REPORT DIGEST REGIONAL OFFICE OF EDUCATION #1: ADAMS, BROWN, CASS, MORGAN, PIKE, AND SCOTT COUNTIES FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2017 Release Date: MAY 3, 2018 FINDINGS THIS AUDIT: 2 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 2 -- 2 Category 2: 0 -- 0 -- 0 Category 3: 0 -- 0 -- 0 TOTAL: 0 -- 2 -- 2 FINDINGS LAST AUDIT: 2 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 Regional Office of Education #1 did not have sufficient internal controls over the financial reporting process. • (17-2) The Regional Office of Education #1 did not have sufficient internal control over accounting and closing transactions. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS CONTROLS OVER FINANCIAL STATEMENT PREPARATION The Regional Office of Education #1 (ROE) did not have sufficient internal controls over the financial reporting process. While the Regional Office maintains controls over the processing of most accounting transactions, there are not sufficient controls over the preparation of the generally accepted accounting principles (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. The ROE is required to maintain a system of controls over the preparation of financial statements in accordance with GAAP. The Regional Office’s internal controls over GAAP financial reporting should include adequately trained personnel with the knowledge, skills, and experience to prepare GAAP-based financial statements and include all disclosures as required by the Governmental Accounting Standards Board (GASB). During review of the ROE’s accounting records, auditors noted the ROE’s financial information required several adjusting entries to present the financial statements in accordance with GAAP. The ROE did not have adequate controls to record and report its net accrued pension liability/asset, deferred outflows and inflows of resources, and pension expense in accordance with GAAP. Proposed adjusting entries were approved and accepted by the Regional Office’s management. According to Regional Office management, current funding levels are not adequate to hire and/or train accounting personnel in order to comply with the complex financial reporting requirements. (Finding 2017-001, pages 11a-11b) This finding was first reported in 2015. The auditors recommended that as part of its internal control over the preparation of financial statements, the ROE should implement comprehensive preparation procedures to ensure the financial statements are complete and accurate. These procedures should be performed by a properly trained individual(s) possessing a thorough understanding of applicable GAAP, GASB pronouncements, and knowledge of the ROE’s activities and operations. ROE Response: The ROE understands the nature of this finding and realizes that this circumstance is not unusual in an organization of this size. The Regional Office will review the current auditors’ recommendation and will work to revise the ROE’s policies, procedures and/or practices to address the finding noted. Prior Year ROE Response: The ROE understands the nature of this finding and realizes this circumstance is not unusual in an organization of this size. The Regional Office will review the current auditors’ recommendation and will work to revise the ROE’s policies, procedures and/or practices to address the finding noted. INTERNAL CONTROL OVER ACCOUNTING AND CLOSING TRANSACTIONS The Regional Office did not have sufficient internal control over accounting and closing transactions. Auditors noted the following internal control weaknesses over the accounting and closing processes: • The ROE records overhead and administrative costs in the general fund and allocates those costs as needed to the appropriate special revenue or other funds. Auditors noted several instances where administrative costs were appropriately recorded as expenditures in the fund that reimbursed the cost but the reimbursements were recorded as transfers into the general fund, without a corresponding transfer out from the reimbursing fund, resulting in expenditures being overstated and interfund transfers being out of balance. • Opening trial balance presented to auditors was out of balance by $1,730. • Two erroneous journal entries were recorded to reverse the prior year’s accounts payable that was not accrued in the prior year resulting in accounts payable being understated by $150,589. • January bank statement was not reconciled to the general ledger until May 17, 2017. • A certificate of deposit in the amount of $3,492, received during the consolidation of the Regional Office of Education #46 into the Regional Office of Education #1 in fiscal year 2016, was not recorded in the accounting records. • Assets in the amount of $5,279 purchased during the year were not included on the capital asset schedule presented to auditors. The Regional Superintendent of Schools is responsible for establishing and maintaining an internal control system over the ROE’s accounting processes to prevent errors and fraud in reporting. According to Regional Office officials, the ROE has not established or documented sufficient internal control procedures of its financial processes. (Finding 2017-002, pages 11c-11d) This finding was first reported in 2013. The auditors recommended the ROE establish and maintain proper internal controls over accounting and closing transactions to eliminate the weaknesses specified in the finding. ROE Response: The Regional Office accepts the auditors’ recommendations and has revised policies, procedures, and/or practices to address the finding noted. Prior Year ROE Response: The Regional Office accepts the auditors’ recommendations and has revised policies, procedures, and/or practices to address the finding noted. AUDITORS’ OPINION Our auditors state the Regional Office of Education #1’s financial statements as of June 30, 2017 are fairly presented in all material respects. This financial report was conducted by the firm of Kemper CPA Group LLP. AMEEN DADA Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:JRB