REPORT DIGEST

 

REGIONAL OFFICE OF EDUCATION #1

 

ADAMS AND PIKE COUNTIES

 

FINANCIAL AUDIT

(In Accordance with the
Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2007

 

Summary of Findings:

 

Total this audit                  9

Total last audit                  5

Repeated from last audit   5

 

Release Date:

June 24, 2008

 

 

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

http://www.auditor.illinois.gov

 

 

SYNOPSIS

 

·        During the past fiscal year, the Regional Office of Education #1 recorded a portion of the revenue and expense transactions of the West Central Regional System #240 in its general ledger system. 

 

·        The Regional Office of Education #1 had three programs with excess cash balances at June 30, 2007 that had not been obligated, and the balances were not refunded to the granting agencies by August 15, 2007. 

 

·        All fiscal year 2007 bank reconciliations of Regional Office of Education #1 were completed between two and ten months late. 

 

·        The Regional Office of Education #1 did not comply with certain statutory administrative requirements.

 

·        A comparison of expenditure reports to the Regional Office of Education #1’s general ledger revealed instances where the totals on the final 2007 expenditure reports did not agree with the Regional Office of Education #1’s general ledger. 

 

·        The Regional Office of Education #1 did not have sufficient internal controls over the financial reporting process.

 

·        The Regional Office of Education #1 did not have adequate controls over fixed assets. 

 

·        The Regional Office of Education #1 incurred finance charges and paid sales taxes.

 

·        Some employees of the Regional Office of Education #1 received forms of compensation which were not appropriately reported to the Internal Revenue Service. 

 

 

 

 

        {Expenditures and Revenues are summarized on the reverse page.}


 

REGIONAL OFFICE OF EDUCATION #1

ADAMS AND PIKE COUNTIES

 

FINANCIAL AUDIT

(In Accordance with the Single Audit Act and OMB Circular A-133)

For The Year Ended June 30, 2007

 

 

FY 2007

FY 2006

TOTAL REVENUES

$1,807,306

$1,674,394

Local Sources

$332,340

$289,892

% of Total Revenues

18.39%

17.31%

State Sources

$1,095,264

$1,086,884

% of Total Revenues

60.60%

64.91%

Federal Sources

$379,702

$297,618

% of Total Revenues

21.01%

17.77%

 

TOTAL EXPENDITURES

$1,839,880

$1,645,713

Salaries and Benefits

$870,523

$851,575

% of Total Expenditures

47.31%

51.75%

Purchased Services

$265,237

$229,666

% of Total Expenditures

14.42%

13.96%

All Other Expenditures

$704,120

$564,472

% of Total Expenditures

38.27%

34.30%

 

 

 

TOTAL NET ASSETS

$663,795

$696,369

 

 

 

INVESTMENT IN CAPITAL ASSETS

 

$49,975

 

$43,120

 

 

Percentages may not add due to rounding

 

 

REGIONAL SUPERINTENDENT 

During Audit Period: Honorable Raymond Scheiter

Currently:  Honorable Raymond Scheiter


 

 

 

 

 

 


During the past fiscal year, the Regional Office of Education #1 recorded a portion of the revenue and expense transactions of the West Central Regional System #240 in its general ledger system.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Regional Office of Education #1 had three programs with excess cash balances at June 30, 2007 that had not been obligated, and the balances were not refunded to the granting agencies by August 15, 2007.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


All fiscal year 2007 bank reconciliations of Regional Office of Education #1 were completed between two and ten months late. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Regional Office of Education #1 did not comply with certain statutory administrative requirements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A comparison of expenditure reports to the Regional Office of Education #1’s general ledger revealed instances where the totals on the final 2007 expenditure reports did not agree with the Regional Office of Education #1’s general ledger. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Regional Office of Education #1 did not have sufficient internal controls over the financial reporting process.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Regional Office of Education #1 did not have adequate controls over fixed assets. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Regional Office of Education #1 incurred finance charges and paid sales taxes. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Some employees of the Regional Office of Education #1 received forms of compensation which were not appropriately reported to the Internal Revenue Service. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

 

 

TRANSACTIONS OF TWO ENTITIES ARE IN ONE ACCOUNTING SYSTEM

 

         During the past fiscal year, the Regional Office of Education #1 recorded a portion of the revenue and expense transactions of the West Central Regional System #240 (WCR) in its general ledger system.  The WCR administers vocational education services for the region, and Regional Office of Education #1 acts as a fiscal agent for the WCR. 

