REPORT DIGEST

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

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2018

Release Date:  May 23, 2019

FINDINGS THIS AUDIT:  3

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

FINDINGS LAST AUDIT: 3

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

• (18-1) The Regional Office of Education
#3 did not have sufficient internal
controls over the financial reporting
process.

• (18-2) The Regional Office of Education
#3 did not properly implement internal
controls over payroll and grant compliance.

• (18-3) The Regional Office of Education
#3 did not provide completed financial
statements or financial records in an
auditable form by the August 31 deadline.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #3 (ROE)
did not have sufficient internal controls
over the preparation of generally accepted
accounting principles (GAAP) basis
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 basis financial
statements and include all disclosures as
required by the Governmental Accounting
Standards Board (GASB).

The following issues were noted in the
ROE’s draft financial statements submitted
to the auditors, which were subsequently
corrected:

• The ROE’s Statement of Cash Flows –
Proprietary Fund included errors in net
cash provided (used) during FY18, incorrect
beginning and ending cash and cash
equivalents, and the reconciliation of
operating income to net cash provided by
operating activities did not agree to the
net cash provided by operating activities.
• The ROE’s Financial Statement Notes were
not updated for the implementation of GASB
No. 75 for the Teacher’s Health Insurance
Security (THIS) Fund. Required
Supplementary Information (RSI) omitted the
Schedule of Employer’s Proportionate Share
of the Other Postemployment Benefit
Liability – THIS Fund and the Schedule of
Employer Contributions – THIS Fund.

According to ROE’s management, the
preparation of the cash flow statement for
the proprietary fund will take some
training before they can adequately
complete it. ROE personnel were also
unaware of the disclosure and RSI
requirements of GASB No. 75 for the THIS
Fund. (Finding 2018-001, 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: ROE 3 will be hiring an
outside firm to assist and review in the
preparation of these statements for the
next audit.

Prior Year 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.

INTERNAL CONTROLS OVER PAYROLL AND GRANT
COMPLIANCE

Based on testing performed and discussion
with Regional Office (ROE) personnel,
Regional Office employees who are partially
paid from a federal or state program
prepared time sheets using the budgeted
percentage allocation from their quarterly
time and effort studies rather than
documenting their actual time spent on each
program.

Title 2 of the 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
sheets were not maintained to compare
actual time spent to budgeted time spent in
order to provide amounts charged to
programs that were accurate, allowable, and
properly allocated. (Finding 2018-002,
pages 10c-10d) This finding was first
reported in 2016.

The auditors recommended that the Regional
Office should develop and implement written
policies and procedures over payroll to
ensure proper controls are in place to
document actual time worked on each
program. Actual time worked should be
compared to the time and allocation studies
in order to ensure amounts charged to
programs are accurate, allowable, and
properly allocated as required by the
Uniform Guidance and the ISBE State and
Federal Grant Administration Policy, Fiscal
Requirements and Procedures manual.

ROE Response: The ROE has implemented
policies and procedures for payroll. Actual
time and allocation studies have been
completed. Time sheets are being
appropriately completed.

Prior Year 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.

DELAY OF AUDIT

The Regional Office of Education #3 (ROE)
did not provide completed financial
statements or financial records in the form
of a general ledger trial balance in an
auditable form by the August 31, 2018
deadline. An outside accounting firm was
hired by the ROE to assist in the
Governmental Accounting Standards Board
(GASB) No. 68 and GASB No. 75 calculations
and disclosures, but not until after
fieldwork was completed on September 27,
2018. Financial statements were not
submitted to Special Assistant Auditors
until October 18, 2018. These financial
statements contained omissions of required
note disclosures and required supplementary
information related to GASB No. 75.
Additionally, errors were noted on the
Proprietary Fund Statement of Cash Flows
and the fund financial statements lacked a
breakout of other postemployment benefits
(OPEB) expense, as required for FY18.

The Regional Office 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 regional
superintendent of schools 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 Governmental Auditing
Standards (GAGAS).

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. Annual
financial statements are to be prepared on
an accrual basis of accounting in
accordance with generally accepted
accounting principles (GAAP).

In addition, prudent business practices and
transparency require timely preparation and
completion of financial statements.

According to ROE’s management, they did not
have adequate time to hire and/or train
their accounting personnel in order to meet
the August 31 deadline for fiscal year
2018. (Finding 2018-003, pages 10e-10f)

The auditors recommended that the ROE
should implement procedures to ensure
compliance with 105 ILCS 5/2-3.17a and 74
Ill. Adm. Code 420.320 (c) (2). Annual
financial statements should be compiled on
an accrual basis of accounting in
accordance with GAAP. These financial
statements need to be presented to the
Auditor General’s independent auditors for
audit by the August 31 deadline.

ROE Response:  The ROE was unaware and not
informed of the August 31, 2018 deadline.
Thus, it is hard to meet a deadline you are
unaware of. This date will be met in the
future.

Auditors’ Comment: Regional Superintendents
were reminded of the August 31st deadline
for submitting financial statements in
accordance with GAAP to the Auditor
General’s Special Assistant Auditors in
September 2017 at a meeting of the Illinois
Association of Regional Superintendents of
Schools (IARSS).

Information regarding the deadline and the
ROEs’ responsibility to comply was
discussed again by the Auditor General’s
staff at a May 2018 meeting of the IARSS at
which the Regional Office’s superintendent
was present. In addition to a detailed
verbal discussion of the requirement at
this meeting, an electronic version of the
presentation was emailed to all Regional
Superintendents for reference.

The requirements and due dates for the
Regional Offices’ annual GAAP basis
financial statements are also clearly
outlined in 105 ILCS 5/2-3.17a and the
Auditor General’s administrative rules and
regulations governing this process at 74
Ill. Adm. Code 420.320 (c)(2).

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #3’s financial statements as of
June 30, 2018 are fairly presented in all
material respects.

This financial audit was conducted by the
firm of Doehring, Winders & Co., LLP.

KELLY MITTELSTAEDT
Audit Manager

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

FJM:JMM