper fund.
• A prior period error was not
detected on a timely basis. In fiscal
year 2017, the ISC restated its
beginning fund balances in the General
Fund ($202,897 reduction) and
Institute Fund ($202,897 increase).
• Rent payments on a facility lease
were overpaid by $13,631 based on an
outdated lease agreement. The ISC
continued to make payments based on
the original lease agreement rather
than the amended agreement which had a
lower monthly rent.
• There was a lack of segregation of
duties within the cash receipts
process. The same employee was
primarily responsible for creating
invoices for programs and academies,
receiving and depositing cash
receipts, and following up on
outstanding receivable balances.
Additionally, there was no formal
process for reviewing outstanding
receivables.
• There was a lack of controls over
equipment inventory. The ISC had a
detailed listing of capital assets
costing over $1,500 and acquired after
2015: however, no details of assets
acquired prior to that time were
available nor were annual physical
inventories taken.

The ISC is responsible for
establishing and maintaining an
internal control system over
accounting transactions to prevent
errors and fraud.

ISC management indicated it has not
established or documented sufficient
internal control procedures. (Finding
17-002, pages 12 – 13) This finding
was first reported in 2012.

The auditors recommended the ISC
implement internal control procedures
to ensure the following:
• All journal entries should be
supported by appropriate documentation
and have evidence of supervisory
review.
• Transactions should be posted
directly to appropriate accounts upon
initial recording to avoid subsequent
reclassifications.
• Financial reports should be
thoroughly reviewed prior to issuance.
• Disbursements should be reviewed for
accuracy and supported by proper
documentation.
• Incompatible accounting functions
need to be segregated and a formal
process for reviewing outstanding
receivables implemented.
• Capital asset inventories need to be
taken on an annual basis and detailed
records maintained.

ROE Response:
• All journal entries will be
supported by appropriate documentation
and have evidence of supervisory
review.
• Since the original finding regarding
reclassifications, we have been
training staff to provide accurate
account coding to minimize the number
of journal entries needed.
• Financial reports will be thoroughly
reviewed prior to issuance.
• Disbursements will be reviewed for
accuracy and supported by proper
documentation.
• Accounting functions will be
segregated and a formal process for
reviewing outstanding receivables
implemented.
• Capital asset inventories will be
taken on an annual basis and detailed
records maintained.

INADEQUATE CONTROLS OVER PROCUREMENT-
CARD TRANSACTIONS

Internal controls over disbursements
were not effectively designed and
implemented. During auditors testing
of procurement-card (P-card)
transactions, the auditors noted the
following:
• Personal expenses were charged by
two employees on the Intermediate
Service Center #2’s (ISC) P-card.
These expenses were paid back in full
by the employees with personal checks
written to the credit card company.
The ISC maintained copies of the
personal checks and the related charge
receipts with the credit card
statements. Personal expenses charged
within the transactions tested totaled
$772.
• 1 out of 40 (2.5%) credit card
statements sampled was not available
although a supporting receipt was
provided.
• While testing internal controls over
disbursements, 1 out of 40 (2.5%)
disbursements sampled included a P-
card transaction for which a
supporting receipt was not provided.

The ISC is required to maintain a
system of controls over disbursements
to prevent errors, omissions, and
fraud. Additionally, expenses incurred
should be for a business purpose and
represent economical and effective use
of the ISC’s resources.

ISC management indicated personal
expenses were mistakenly charged by
two separate staff members using P-
cards instead of their personal credit
cards. In addition, a statement and
charge receipt were misplaced and
could not be found. (Finding 17-003,
pages 14 – 15) This finding was first
reported in 2014.

The auditors recommended the ISC
adhere to its policy prohibiting the
use of P-cards for personal use. In
addition, procedures should be
implemented to ensure documentation of
P-card activity is obtained and
retained.

ROE Response: The ISC will adhere to
its policy prohibiting the use of P-
cards for personal use. In addition,
procedures will be implemented to
ensure documentation of P-card
activity is obtained and retained.

INADEQUATE CONTROLS OVER PAYROLL

During testing of payroll controls for
a sample of 40 Intermediate Service
Center #2 (ISC) employees, auditors
noted the following:
• One employee’s contract tested did
not have the signature of either the
Executive Director or Assistant
Executive Director.
• For one employee whose position and
salary changed, a salary/position
change form was not available.

Employee contracts should be signed by
the Executive Director or Assistant
Executive Director pursuant to ISC
policy and documentation supporting
position changes for employees should
be maintained.

ISC management indicated it does not
know why a signed contract and salary/
position change form were not able to
be located. Management indicated this
could have been due to filing errors.
(Finding 17-004, page 16)

The auditors recommended the ISC
enhance internal control procedures to
ensure an appropriate review and
approval process is in place over
contracts and salary/position changes.