 

         According to governmental accounting standards, transactions of two separate primary government units should not be co-mingled in one general ledger system.  According to GASB 14, a special purpose government is a primary government if it has the following three characteristics:  a separately elected governing board, fiscal independence, and status as a separate legal entity.  The WCR has a separately elected board, is a legally separate entity, and is fiscally independent. 

 

         During Fiscal Year 2007, the Regional Office of Education #1 attempted to maintain a separate general ledger system for the WCR.  However, the ROE continued to maintain WCR cash accounts on the ROE books and recorded certain WCR transactions in the ROE general ledger. (Finding 07-1, page 11)  This finding was first reported in 2003.

 

         Auditors recommended that Regional Office of Education #1 establish an entirely separate set of records in order to eliminate the co-mingling of the Regional Office of Education and the West Central Regional System accounting activity.

 

         The Regional Office of Education #1 agreed with the recommendation, noting it will work to improve the general ledger systems in order to properly separate transactions of the West Central Regional System #240.  (For previous Regional Office response, see Digest Footnote #1.)

 

 

 

DISBURSEMENT OF EXCESS GRANT FUNDS

 

         The Regional Office of Education #1 had three programs with excess cash balances at June 30, 2007 that had not been obligated, and the balances were not refunded to the granting agencies by August 15, 2007.  The three grant-funded programs had period-end cash balances totaling $42,089.  In addition, the Regional Office of Education #1 had interest income earned from federal funding of $268 that was due back to the grantor agency. 

 

         The Illinois Grant Funds Recovery Act (30 ILCS 705/5) requires that all grant funds that have not been expended or obligated by the end of the grant period be returned to the granting agency within 45 days after the end of the period.  The Act also states that all interest earned on grant funds held by a grantee shall become part of the grant principal when earned and be treated accordingly for all purposes unless the grant agreement provides otherwise.  In addition, the Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments (34 Code of Federal Regulations Part 80.21) requires that interest earned on federal fund balances in excess of $100 be remitted back to the federal granting agency.  (Finding 07-2, pages 12-13)  This finding was first reported in 2003. 

 

         The auditors recommended that the Regional Office of Education #1 return any unspent grant funds to the granting agency.  In addition, the Regional Office should remit interest income earned from federal funding in excess of $100 to the related granting agencies. 

 

         The Regional Office of Education #1 agreed with the finding.  The Regional Office responded that it plans to obtain, from bookkeeping, accurate reconciled reports, at least annually, which consider:  beginning fiscal year cash balances, current fiscal year grant income, current fiscal year program expenses, current fiscal year interest allocated to the programs, and year end cash balances by program.  Furthermore, granting agencies will be notified of any excess grant funds, according to State forms, at period end.  Excess funds with no activity during the previous two fiscal years will be consolidated.  (For previous Regional Office response, see Digest Footnote #2.)

 

 

BANK ACCOUNTS WERE NOT PROPERLY RECONCILED FOR FISCAL YEAR 2007

 

         All fiscal year 2007 bank reconciliations of the Regional Office of Education #1 were completed between two and ten months late.  For example, the August 2006 bank reconciliations were completed in June 2007, and the January 2007 bank reconciliations were completed in July 2007.  All cash account discrepancies were eventually investigated and corrected.

 

       The effect of not properly performing reconciliations was to carry incorrect cash balances on the books of the ROE for nearly the entire fiscal year.  Also, not identifying and addressing unrecorded items negates the effectiveness of this important internal control and causes expenditure reports to granting agencies to be incorrect.

 

         Sound internal control requires bank reconciliations to be performed monthly to ensure that all transactions have been recorded.  The bank reconciliation process should include identifying and correcting all discrepancies between the bank records and the books on a timely basis.  (Finding 07-3, page 14)  This finding was first reported in 2002.

 

         The auditors recommended that the Regional Office of Education #1 reconcile all bank statements every month and correct any discovered discrepancies in a timely manner.

