REPORT DIGEST

INTERMEDIATE SERVICE CENTER #2: WEST
COOK

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2018

Release Date:  July 27, 2022

FINDINGS THIS AUDIT:  5

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

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

•  (18-1) The Intermediate Service
Center #2 did not provide completed
financial statements in an auditable
form by the August 31 deadline.

•  (18-2) The Intermediate Service
Center #2 did not have adequate
internal control procedures.

•  (18-3) The Intermediate Service
Center #2 lacked adequate controls
over the review of internal controls
over external service providers.

•  (18-4) The Intermediate Service
Center #2 lacked controls over
Illinois Municipal Retirement Fund
(IMRF) census data.

•  (18-5) The Intermediate Service
Center #2 did not have adequate
internal controls over grant
compliance.

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, 2018 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). The
Regional Office of Education or
Education Service Center may utilize a
cash basis, modified cash basis, or
Generally Accepted Accounting
Principles (GAAP) basis of accounting
to prepare the financial statements
for audit.

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.

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 18-001, pages 11 – 12) 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).
Additionally, ISC management should
determine if changing to the cash
basis or modified cash basis would be
allowable and beneficial to the ISC
and the users of its financial
statements. These financial statements
need to be presented to the Auditor
General’s independent auditors for
audit by the August 31 deadline.

ROE Response: As this writing is
occurring in FY22, we expect to see
this as an ongoing finding for audits
yet to be completed for FY19-21. We
have worked with our contracted
accountant over the past six 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 started 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:
• 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.
• 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 receivables. Additionally,
there was no formal process for
reviewing outstanding receivables.
• There was no consistent
documentation of room rental rates.
Room rates vary by type of event and
user and are communicated to the
registrar for invoicing either
verbally or by email.
• 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
18-002, pages 13 – 14) This finding
was first reported in 2012.

The auditors recommended the ISC
implement internal control procedures
to ensure the following:
• Transactions should be posted
directly to appropriate accounts upon
initial recording to avoid subsequent
reclassifications.
• Incompatible accounting functions
need to be segregated and a formal
process for reviewing outstanding
receivables implemented.
• Room rental rates should be
communicated in writing to the
registrar to avoid misunderstanding
and to provide an audit trail.
• Capital asset inventories need to be
taken on an annual basis and detailed
records maintained.

ROE Response:
• Since the original finding regarding
reclassifications, we have been
training staff to provide accurate
account coding to minimize the number
of journal entries needed.
• Accounting functions will be
segregated and a formal process for
reviewing outstanding receivables
implemented.
• Consistent documentation of room
rentals will be developed.
• Capital asset inventories will be
taken on an annual basis and detailed
records maintained.

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 lacked adequate controls over
the review of internal controls over
external service providers.  During
testing, the auditors noted the ISC
had not:
• Developed a formal process for
identifying service providers and for
either obtaining the Service
Organization Controls (SOC) reports
from the service providers and related
subservice organization or performing
alternative procedures to determine
the impact of such services on its
internal control environment prior to
signing an agreement with the service
provider.
• Documented its review of each of the
SOC reports, or performed alternative
procedures, to evaluate any issues
relevant to the ISC’s internal
controls.
• Monitored and documented the
operations of the Complementary User
Entity Controls (CUECs) relevant to
the ISC’s operations.

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. This
process is not limited due to the
process being outsourced.

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.

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 18-003, pages 15 – 16)

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 including
services provided by subservice
organizations, prior to signing
agreements with providers and annually
thereafter or perform independent
reviews of internal controls
associated with outsourced systems.
• Document its review of the SOC
reports or perform alternative
procedures to evaluate all significant
issues 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 18-004,
pages 17 – 18)

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.

CONTROLS OVER GRANT COMPLIANCE

The Intermediate Service Center #2
(ISC) did not have adequate internal
controls over grant compliance. During
the course of the audit, auditors
noted 20 of the 24 (83%) quarterly
expenditure reports required by the
Illinois State Board of Education
(ISBE) were not submitted timely.
Twelve of the quarterly expenditure
reports were submitted four days late,
six quarterly expenditure reports were
submitted six days late and two of the
quarterly expenditure reports were
submitted 62 days late.

As a recipient of federal, State and
local funds from various grantor
agencies, the ISC must incorporate
certain procedures into its operations
to comply with the grant agreements
with these entities.

The ISC is responsible for
establishing and maintaining an
internal control system over the
completion of timely quarterly
expenditure reports required for
grants administered by ISBE. ISBE
requires expenditure reports to be
filed within 20 days of the applicable
end of each quarter.

ISC management indicated that this
occurred due to key employee turnover
which has put them behind in financial
reporting. (Finding 18-005, page 19)

The auditors recommended the ISC
should implement adequate internal
controls to ensure that expenditure
reports are filed timely.

ROE Response: The ISC will implement
internal controls to ensure that grant
expenditure reports are filed timely.

AUDITORS’ OPINION

Our auditors state the Intermediate
Service Center #2’s financial
statements are fairly presented in all
material respects, except for the
possible effects of being unable to
obtain sufficient appropriate audit
evidence about the Center’s
proportionate share of Illinois
Municipal Retirement Fund net pension
liability, deferred outflows and
deferred inflows of resources related
to pensions and the pension expense as
of June 30, 2018.

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