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The Regional Office of Education #13 paid an employee
additional compensation as an independent contractor, rather than reporting
the compensation as wages subject to all applicable payroll taxes and
withholdings.
The Regional
Office of Education #13 did
not have sufficient internal controls over the financial reporting process.
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FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
PAYROLL REPORTING
Auditors noted one instance where a
Regional Office employee who met the criteria of an employee, as set forth by
Internal Revenue Service Publication
15-A, was paid $1,731 as an independent contractor. Internal
Revenue Service Publication 15-A requires existing employees of an entity
who are compensated for duties beyond the duties of their original agreement
to be paid as wages subject to all payroll taxes and withholdings.
The Regional Office was unaware of
the proper reporting requirements for additional compensation to existing employees.
Auditors recommended
that Regional Office of Education #13 develop policies and procedures to
ensure that all additional compensation paid to existing employees is
reported as wages subject to all applicable payroll taxes and withholdings. In addition, the Regional Office should
contact the Internal Revenue Service and the Illinois Municipal Retirement
System to determine if the Regional Office is required to file amended
reporting for the applicable periods. (Finding
07-1, page 12a)
The Regional Superintendent agreed
with the finding.
Controls
Over Financial Statement Preparation
The Regional Office of Education #13 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 #13 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
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. For example, auditors, in their review of
the Regional Office’s accounting records, noted the following:
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The Regional
Office’s financial information required numerous adjusting entries to
present the financial statements in accordance with generally accepted
accounting principles.
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While the Regional Office did maintain records to indicate the
balances of accounts payable, accounts receivable, and deferred
revenues, no entries were provided to reconcile the ROE’s grant
activity, such as posting grant receivables and deferred revenues.
The auditors recommended that, as part of
its internal control over the preparation of its financial statements,
including disclosures, the Regional Office of Education #13 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. (Finding 07-02,
pages 12b-12c)
The Regional Office responded by indicating it
understands the nature of the finding and realizes that this circumstance is
not unusual in an organization of this size.
The Regional Office 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.
AUDITORS’
OPINION
Our auditors state the Regional Office of
Education #13’s financial statements as of June 30, 2007 are fairly presented
in all material respects.
_____________________________________
WILLIAM
G. HOLLAND, Auditor General
WGH:JRB
SPECIAL ASSISTANT AUDITORS
Our
special assistant auditors were Kemper CPA Group LLP.
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