 

         The Regional Office of Education #1 agreed with the finding.  The Regional Office responded that it plans to perform a monthly reconciliation of all bank accounts and correct any discovered discrepancies in a timely manner.  (For previous Regional Office response, see Digest Footnote #3.)

 

 

CONTROLS OVER COMPLIANCE WITH LAWS AND REGULATIONS

 

         The Regional Superintendent did not present at the September county board meeting, and as nearly quarterly thereafter, a report of all his acts including a list of all the schools visited and dates of visitation.  The Regional Superintendent did present one annual report to the county board, but that report occurred in November 2006 rather than September 2006, and quarterly reports thereafter were not prepared.  These reports to the county board are required by the Illinois School Code (105 ILCS 5/3-5) and the mandate has existed in its current form since at least 1953.

 

         The Illinois School Code (105 ILCS 5/3-7) states that each school district shall, as of June 30 each year, cause an audit to be made of its accounts.  Each school district shall on or before October 15 of each year, or by an extension date not to exceed 60 days, submit an original and one copy of such audit to the Regional Superintendent of Schools. 

 

         The Regional Office of Education #1 supplied evidence that 6 of the 10 district financial statement audit reports were submitted to the ROE by the due date or an extended due date.  However, four of the districts submitted their reports to the ROE between 1 and 10 days late with no documentation of an approved extension.  (Finding 07-4, pages 15-16) 

 

         The auditors recommended that the Regional Superintendent submit his annual report to the county board in September each year and quarterly thereafter as required by the Illinois School Code.  Auditors also recommended that the Regional Office of Education #1 implement a system for monitoring whether or not copies of financial statements are on hand and making requests of the school districts in order to receive district financial statements as required by the Illinois School Code. 

 

         The Regional Office of Education #1 responded that the Regional Superintendent did present an annual report to the county board in November, which identified the districts visited and dates of visitation.  The ROE noted that it will work to complete the annual report by the September board meeting in the future, and the ROE will start preparing quarterly reports to the board.

 

         The Regional Office of Education #1 also responded that it will request audit reports from the school districts each year early enough in order to receive the reports by October 15 or by an extended due date.

 

 

EXPENDITURE REPORT FOR EDUCATION FUND DID NOT AGREE TO GENERAL LEDGER

 

         A comparison of expenditure reports to the Regional Office of Education #1’s general ledger revealed instances where the totals on the final 2007 expenditure reports did not agree with the Regional Office of Education #1’s general ledger.  For five different programs, expenditure amounts were over or under reported to the granting agencies by amounts ranging from $6,715 under reported to $11,573 over reported. 

 

         Expenditure reports for education programs submitted to the Illinois State Board of Education and Illinois Department of Human Services should agree with the expenditures reported on the Regional Office of Education #1’s general ledger. 

 

         The Regional Office of Education #1 personnel responsible for expenditure report preparation used numbers that were not yet adjusted for bank reconciliation differences.  (Finding 07-5, page 17) This finding was first reported in 2005.

 

         The auditors recommended that Regional Office of Education #1 personnel responsible for preparing the expenditure reports should use expenditures per the general ledger after the bank reconciliations are done and all adjustments have been made.

 

         The Regional Office of Education #1 agreed with the finding.  They responded that accounting personnel will not prepare reports to the Illinois State Board of Education or the Illinois Department of Human Services until all bank reconciliations are completed and all resulting adjustments have been made. (For previous Regional Office response, see Digest Footnote #4.)

 

 

Controls Over Financial Statement Preparation

 

         The Regional Office of Education #1 is required to maintain a system of controls over the preparation of financial statements in accordance with generally accepted accounting principles  (GAAP).  Regional Office internal controls over GAAP financial reporting should include adequately trained personnel with the knowledge and expertise to prepare and/or thoroughly review GAAP based financial statements to ensure that they are free of material misstatements and include all disclosures as required by the Governmental Accounting Standards Board (GASB).

 

         The Regional Office of Education #1 did not have sufficient internal controls over the financial reporting process.  The Regional Office maintains their accounting records on the cash basis of accounting. While the Regional Office maintains controls over the processing of most accounting transactions, there are not sufficient controls over the preparation of the GAAP based financial statements for management or employees in the normal course of performing their assigned functions to prevent or detect financial statement misstatements and disclosure omissions in a timely manner. For example, auditors, in their review of the Regional Office’s accounting records, noted the following:

 

  • Numerous adjustments were required to present financial statements in accordance with generally accepted accounting principles.  Auditors’ adjusting entries changed the Regional Office’s net income by $71,874.

