REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #4: BOONE AND
WINNEBAGO COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2019

Release Date:  July 17, 2024

FINDINGS THIS AUDIT: 4

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

FINDINGS LAST AUDIT: 7

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, 400 West
Monroe, Suite 306, Springfield, IL
62704-9849
(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

• (19-1)  The Regional Office of Education
#4 lacked adequate controls over the review
of internal controls over external service
providers.

• (19-2)  The Regional Office of Education
#4 had inadequate internal control over
receipts.

• (19-3)  The Regional Office of Education
#4 had inadequate controls over the bank
reconciliation process.

• (19-4)  The Regional Office of Education
#4 did not provide completed financial
statements in an auditable form by the
August 31 deadline.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

LACK OF ADEQUATE CONTROLS OVER REVIEW OF
INTERNAL CONTROLS OVER EXTERNAL SERVICE
PROVIDERS

The Regional Office of Education #4 (ROE)
lacked adequate controls over the review of
internal controls over external service
providers. The ROE is responsible for the
design, implementation, and maintenance of
internal controls, including the controls
that are outsourced to service providers,
related to information systems and
operations to ensure resources and data are
adequately protected from unauthorized or
accidental disclosure, modifications, or
destruction. This responsibility is not
limited due to the process being outsourced.

Generally accepted information technology
guidance endorses the review and assessment
of internal controls related to information
systems and operations to assure accurate
processing and security of information.

During testing, the auditors noted the ROE
had not:

• Developed a formal process for identifying
service providers and for either obtaining
the Service Organization Controls (SOC)
reports from the service providers and
related subservice organization or
performing alternative procedures to
determine the impact of such services on its
internal control environment on an annual
basis.
• Documented its review of each of the SOC
reports, or performed alternative
procedures, to evaluate any issues relevant
to the ROE’s internal controls.
• Monitored and documented the operation of
the Complementary User Entity Controls
(CUECs) relevant to the ROE’s operations.

Regional Office officials indicated they now
understand the importance of a more formal
process to monitor service providers and
their effects on internal accounting
control. It was a lack of previous
understanding of this importance and the
effects of competing priorities that led to
the matter not being addressed. (Finding
19-001, pages 12 – 13)

The auditors recommended the ROE identify
all third-party service providers and
determine and document if a review of
controls is required. If required, the ROE
should:

• Obtain SOC reports or perform independent
reviews of internal controls associated with
outsourced systems including services
provided by subservice organizations, at
least annually.
• Monitor and document the operation of the
CUECs relevant to the ROE’s operations.
• Documents its review of the SOC reports or
perform alternative procedures to evaluate
all significant issues to ascertain if a
corrective action plan exists and when it
will be implemented, any impacts to the ROE,
and any compensating controls.
• Review contracts with service providers to
ensure applicable requirements over the
independent review of internal controls are
included.

ROE Response: The ROE expects that it has a
limited number of third-party service
providers that are materially relevant to
the organization’s internal controls, and
that their pervasive use by educational
institutions would minimize the risks of
unknown inadequate internal controls that
would impact the ROE.

The ROE will, however, undertake a review of
its third-party service providers (and any
related contracts), obtain and review SOC
reports where available, and document any
material implications on our internal
controls. Further, the ROE will identify and
assess CUECs relevant to its operations as
recommended.

INADEQUATE INTERNAL CONTROL OVER RECEIPTS

The Regional Office of Education #4 (ROE)
had inadequate internal control over
receipts. Sound internal controls require
documented policies and procedures in
relation to receipts collection and
processing, and proper segregation of duties
when performing the steps within the
receipts process. Furthermore, sound
internal controls require a policy on
timeliness of deposits, either based on
dollar threshold or defined timeframe, from
the date of receipt. There should be
documentation of the date when cash and
checks are received.

During auditors’ testing of receipts, they
noted the following:

• The ROE did not maintain documented
policies and procedures for receipts
collection and processing.
• The ROE did not maintain proper
segregation of custody and recordkeeping
duties over receipts collection and
processing. For receipts not received
electronically, one employee was responsible
for opening the mail and receiving checks,
recording receipt transactions within the
accounting system, and also depositing the
checks.
• 10 of 40 receipts tested (25%), totaling
$189,389, had no documentation when the
checks were received. As a result, auditors
were unable to determine whether non-
electronic cash receipts were deposited in a
timely manner.

