REPORT DIGEST

INTERMEDIATE SERVICE CENTER #2: WEST COOK

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2020

Release Date:  Aug. 14, 2024

FINDINGS THIS AUDIT: 6

CATEGORY:  NEW -- REPEAT – TOTAL
Category 1:  0 -- 1 -- 1
Category 2:  1 -- 2 -- 3
Category 3:  0 -- 2 -- 2
TOTAL:  1 -- 5 -- 6

FINDINGS LAST AUDIT: 5

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, 400 West
Monroe, Suite 306, Springfield, IL
62704-9849
(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

• (20-1) The Intermediate Service Center #2
did not provide completed financial
statements in an auditable form by the
August 31 deadline.
• (20-2) The Intermediate Service Center #2
did not have adequate internal control
procedures.
• (20-3) The Intermediate Service Center #2
lacked adequate controls over the review of
internal controls over external service
providers.
• (20-4) The Intermediate Service Center #2
did not have adequate internal controls over
grant compliance.
• (20-5) The Intermediate Service Center #2
did not have adequate internal controls over
procurement-card transactions.
• (20-6) The Intermediate Service Center #2
did not have adequate internal controls over
payroll processing.

The Intermediate Service Center #2 did not
have adequate internal controls over
procurement-card transactions.


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, 2020
deadline. The June 30, 2019 report was not
released until August 16, 2023. The FY20
completed financial statements were provided
to auditors on January 18, 2024.

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. The
Regional Office of Education or Educational
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. The ISC has chosen the
cash basis of accounting for financial
reporting.

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 20-001,
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). 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 FY24, we expect to see this as an ongoing
finding for audits yet to be completed for
FY21-24. We have worked with our contracted
accountant over the past seven 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

The Intermediate Service Center #2 (ISC) did
not have adequate internal control
procedures. Auditors noted the following
weaknesses in the ISC’s 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
balances. Additionally, there was no formal
process for reviewing amounts owed to the
ISC.
• 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.

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
12-002, pages 12 – 13) 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 amounts owed to the ISC
implemented.
• Room rental rates should be communicated
in writing to the registrar to avoid
misunderstanding and to provide an audit
trail.

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.
• In FY24, our Director of Facilities has
developed guidelines on room rental rates.
These have been entered in the new facility
rental software that has been purchased.

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 20-003, pages 14
– 15) This finding was first reported in
2017.

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.

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 11 of the 70 (16%)
expenditure reports required by the Illinois
State Board of Education (ISBE) were not
submitted timely. One expenditure report was
submitted seven days late, two were
submitted four days late, five were
submitted three days late and three were
submitted one day 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
19-004, page 16)

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

ROE Response: A Director of Grants and
Assistant Director of Grants were hired in
FY22 to oversee and monitor all grant
purchases.

INADEQUATE CONTROLS OVER PROCUREMENT-CARD
TRANSACTIONS

The Intermediate Service Center #2 (ISC) did
not have adequate internal controls over
procurement-card (P-card) transactions.
Internal controls over disbursements were
not effectively designed and implemented.
During the auditors testing of P-card
transactions, the auditors noted the
following:

• Personal expenses were charged by two
employees on the ISC’s P-card. These
expenses were paid back in full by the
employees with personal checks. The ISC
maintained a copy of the personal check and
the related charge receipts with the credit
card statements. Personal expenses charged
within the transactions tested totaled $597.

• While testing a sample of 3 months of P-
card transactions, supporting receipts were
not provided for 8 cardholders’ transactions
totaling $587.

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 staff members
using P-cards instead of their personal
credit cards. In addition, charge receipts
were misplaced and could not be found.
(Finding 20-005, pages 17 – 18)

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 PROCESSING

The Intermediate Service Center #2 (ISC) did
not have adequate internal controls over
payroll processing. During auditors’ testing
of a sample of 40 payroll transactions,
auditors noted that one employee did not
have time sheets or time and effort reports
available for the period tested. In
addition, that employee had no documentation
of an approved pay rate on file. As a
result, auditors were unable to determine
the accuracy of the payment to that
employee.

In addition, while time and effort reports
with percentage of time spent on various
programs were noted for full time employees
in the auditor’s sample, the ISC was unable
to provide support for how the percentages
were determined. As a result, it was unclear
as to whether the time was allocated based
on budgets or some other method and whether
allocations were trued up to actual time
spent.

Best practices require the ISC to maintain a
system of controls over payroll processing
which includes documentation supporting
approved pay rates, provides reasonable
assurance that the salary and benefit
charges are accurate and properly allocated,
and requires records to be used to support
the distribution of employee salaries and
benefits among specific activities if the
employee works on multiple programs.

ISC management indicated that the lack of
time sheets and time and effort reports may
be due to documents not being returned to
the files or misplaced since the pay period.
Approved pay rates may not have been
documented or copies were not made for the
employee files. Also, prior to fiscal 2021,
allocations of time were made to programs
under a process no longer followed by the
ISC. (Finding 20-006, pages 19 – 20)

The auditors recommended the ISC employ best
practices to require time sheets or time and
effort reports and ensure that documentation
supporting pay rates is maintained in
personnel files. In addition, auditors
recommend that percentage time allocations
to programs be supported by documentation
and that any necessary true ups to actual
time spent be performed.

ROE Response: Time sheets for hourly
employees will be required. Any staff member
being paid from a grant will record their
time on their calendars and/or any time
management software purchased.

AUDITORS’ OPINION

Our auditors state the Intermediate Service
Center #2’s financial statements as of June
30, 2020 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