  • The Regional Office did not have adequate controls over the maintenance of records of accounts receivable and accounts payable.  The Regional Office had not recorded any accounts receivable or accounts payable in the current year.  Auditors adjusted accounts receivable and accounts payable to actual balances at June 30, 2007, of $16,265 and $4,846, respectively. (Finding 07-6, page 18)

 

         The auditors recommended that, as part of its internal control over the preparation of its financial statements, including disclosures, the Regional Office of Education #1 should implement a comprehensive preparation and/or review procedure to ensure that the financial statements, including disclosures, are complete and accurate.  Such procedures should be performed by a properly trained individual(s) possessing a thorough understanding of applicable generally accepted accounting principles, GASB pronouncements, and knowledge of the Regional Office of Education’s activities and operations.

 

         The Regional Office of Education #1 responded that it will employ accountants familiar with ROE operations to prepare financial statements according to GAAP standards.

 

 

INADEQUATE CONTROLS OVER PROPERTY AND EQUIPMENT

 

         The Regional Office of Education #1 did not have adequate controls over fixed assets.  In tests of fixed assets, auditors noted that the fixed asset listings did not have complete information as to the acquisition source document, acquisition month and day, fund and expense account number, and depreciation expense.

 

         The Regional Office of Education Accounting Manual requires each ROE to maintain detailed fixed asset records, for accounting and insurance purposes, for fixed assets costing $500 or more.  Generally accepted accounting principles require an inventory of all fixed assets and depreciation schedules for assets meeting the capitalization threshold.  The ROE Accounting Manual also states that the fixed asset inventory records should include:  the inventory control number; major asset class; function and activity; reference to acquisition source document; acquisition date; vendor; short description of asset; unit charged with custody; location, fund and account from which purchased; method of acquisition; estimated useful life and method of depreciation; estimated salvage value; and date, method, and authorization of disposition.  In addition, sound internal controls require that policies and procedures on fixed assets should cover acquisition and tagging, recording and reporting, depreciation, transfers and dispositions, and annual physical inventory, and that they should be formally documented and consistently applied.

 

         The absence of a sound system of internal control over fixed assets can result in inaccurate reporting of fixed assets and inadequate physical control for equipment items.  Regional Office personnel were unaware of certain requirements listed in the ROE Accounting Manual pertaining to fixed asset lists.  Also, Regional Office personnel have never attempted to calculate fixed asset depreciation expense. (Finding 07-7, page 19)

 

         Auditors recommended that the Regional Office of Education #1 adhere to the ROE Accounting Manual to effectively and efficiently monitor property acquisitions, transfers and disposals, and provide for accurate reporting of fixed asset balances.  The fixed asset listing should include all the details required by the ROE Accounting Manual, including depreciation expense.

 

         The Regional Office responded that it intends to comply with requirements of the ROE Accounting Manual pertaining to fixed asset information tracking and depreciation calculations.

 

 

UNALLOWABLE FINANCE CHARGES AND  SALES TAX

 

         The Regional Office of Education #1, which is not subject to sales tax, paid $93 in sales tax during fiscal year 2007.  The accounting department should have noted the charged sales tax and requested an invoice adjustment from the vendors.  Also, a sample of credit card statements showed $324 in credit card finance charges during fiscal year 2007.  If the accounting department had made all the payments on time, the charges would not have been incurred. 

 

         Grant provisions require that funding be spent on allowable costs.  Internal controls should exist to prevent payment of unallowable credit card finance charges and improperly charged sales tax.  According to Regional Office officials, they lack sufficient funding to hire an adequate accounting staff.  (Finding 07-8, page 20)

 

         Auditors recommended that the Regional Office implement internal controls to ensure that disbursements are paid in a timely manner to avoid finance charges, and errantly charged sales tax should be challenged and corrected by the vendors before payment is remitted to them.

 

         The Regional Office responded that it intends to improve its payment procedures to avoid finance charges and improperly charged sales taxes.

