REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #14

SUBURBAN COOK COUNTY

FINANCIAL AUDIT

For the Year Ended:

June 30, 2007

Summary of Findings:

Total this audit                  3

Total last audit                  2

Repeated from last audit   1

Release Date:

June 26, 2008

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

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

http://www.auditor.illinois.gov

SYNOPSIS

·        The Regional Office of Education #14 does not have sufficient internal controls over the financial reporting process.

·        The Regional Office of Education #14’s total liabilities exceeded its total net assets by $413,434.  If the Regional Office continues to operate at the current level without obtaining additional funding or decreasing expenditures, its ability to continue as a going concern may be questioned in future years.

·        The Regional Office of Education #14 utilizes an accounting software package which was not designed for governmental entities and does not provide the internal controls and reporting features required for proper fund accounting.

                       {Expenditures and Revenues are summarized on the reverse page.}

The Regional Office of Education #14 does not have sufficient internal controls over the financial reporting process.

The Regional Office of Education #14’s total liabilities exceeded its total net assets by $413,434.  If the Regional Office continues to operate at the current level without obtaining additional funding or decreasing expenditures, its ability to continue as a going concern may be questioned in future years.

The Regional Office of Education #14 utilizes an accounting software package which was not designed for governmental entities and does not provide the internal controls and reporting features required for proper fund accounting.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

Controls Over Financial Statement Preparation

         The Regional Office of Education #14 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 #14 does not have sufficient internal controls over the financial reporting process.  The Regional Office maintains their 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.

         In their review of the Regional Office’s accounting records, auditors noted that the following:

• Numerous adjustments were required to present 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 payable or deferred revenues.  While the Regional Office did maintain records of accounts payable, no entries were made to record the amounts from these records.  Additionally, no entries were provided to reconcile the ROE’s grant activity, such as posting grant receivables and deferred revenues.

• The Regional Office did not have the ability to prepare accurate financial reports on the fund basis of accounting.  

         According to Regional Office officials, they did not have adequate funding to hire and/or train their accounting personnel in order to comply with these requirements. 

         The auditors recommended that, as part of its internal control over the preparation of its financial statements, including disclosures, the Regional Office of Education #14 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 07-1, pages 9-10)

         The Regional Office of Education #14 responded that it understands the nature of this finding and realizes that this circumstance is not unusual in an organization of this size.  The Regional Office will seek the assistance of the county auditor to provide the accounting expertise to prepare and/or review the financial statements for its office.  They noted that this should help to control the additional costs of such preparations.  The ROE also notes that they have contacted their accounting system provider to develop reporting software that would assist the ROE in meeting these requirements.

CONTINUATION AS A GOING CONCERN

         The Regional Office of Education #14’s liabilities exceeded its total net assets by $413,434.  On a cash basis of accounting, the Regional Office has sufficient financial resources to operate through fiscal year 2008.  The Regional Office did take some action during fiscal year 2007 to address this issue, for example, by increasing the amount charged for fingerprinting services.  However, if the Regional Office continues to operate at the current level without obtaining additional funding or decreasing expenditures, its ability to continue as a going concern may be questioned in future years.

         According to Regional Office officials, the Regional Office of Education #14 has experienced a significant loss of funding in recent years.  Along with this decreased funding, there has also been an increase in the Office’s responsibilities regarding the teacher certification program, causing the Office to hire additional staff and thus increasing expenditures.  Regional Office officials also stated that the Regional Office of Education #14 is the only Regional Office of Education in the State that does not receive funding from its respective county.

         Auditors recommended that the Suburban Cook County Regional Office of Education #14 attempt to streamline operations so that expenditures are lowered and/or continue to seek additional funding sources. (Finding 07-2, page 11)

         The Regional Office of Education responded that effective July 1, 2007, the new Regional Superintendent has instituted decisive actions to reduce the $413,434 excess spending.  Closer monitoring and reporting (including written work logs for each employee) has been instituted.  The Regional Office noted that unlike the rest of Illinois, Cook County does not contribute any financial resources to the Regional Office of Education.  Therefore, the Regional Superintendent will address this issue with the Cook County Board.

INADEQUATE ACCOUNTING SOFTWARE AND INTERNAL CONTROLS

         The Regional Office of Education #14 utilizes an accounting software package which was not designed for governmental entities and does not provide the internal controls and reporting features required for proper fund accounting.  The software package allows for the revenues and expenses of the Regional Office’s programs to be accounted for separately, but combines all assets, liabilities, and fund balances.

         The Regional Office of Education is required by the Regional Office of Education Accounting Manual to maintain an accounting system on a fund basis.  A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources together with all related liabilities and residual balances and changes therein.

         With its accounting software package, management could not easily obtain entity-wide financial information necessary to make informed management decisions.  In addition, financial statements in accordance with generally accepted accounting principles and the Regional Office of Education Accounting Manual cannot be readily prepared from the accounting system. (Finding 07-3, pages 12-13)

         Auditors recommended that the Suburban Cook County Regional Office of Education #14 should implement an accounting software application that provides the necessary controls and reporting features required for proper fund accounting.  An appropriate accounting system will support the multiple programs and funds administered by the Regional Office.  The accounting system should have the capabilities necessary for the Regional Office to be in compliance with the Regional Office of Education Accounting Manual and provide the reporting detail necessary to prepare financial statements in accordance with generally accepted accounting principles.

         The Regional Office responded that it will purchase a new financial software package that will provide sufficient details to prepare financial statements in accordance with generally accepted accounting principles.  In addition, the Regional Office noted that the business manager will supervise all financial reporting processes.  The ROE noted that the business manager has the knowledge base and expertise regarding the processing of ROE accounting transactions and operations.

AUDITORS’ OPINION

         Our auditors state the Regional Office of Education #14’s financial statements as of June 30, 2007 are fairly presented in all material respects.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KJM

SPECIAL ASSISTANT AUDITORS

        Our special assistant auditors were Clifton Gunderson, LLP.