REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #4: BOONE AND
WINNEBAGO COUNTIES

FINANCIAL AUDIT (In accordance with the
Single Audit Act and OMB Circular A-133)
For the Year Ended: June 30, 2015

Release Date:  March 31, 2016

FINDINGS THIS AUDIT:  4

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  2 -- 1 -- 3
Category 2:  1 -- 0 -- 1
Category 3:  0 -- 0 -- 0
TOTAL:  3 -- 1 -- 4

FINDINGS LAST AUDIT: 1

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

• (15-1) The Regional Office of Education
#4 did not have sufficient internal
controls over the financial reporting
process.

• (15-2) The Regional Office of Education
#4 did not properly implement internal
controls over payroll.

• (15-3) The Regional Office of Education
#4 did not have sufficient internal
controls over monitoring capital assets.

• (15-4) The Regional Office of Education
#4 did not comply with grant requirements.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS


CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #4 is
required to maintain a system of controls
over the preparation of financial
statements in accordance with generally
accepted accounting principles (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).

The Regional Office of Education #4 did
not have sufficient internal controls over
the financial reporting process.  The
Regional Office maintains its accounting
records on the cash basis of accounting.
While the Regional Office maintains
controls over the processing of most
accounting transactions, there were 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, in their review of the Regional
Office’s accounting records, auditors
noted the following:

• The Regional Office’s financial
information required numerous adjusting
entries to present the financial
statements in accordance with generally
accepted accounting principles.

• The Regional Office did not have
adequate controls over the maintenance of
complete records of accounts receivable,
accounts payable, unearned revenue, and
prepaid expenses.  While the Regional
Office did maintain records to indicate
the balances of accounts payable, accounts
receivable, unearned revenue, and prepaid
expenses and made entries to record them,
not all accounts payable, accounts
receivable, unearned revenue, and prepaid
expenses were correctly recorded.

• The cash and activity of the Richard
Fairgrieves Scholarship Fund were recorded
and tracked independently of the Regional
Office’s accounting system.

• In addition, the Regional Office 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 officials,
current funding levels were not adequate
to hire and/or train accounting personnel
in order to comply with these
requirements.  The complex requirements of
GASB Statements No. 68 and No. 71 were new
for fiscal year 2015 and will require
additional time and training before the
Regional Office can fully implement the
requirements on its own. (Finding
2015-001, pages 14a-14c) This finding was
first reported in 2010.

The auditors recommended that as part of
internal control over the preparation of
financial statements, including
disclosures, the Regional Office of
Education #4 should implement a
comprehensive preparation and/or review
procedure to ensure 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 #4
responded that it accepts the degree of
risk associated with this condition
because the additional expense to seek
outside 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.  However, the
Regional Office has also expended time and
resources to remedy conditions underlying
this finding. The Regional Office stated
that it has implemented staffing changes
to provide more checks and balances to its
accounting processes and contracted with
an outside Software Specialist to bring
its accounting system into compliance with
ISBE accounting standards and to train its
staff.  The Regional Office noted that it
will continue to work with a Software
Specialist to ascertain that its
accounting program is up to date and its
staff possesses the knowledge required to
compile the necessary GAAP-based financial
statements.  (For previous Regional Office
response, see Digest Footnote #1 shown on
the last page.)

IMPLEMENTATION OF INTERNAL CONTROLS OVER
PAYROLL

The Regional Superintendent of Schools is
responsible for establishing and
maintaining a system of internal controls
over payroll disbursements to prevent
errors and fraud.  Specifically, the
Regional Office’s internal controls
require all employment agreements to be
signed by both the employee and
management.

Auditors found 5 out of 20 (25%)
employment agreements examined were not
signed by a member of management.

According to the Regional Office of
Education #4, a member of management was
not aware of the Regional Office’s
internal control procedures related to
their employment agreements. (Finding
2015-002, page 14d)

The auditors recommended that the Regional
Office should ensure that all members of
management are aware of and properly
implement the Regional Office’s internal
control procedures related to their
payroll process.