ROE Response: Currently (FY21) all
hires and changes in salary/position
are approved in writing by the
Executive Director or Assistant
Executive Director.

LACK OF ADEQUATE CONTROLS OVER THE
REVIEW OF INTERNAL CONTROLS OVER
EXTERNAL SERVICE PROVIDERS

As part of the audit process, auditors
requested the Intermediate Service
Center #2 (ISC) provide a population
of the service providers utilized. The
ISC was able to identify service
providers that provided various
hosting and backup services.

The ISC is responsible for the design,
implementation, and maintenance of
internal controls, including the
controls that are outsourced to
service providers, related to
information systems and operations to
ensure resources and data are
adequately protected from unauthorized
or accidental disclosure,
modifications, or destruction.

Generally accepted information
technology guidance endorses the
review and assessment of internal
controls related to information
systems and operations to assure the
accurate processing and security of
information.

During testing, the auditors noted the
ISC had not:
• Developed a formal process for
identifying service providers and
obtaining the Service Organization
Controls (SOC) reports from the
service providers on an annual basis.
• Documented its review of each of the
SOC reports.
• Monitored and documented the
operations of the Complementary User
Entity Controls (CUECs) relevant to
the ISC’s operations.
• Obtained and reviewed SOC reports
for subservice organizations or
performed alternative procedures to
determine the impact on its internal
control environment.

ISC management indicated staff lacked
knowledge that a good internal control
system included having controls in
place to ensure the accuracy of what
external service providers are
providing and to ensure that the
controls of external service providers
are sufficient to perform the
service(s) for the organization.
(Finding 17-005, pages 17 – 18)

The auditors recommended the ISC
identify all third-party service
providers and determine and document
if a review of controls is required.
If required, the ISC should:
• Obtain SOC reports or (perform
independent reviews) of internal
controls associated with outsourced
systems at least annually.
• Monitor and document the operation
of the CUECs relevant to the ISC’s
operations.
• Either obtain and review SOC reports
for subservice organizations or
perform alternative procedures to
satisfy itself that the existence of
the subservice organization would not
impact its own internal control
environment.
• Document its review of the SOC
reports and review all significant
issues with subservice organizations
to ascertain if a corrective action
plan exists and when it will be
implemented, any impacts to the ISC,
and any compensating controls.
• Review contracts with service
providers to ensure applicable
requirements over the independent
review of internal controls are
included.

ROE Response: We have made contact
with another Regional Office of
Education to receive training and
documentation regarding controls over
the review of internal controls over
external service providers.

LACK OF CONTROLS OVER ILLINOIS
MUNICIPAL RETIREMENT FUND (IMRF)
CENSUS DATA

During testing of the IMRF net pension
liability, auditors noted the
actuarially determined pension report
had census data that could not be
confirmed as reasonably accurate.
Specifically, auditors noted:
• A decrease in the number of retirees
and beneficiaries receiving benefits
(annuitant) from the December 31, 2015
actuarial valuation to the December
31, 2016 actuarial valuation from 28
to 12.
• 4 of 12 annuitants listed on the
census data provided to the actuary
were never employees of Intermediate
Service Center #2 (ISC).

Management is responsible for the
design, implementation, and
maintenance of internal controls
relevant to the preparation and fair
presentation of financial statements
that are free from material
misstatement, whether due to error or
fraud. Management of cost-sharing and
agent employer plans are also
responsible for the preparation and
fair presentation of the financial
statements in accordance with the
applicable financial reporting
framework, including completeness and
accuracy of census data. Although an
outside actuary is involved in the
calculation of the net pension
liability, the actuary relies on
census data, the accuracy of which is
the responsibility of the ISC.

ISC management indicated that in 2013,
IMRF approved
the ISC to be an IMRF agent whereas
District 106 was previously the
administrative agent that encompassed
the ISC. At this time, a number of
individuals who were never ISC
employees were erroneously transferred
to the ISC’s new account. However,
management indicated that the error
was corrected. It is likely this
resulted in additional individuals
being erroneously included in the
ISC’s census data. (Finding 17-006,
pages 19 – 20)

The auditors recommended the ISC work
with IMRF to determine the cause of
the discrepancies and establish
appropriate review procedures over the
actuarial valuations and supporting
census data.

ROE Response: Since this error was
detected in 2017, we have been
requesting that IMRF make the
corrections. We will continue to work
with IMRF to ensure that their records
are correct and that their previous
error does not skew our current
actuarial valuations.

AUDITORS’ OPINION

Our auditors state the Intermediate
Service Center #2’s financial
statements as of June 30, 2017 are
fairly presented in all material
respects.

This financial audit was conducted by
the firm of GW & Associates, PC.

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:JMM