REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #16: DEKALB
COUNTY

FINANCIAL AUDIT
For the Year Ended:  June 30, 2013

Release Date:  September 25, 2014

Summary of Findings:
Total this audit: 2
Total last audit: 1
Repeated from last audit: 1

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
www.auditor.illinois.gov

SYNOPSIS

• The Regional Office of Education #16 did not
have sufficient internal controls over the
financial reporting process.

• The Regional Office of Education #16 did not
fully insure and collateralize cash balances.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #16 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, skills and experience to prepare
GAAP based financial statements and includes
all disclosures as required by the
Governmental Accounting Standards Board
(GASB).

The Regional Office of Education #16 did not
have sufficient internal controls over the
financial reporting process.  The Regional
Office maintains its accounting records on the
cash basis of accounting during the fiscal
year and posts the adjusting journal entries
proposed by the auditor to convert financial
statements from cash to accrual at year-end.
While the Regional Office maintains controls
over the processing of most accounting
transactions and reviews revisions to the
financial statements and notes proposed by the
auditor, there are not sufficient controls
over the preparation of 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.

During review of the Regional Office of
Education #16’s trial balance prepared by the
Regional Office, auditors noted the Regional
Office did not have adequate controls over the
maintenance of complete records of cash
balances, grants receivable, accounts payable,
or earned/unearned revenue.  Material
adjusting journal entries were identified
during the audit to correct the trial balance.

According to Regional Office management, they
did not have adequate funding to hire and/or
train their accounting personnel in order to
comply with these requirements.  (Finding
2013-001, pages 10-11) This finding was first
reported in 2007.

The auditors recommended that, as part of
internal control over the preparation of
financial statements, the Regional Office of
Education #16 should implement a comprehensive
preparation procedure 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
applicable GAAP, GASB pronouncements, and
knowledge of the Regional Office of
Education’s activities and operations.

The Regional Office of Education #16 responded
that the finding above consists of two parts.
The first is financial statement preparation
and the second material journal entries.  The
Regional Office stated that it will use the
DeKalb County Financial Office as a resource
to review the financial statements to ensure
that the financial statements are complete and
accurate once the audit is complete.  However,
as mentioned above, the ROE did not have
adequate funding to hire personnel during the
fiscal year to convert the financial
statements from cash basis to accrual basis of
accounting.  However, the Regional Office is
hopeful fiscal 2014 will be fully converted to
accrual by the time of the next audit cycle.
The Regional Office also noted that it has
purchased an update of the accounting software
and an independent accountant is being used to
set up the accounting software and train
existing personnel on how to record financial
transactions on accrual basis throughout the
year.  (For previous Regional Office response,
see Digest Footnote #1.)

FAILURE TO FULLY INSURE AND COLLATERALIZE CASH
BALANCES

The Public Funds Deposit Act (30 ILCS 225/1)
gives the Regional Office of Education #16 the
authorization to request financial
institutions to pledge collateral for deposits
in excess of the federally insured limit.  In
addition, prudent business practice requires
that all cash and investments held by
financial institutions for the ROE be
adequately covered by depository insurance or
collateral.

The Regional Office of Education #16 did not
have sufficient internal controls to ensure
proper collateralization of all cash deposits.
At June 30, 2013, the bank balance was
$361,699.  Of the total bank balances,
$102,064 was uninsured and uncollateralized.

According to the Regional Office of Education
#16’s management, they were unaware of the
level of cash toward the end of the year and
were unable to make the proper arrangement
with the financial institution to ensure the
cash balances were insured and/or
collateralized. (Finding 2013-002, pages
12-13)

The auditors recommended that as part of
internal control over cash collateralization,
the Regional Office of Education #16 should
implement procedures to ensure all cash
deposits are properly collateralized.  This
includes monitoring the bank balances of all
accounts and working with the financial
institution to provide collateral or enter
into an agreement with the financial
institution to have the cash balances
monitored for adequate collateral periodically
and adjusted as necessary.

The Regional Office of Education #16 responded
that it will monitor cash balances closely in
fiscal year 2014, especially near the end of
the fiscal year and will take appropriate
action to ensure cash balances are either
deposited in various financial institutions in
order to mitigate the risk of uncollateralized
cash balances or will enter into a pledged
collateral agreement.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #16’s financial statements as of
June 30, 2013 are fairly presented in all
material respects.

WILLIAM G. HOLLAND
Auditor General

WGH:KJM

AUDITORS ASSIGNED:  Martin, Hood, Friese &
Associates, LLC were our special assistant
auditors.

DIGEST FOOTNOTE

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

In its prior response in 2012, the Regional
Office of Education #16 responded that it has
begun utilizing the DeKalb County Finance
Office as a resource for additional support.
The Regional Office has purchased an update of
the accounting software program currently in
use.  The ROE noted that an independent
accountant is also being used to set up the
upgraded accounting software that will allow
for internal preparation and review of
financial statements. The Regional Office also
stated that these procedures must be performed
internally because the added expense of hiring
properly trained individuals is cost
prohibitive for a small entity such as the
ROE.  Funding for ROE services is extremely
tight, and paying for a service such as was
noted would take away from the funds available
to provide educational services for the
schools in the Region.  The Regional Office
responded that it will continue to do the best
it can with the limited resources available.