 

 

CERTAIN COMPENSATION WAS NOT PROPERLY REPORTED THROUGH THE PAYROLL SYSTEM

 

         Some employees of the Regional Office of Education #1 received forms of compensation which were not appropriately reported to the Internal Revenue Service. 

 

         Internal Revenue Service Publication 15-A requires existing employees of an entity who are compensated for duties beyond the duties of their original agreement to be paid as wages subject to all payroll taxes and withholdings.  The Internal Revenue Service Code Sections 61 and 274 also dictate that certain employee fringe benefits are taxable.

 

         Auditors noted the following instances where ROE employees received forms of compensation which were not appropriately reported:

 

  • Children and Family Connections staff received day-spa treatments as “performance incentives.”  The treatments were approximately $150 each and were received by eight staff members.  However, the incentives were not processed through the payroll system and were not reported to the Internal Revenue Service.

  • Children and Family Connections staff also received flat rate “mileage bonuses” at the end of the year.  Extra payments were not based on miles driven but on job performance.  Staff received various amounts up to $1,500.  Considering that staff were already reimbursed at a rate of 40.5 cents per mile for actual miles driven, the flat rate bonuses likely resulted in total mileage payments in excess of the 48.5 cents per mile federal limit.  The amounts paid over the federal limit would be considered improper untaxed compensation.

  • A Standards Aligned Classroom employee, whose part-time job is to conduct seminars, was also paid as a contractor to conduct seminars.  Internal Revenue Service rules indicate that an employee may not be paid both W-2 wages and 1099 contract income to perform the same functions.

 

         The year-end W-2’s for 2006 understated employee taxable income.  Also, employee compensation was not supported by adequate documentation, which may result in incorrect reimbursement for services provided.  Based on discussions with DHS, the performance incentives and mileage bonuses were allowable under the grant agreement. The ROE staff were not aware of all of the relevant IRS compensation and independent contractor rules.  (Finding 07-9, pages 21-22)

 

         The auditors recommended that the Regional Office report all additional compensation to existing employees as wages subject to all applicable payroll taxes and withholdings.  Auditors also recommended that management of the Regional Office and payroll personnel should familiarize themselves with appropriate rules to run an accurate payroll system or consider outsourcing payroll.

 

         The Regional Office of Education #1 responded that it has reviewed the finding and will report all compensation of employees as wages subject to all applicable taxes and withholding.  It noted that payroll personnel will familiarize themselves with appropriate rules for payroll accounting.

 

 

 

 

AUDITORS’ OPINION

 

         Our auditors state the Regional Office of Education #1’s financial statements as of June 30, 2007 are fairly presented in all material respects.

 

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:JRB

 

 

SPECIAL ASSISTANT AUDITORS

 

         Our special assistant auditors were Fick, Eggemeyer & Williamson, CPA’s.

 

 

DIGEST FOOTNOTES

 

#1: TRANSACTIONS OF TWO ENTITIES ARE IN ONE ACCOUNTING SYSTEM– Previous Regional Office Response

 

In its prior response in 2006, the Regional Office of Education #1 accepted the recommendation, noting it has implemented a new general ledger system for fiscal year 2007 in order to separately record transactions of the West Central Regional System #240.

 

#2: DISBURSEMENT OF EXCESS GRANT FUNDS – Previous Regional Office Response

 

In its prior response in 2006, the Regional Office of Education #1 accepted the recommendation to prepare accurate reconciled reports at year-end for its grant programs and will notify the granting agencies of any excess grant funds at period end. 

 

#3:  BANK ACCOUNTS WERE NOT PROPERLY RECONCILED—Previous Regional Office Response

 

In its prior response in 2006, the Regional Office of Education #1 accepted the recommendation to perform a monthly reconciliation of all bank accounts and correct any discovered discrepancies in a timely manner.

 

#4:  EXPENDITURE REPORT FOR EDUCATION FUND DID NOT AGREE TO GENERAL LEDGER—Previous Regional Office Response

 

In its prior response in 2006, the Regional Office of Education #1 agreed with the recommendation to have personnel responsible for preparing the expenditure reports use expenditures per the general ledger accounts after all adjustments have been made and make necessary corrections to the final reports.