REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #3: BOND,
CHRISTIAN, EFFINGHAM, FAYETTE, AND MONTGOMERY
COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2017

Release Date:  MAY 22, 2018

FINDINGS THIS AUDIT:  3

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 1 -- 1
Category 2:  1 -- 1 -- 2
Category 3:  0 -- 0 -- 0
TOTAL:  1 -- 2 -- 3

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 #3
did not have sufficient internal controls
over the financial reporting process.

• (17-2) The Regional Office of Education #3
did not properly implement internal controls
over payroll and grant compliance.

• (17-3) The Regional Office of Education #3
did not properly report obligations on
expenditure reports.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #3 (ROE) did
not have sufficient internal controls over
the financial reporting process. The ROE
maintained its accounting records on the cash
basis of accounting during the fiscal year
and posted year-end accrual and other
applicable entries for financial statement
purposes. While the ROE maintained controls
over the processing of most accounting
transactions, there were not sufficient
controls over the preparation of 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 ROE’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).

The ROE’s financial information required
significant adjusting entries to present the
financial statements in accordance with GAAP.
This included entries to record transfers and
an entry to beginning fund balance.

In addition, the ROE did not have adequate
controls to record and report the ROE’s net
accrued pension liabilities, deferred
outflows of resources, deferred inflows of
resources, and pension expense in accordance
with GAAP. Proposed adjusting entries by
auditors were approved and accepted by the
ROE’s management.

According to ROE’s management, they did not
have adequate funding to hire and/or train
their accounting personnel in order to
maintain a system of internal control over
the preparation of financial statements in
accordance with GAAP. Also, the complex
requirements of GASB statements No. 68 and
No. 71 require additional time and training
before the ROE can fully implement the
requirements on its own. (Finding 2017-001,
pages 10a-10b) This finding was first
reported in 2015.

The auditors recommended that as part of
internal control over the preparation of
financial statements, the ROE should
implement comprehensive preparation
procedures to ensure that the financial
statements are complete and accurate. These
procedures should be performed by a properly
trained individual possessing a thorough
understanding of the applicable GAAP, GASB
pronouncements, and knowledge of the ROE’s
activities and operations.

ROE Response: The ROE will continue to
evaluate the time, training, and money
required to implement the comprehensive
preparation procedures required to meet the
standard set by audit for the financial
statements. Our accounting staff continues to
build upon their skillset with the goal of
reaching this standard.

Prior Year ROE Response: The ROE will
continue to evaluate the time/training
required to implement these standards and the
funding available to do so.

INTERNAL CONTROLS OVER PAYROLL AND GRANT
COMPLIANCE

The ROE was unable to produce time and effort
documentation used to distribute the salary
and benefit costs for all employees who are
partially paid from a federal program. Rather
than using actual time and effort
documentation, employees completed inadequate
time sheets that were based on a previous
time and effort study used to annually budget
their salaries and benefits to the different
programs. Furthermore, the amounts charged to
federal awards based on these budget
estimates were not reviewed in order to make
necessary adjustments ensuring that the final
amounts charged to the federal awards are
accurate, allowable, and properly allocated.

Title 2 U.S. Code of Federal Regulations Part
200, Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for
Federal Awards (Uniform Guidance) requires
charges for salaries and benefits to be
supported by a system of internal control
which provides reasonable assurance that the
charges are accurate, allowable, and properly
allocated. It also requires that records be
used to support the distribution of
employees’ salary and benefits among specific
activities if the employee only works part of
the time on a federal award program. It
further states that budget estimates alone do
not qualify as support for salary and benefit
charges to a federal award.

The Illinois State Board of Education (ISBE)
State and Federal Grant Administration
Policy, Fiscal Requirements and Procedures
manual, requires that auditable “time and
effort” documentation should be written,
after the fact (not estimated or budgeted)
documentation of how the time was spent. Time
and effort reports should be prepared by any
staff with salary charged (1) directly to a
federal award, (2) directly to multiple
federal awards, or (3) directly to any
combination of a federal award or other
federal, state or local funds. Additionally,
all time and effort sheets and other
supporting documentation must be retained at
the local level and be available for review
or audit any time within three years after
termination of the project or until the local
entity is notified in writing from ISBE that
the records are no longer needed for review
or audit.

According to ROE’s management, proper time
and effort documentation was not maintained
in order to provide amounts charged to
programs that were accurate, allowable, and
properly allocated. (Finding 2017-002, pages
10c-10d)

The auditors recommended that the Regional
Office should develop and implement written
policies and procedures over payroll to
ensure that proper controls are in place over
the use and maintenance of adequate time and
effort documentation as required by the
Uniform Guidance and the ISBE State and
Federal Grant Administration Policy, Fiscal
Requirements and Procedures manual.

ROE Response: Time and effort sheets were
implemented by all required employees upon
notice of last year’s audit finding. It is
unfortunate that the time of the previous
audit did not allow us to meet the
implementation timeline of this audit.

OBLIGATIONS NOT PROPERLY REPORTED ON
EXPENDITURE REPORTS

The ROE reported expenditures to the Early
Childhood – Block Grant outside of the grant
funding period and not in accordance with the
ISBE State and Federal Grant Administration
Policy, Fiscal Requirements and Procedures
manual. Expenditures were also reported
outside the ROE’s appropriate fiscal year.
Auditors noted the FY17 beginning fund
balance for the Early Childhood – Block Grant
was overstated by $3,093 – the amount of an
FY16 disallowed capital outlay purchase of
three desks.  A review of the FY17 general
ledger showed that the disallowed purchase
had been reclassified to FY17 and included on
the FY17 4th Quarter Expenditure Detail
Report submitted to ISBE for reimbursement
from the Early Childhood – Block Grant.

The ISBE State and Federal Grant
Administration Policy, Fiscal Requirements
and Procedures manual requires expenditures
to be reported on a cumulative (i.e., year-
to-date) basis from the project begin date
through a specific period of time.
Additionally, the obligation for acquisition
of real or personal property is made on the
date on which a written commitment to acquire
the property has been made. All activities
for a project must be completed and all
obligations encumbered within the project
begin and end date.

According to ROE’s management, a
misinterpretation of allowable grant
expenditures resulted in an incorrect journal
entry.  (Finding 2017-003, page 10e)

The auditors recommended that the Regional
Office should ensure obligations are reported
within the appropriate project begin and end
date.

ROE Response:  A correction of the one
incorrect entry has been made. Staff now has
a thorough understanding of allowable
expenditures and the correct reporting of
such.


AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #3’s financial statements as of
June 30, 2017 are fairly presented in all
material respects.

This financial report was conducted by the
firm of Doehring, Winders & Co., 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:JMM