REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #2

ALEXANDER, JOHNSON, MASSAC, PULASKI, AND UNION COUNTIES

FINANCIAL AUDIT

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

For the Year Ended:

June 30, 2008

Summary of Findings:

Total this audit                  2

Total last audit                  5

Repeated from last audit   2

Release Date:

February 19, 2009

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

·        The Regional Office of Education #2 had not established sufficient internal control procedures over receipts and disbursements. 

·        The Regional Office of Education #2 did not have sufficient internal controls over the financial reporting process. 

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

The Regional Office of Education #2 had not established sufficient internal control procedures over receipts and disbursements. 

The Regional Office of Education #2 did not have sufficient internal controls over the financial reporting process. 

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

INADEQUATE INTERNAL CONTROL PROCEDURES

         The Regional Office of Education #2 had not established sufficient internal control procedures over receipts and disbursements.  The Regional Superintendent of Schools is responsible for establishing and maintaining an internal control system over receipts and disbursements to prevent errors and fraud.  During testing, auditors noted the following: 

1. Of eight credit card statements, auditors noted one instance where the Regional Office did not have an original receipt documenting expenses and one instance where the Regional Office paid a finance charge.

2. Of 132 disbursement transactions, auditors noted two instances where the Regional Office did not document approval for transfers between bank accounts.

3. The Regional Office did not review bank reconciliations to ensure they were completed timely and that the reconciled balance agreed with the general ledger.  As a result, the Regional Office had not completed bank reconciliations for April, May, and June 2008 as of June 30, 2008.  

4. In the State Aid fund, there were the following misclassifications of revenue:

·        A Federal Breakfast payment in the amount of $5,254 that the Regional Office had received, on behalf of one of the school districts in the Region through the Distributive fund, was classified as the Regional Office’s revenue. 

·        Interest income, in the amount of $1,418, was recorded as Miscellaneous Revenue.  The income should have been classified as Interest Revenue. 

·        The March 2008 General State Aid payment, in the amount of $15,918, was recorded as Miscellaneous Revenue.  The payment should have been classified as State revenue.

         Lack of effective internal control procedures could result in unintentional or intentional errors or misappropriations of assets, in which the errors or fraud could be material to the financial statements and may not be detected in a timely manner by employees in the normal course of performing their assigned duties.

         The auditors recommended that the Regional Office implement internal control procedures to:

1. Ensure that credit card purchases are processed in compliance with established policies.

2. Document formal approval of interbank transfers.

3. Have an individual independent of the reconciliation process review bank reconciliations monthly to ensure they are completed timely and agree with the general ledger’s cash balance.  This review should be documented on the reconciliation.

4. Ensure that revenue is properly recorded as local, State, or federal. (Finding 08-01, page 12a-12b)

         The Regional Office responded that it has implemented the above recommendations to correct any weaknesses identified.

Controls Over Financial Statement Preparation

         The Regional Office of Education #2 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 #2 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.

         Auditors, in their review of accounting records, noted that the Regional Office did not have adequate controls over the maintenance of complete records of accounts receivable, accounts payable, or deferred revenues.  While the Regional Office did maintain records to indicate the balances of accounts payable, accounts receivable, and deferred revenues, not all entries were made by the ROE to reconcile their grant activity, such as posting grant receivables and deferred revenues.  The Regional Office’s financial information required several adjusting entries to present the financial statements in accordance with generally accepted accounting principles. 

        According to Regional Office officials, they do not have adequate funding to hire a certified public accountant or other financial consultant professionals. (Finding 08-02, page 12c-12d)

         The auditors recommended that, as part of its internal control over the preparation of its financial statements, including disclosures, the Regional Office of Education #2 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 #2 responded that it accepts the degree of risk associated with this condition because the added expense of seeking additional accounting expertise to prepare and/or review financial statements would take away from the funds available to provide educational services for the schools in the region.

         The Regional Office noted that in an attempt to correct this finding, they sent the ROE Controller to various trainings to better understand accrual accounting and reporting under generally accepted accounting principles (GAAP).

AUDITORS’ OPINION

         Our auditors state the Regional Office of Education #2’s financial statements as of June 30, 2008 are fairly presented in all material respects.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JB

SPECIAL ASSISTANT AUDITORS

         Our special assistant auditors were Kemper CPA Group, LLP.