Regional Office officials indicated that the
exceptions noted were due primarily to
oversight and inadequate staffing. (Finding
19-002, pages 14 – 15)

The auditors recommended the ROE should
document their policies and procedures
related to receipts collection and
processing, establish proper segregation of
duties, and maintain adequate supporting
documentation to ensure cash receipts are
deposited in a timely manner.

ROE Response: The ROE will improve its
documentation of policies and procedures
regarding cash receipts and will improve its
segregation of duties over those procedures.
Further, it will be a priority to make
timely deposit of all cash received and to
maintain such supporting documentation as
may be necessary to this purpose.

INADEQUATE CONTROLS OVER BANK RECONCILIATION
PROCESS

The Regional Office of Education #4 (ROE)
had inadequate controls over the bank
reconciliation process. Effective internal
control policies require complete and
accurate accounting records of all
transactions of the entity. Sound internal
controls require bank reconciliations to be
performed accurately and promptly, no later
than the end of the following month.
Reconciling items should be investigated
immediately, and adjustments made to the
general ledger. Bank reconciliations should
also be reviewed and approved by a person
independent of the preparer in a timely
manner.

The ROE maintains 17 bank accounts. Auditors
tested 8 of 17 (47%) bank accounts and
reviewed their monthly reconciliations and
noted the following:

• 42 of 96 (44%) monthly bank
reconciliations were performed later than
the end of the following month, resulting in
39 to 595 days late.
• 31 of 96 (32%) monthly bank
reconciliations were missing the date of
when the reconciliation was prepared,
therefore auditors were unable to determine
if the bank reconciliation was prepared
timely.

Regional Office officials indicated the
exceptions noted above were due to the
volume of accounts, and lack of sufficient
staff. (Finding 19-003, pages 16 – 17)

The auditors recommended the ROE should
prepare monthly bank reconciliations no
later than the end of the following month.

ROE Response: The ROE has taken steps to
reduce the number of cash bank accounts
necessary for the organization, and also
intends to place a higher priority on the
timely completion of monthly bank
reconciliations. It is anticipated that all
reconciliations will be prepared timely, and
all reconciling items identified by the end
of the following month. In most cases, the
reconciling items can be resolved in a
similar timeframe or shortly thereafter,
allowing the final completion of the bank
reconciliation.

DELAY OF AUDIT

The Regional Office of Education #4 (ROE)
did not provide completed financial
statements in an auditable form by the
August 31 deadline. The June 30, 2018 audit
was not released until June 28, 2023. The
completed June 30, 2019 financial statements
were provided to auditors on October 20,
2023.

The ROE is subject to 105 ILCS 5/2-3.17a
which requires the Auditor General’s office
to cause an audit 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 Government Auditing Standards. The
ROE may utilize a cash basis, modified cash
basis, or generally accepted accounting
principles (GAAP) basis of accounting to
prepare the financial statements for audit.
The ROE has chosen the cash basis of
accounting for financial reporting.

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 15th of the succeeding fiscal
year. Financial reports are to be available
no later than August 31st in order for the
annual to be completed by an independent
auditor selected by the Auditor General. In
addition, prudent business practices and
transparency require timely preparation and
completion of financial statements.

Regional Office officials indicated that the
initial delays that affected earlier years
related to internal personal issues and
software program changes that caused the
office to experience difficulty in providing
information by the required timeline. Since
those initial causes have been largely
resolved, the ROE has experienced delays in
the preparation of the financial statements
and schedules which contributed to an
inability to get caught up. (Finding 19-004,
pages 18 – 19) This finding was first
reported in 2016.

The auditors recommended the ROE should
implement procedures to ensure compliance
with 105 ILCS 5/2-3.17a and 74 Ill. Adm.
Code 420.320 (C) (2). These financial
statements need to be presented to the
Auditor General’s independent auditors for
audit by the August 31st deadline.

ROE Response: The ROE has changed to the
cash basis of accounting, which its
management believes will simplify the
preparation and presentation of financial
statements. Further, it has continued to
engage a Certified Public Accounting firm to
prepare all financial statements and
schedules necessary for audit. The ROE
expects that it can cooperate with an
accelerated schedule of past audits so that
this matter may be fully resolved without
significant further delay. The cooperation
of the Illinois Auditor General will be
sought in order to explore an accelerated
audit schedule.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #4’s financial statements as of
June 30, 2019 are fairly stated in all
material respects.

This financial audit was conducted by the
firm of Adelfia LLC.

JOE BUTCHER
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