The Regional Office of Education #4
responded that it will ensure that all
management is aware that two signatures
are required on each employment agreement.
They also stated that signature lines will
be added to the FY17 fiscal year
agreements.

MONITORING CAPITAL ASSETS

The Regional Office of Education #4 is
required by 23 Ill. Adm. Code Part 100.100
to maintain an updated schedule of capital
assets and depreciation.

Auditors found the Regional Office’s
capital asset schedule did not include all
current-year additions.  Assets totaling
$9,401 were excluded from the asset
schedule provided by the Regional Office.

Auditors noted that maintenance of the
capital asset schedule is decentralized,
and it is updated by multiple personnel,
which makes it difficult for the Regional
Office to ensure the schedule is complete
and updated timely.  (Finding 2015-003,
page 14e)

The auditors recommended that the Regional
Office should assign responsibility to one
individual to ensure that the capital
asset schedule is regularly maintained and
periodically reconciled to the accounting
records.

The Regional Office of Education #4
responded that it will work with each
program director to ensure that their
capital asset schedule is current and up
to date.  The Regional Office noted that
one individual will reconcile those
records to the accounting records.

NONCOMPLIANCE WITH GRANT REQUIREMENTS

The Regional Office must comply with grant
accounting and reporting requirements
established by the grant agreements with
the Illinois State Board of Education
(ISBE) and other grantors in addition to
the requirements established by ISBE’s
fiscal policies and procedures for
grantees.  Among these requirements are
accurate, current, and complete disclosure
of grant financial activity.

Auditors found that for the Regional Safe
Schools grant program, payroll accruals
were reported on the grant expenditure
report as being expended rather than
obligated; these payroll costs ultimately
were paid from unrestricted, non-grant
funds, causing grant payroll costs to be
overstated on the grant expenditure
report.  The expenditure report submitted
to the grantor did not accurately reflect
actual expenditures, resulting in a
failure to comply with the grant
requirement for accurate, current, and
complete disclosure of financial results.

Upon questioning, auditors found that
Regional Office personnel were not aware
of how to appropriately report grant
obligations.  The final grant expenditure
report was not prepared using financial
data from the Regional Office’s accounting
system. (Finding 2015-004, page 14f)

The auditors recommended that the Regional
Office should ensure that grant
expenditure reports are prepared using
current and accurate financial data based
on reports obtained from the Regional
Office’s accounting system.  Accrued
expenditures should be reported as
obligated rather than expended.  The
Regional Safe School final expenditure
report should be amended to reflect actual
grant expenditures.

The Regional Office of Education #4
responded that it will ensure that grant
expenditure reports are prepared using
current and accurate financial data based
on reports obtained from the Regional
Office’s accounting system.  The Regional
Office noted accrued expenditures will be
reported as obligated rather than
expended.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #4’s financial statements as of
June 30, 2015 are fairly stated in all
material respects.

FRANK J. MAUTINO
Auditor General

FJM:KJM

AUDITORS ASSIGNED:  Kemper CPA Group LLP
were our special assistant auditors.

DIGEST FOOTNOTE

#1: Controls Over Financial Statement
Preparation - Previous Regional Office
Response

In its prior response in 2014, the
Regional Office of Education #4 responded
that it accepts the degree of risk
associated with this condition because the
additional expense to seek outside
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 of
Education #4 noted that it has also
expended time and resources to remedy
conditions underlying this finding. The
Regional Office stated that it has
implemented staffing changes to provide
more checks and balances to its accounting
processes and contracted with an outside
Software Specialist to bring its
accounting system into compliance with
ISBE accounting standards and to train its
staff.  The Regional Office noted that it
will continue to work with a Software
Specialist to ascertain that its
accounting program is up to date and its
staff possesses the knowledge required to
compile the necessary GAAP-based financial
statements.