FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
INADEQUATE INTERNAL CONTROLS OVER CASH
Auditors noted several issues
relating to inadequate controls over the accounting and reporting of cash at
Regional Office of Education #17. The
Regional Office of Education #17’s beginning unadjusted general ledger
balance for their operating account was $2,434 less than the balance per the
June 2004 bank reconciliation.
In May 2004, the Regional Office
posted a prior year adjusting audit entry backwards, which resulted in the
Adult Education program’s cash being understated and its fund balance being
overstated by $81,001.
The Regional Office’s ending
adjusted general ledger balance for their operating account was $78,710 more
than the balance per the June 2004 bank reconciliation after the incorrect
posting of the prior year adjusting audit entry. This discrepancy caused a scope limitation for auditors and resulted in
a disclaimer of opinion on the financial statements.
The Regional Office did not have
the reconciled balance of their Illinois Funds account recorded in the
general ledger, which understated the Regional Office’s total cash in the
general ledger by $22,318. In
addition, bank reconciliations of the Illinois Funds account were not being
performed.
Generally accepted accounting
principles require that all cash in the custody of the Regional Office of
Education be recorded in the general ledger and that each month’s bank
statement be reconciled to the related general ledger account balance. (Finding 04-8, pages 9j-9k).
The Regional Office of Education
#17 accepted the recommendation and stated it will work to ensure that all
bank statements are reconciled to the related general ledger cash account. The Regional Office also stated they hired
a public accounting firm to review the balances and final
reconciliations. Procedures for
monthly bank reconciliations are in place.
Software irregularities were addressed by an outside consultant to
bring all database problems back into balance. Accounting software has been changed. All reconciling items will be reviewed with the appropriate
follow-up. Finally, the Regional
Office stated they would provide
internal controls to ensure that bank statements and the Illinois
Funds account are reconciled accurately to the general ledger on a monthly
basis.
INADEQUATE SEGREGATION OF DUTIES
The Regional Office of Education #17
does not have a proper segregation of duties for accounting functions
pertaining to the Livingston Alternative School. While the program director and Regional Superintendent review
and approve bills and payroll for payment, the bookkeeper prepares checks,
mails the payments, maintains the general ledger, and reconciles the bank
statements.
A proper segregation of duties is
required over all programs in the accounting function to reduce the risk that
errors or fraud in the financial statements won’t be detected by employees in
the normal course of performing their assigned functions (Finding 04-2, page
9b). This finding is repeated from our 2003 audit.
The Regional Office of Education #17 accepted the recommendation
stating that the Livingston Alternative School shall have all accounting and
payroll procedures performed by Regional Office of Education #17’s main
accounting office personnel beginning October 1, 2005. (For previous Regional Office response,
see Digest Footnote #1.)
INADEQUATE INTERNAL CONTROLS OVER DISBURSEMENT
PROCESS
The Regional Office of Education #17 does not have
adequate internal controls over its disbursement process. In testing of 175 disbursements, auditors
noted that:
§
Invoices were not canceled after payment in 19
instances.
§
Payment was made based on a copy of an invoice and
not an original invoice in 5 instances.
§
Authorization forms were not signed by the program
director or Superintendent in 10 instances.
§
There was no receipt, invoice, or other documentation
supporting the disbursement amount present in 12 instances.
§
There was no authorization form present in 2 instances.
§
The supporting documentation did not agree to the
check amount in 1 instance.
Duplicate payments of expenditures
are possible if invoices are not canceled after payment or if copies of
invoices are used for payment rather than their originals. (Finding 04-3, pages 9c-9d) This
finding is repeated from our 2003 audit.
The Regional Office of Education
#17 accepted the recommendation and stated it will implement internal
controls to ensure expenditures are paid based upon the original invoice
amount with proper cancellation of the invoice to prevent duplicate
payments. (For previous Regional
Office response, see Digest Footnotes #2 and #3.)
CONTROLS OVER COMPLIANCE WITH LAWS AND
REGULATIONS
The Regional Office of Education #17 did not comply with certain
statutory requirements. For example, the Illinois School Code (105 ILCS
5/3-12) requires that on or before
January 1 of each year, the Regional Superintendent shall publish in a
newspaper of general circulation published in the region or post in each
school building under his/her jurisdiction, certain information regarding the
Office’s Institute Fund. The Regional
Office of Education #17’s published Institute Fund balances did not reconcile
to the corresponding general ledger balance due to insufficient review and
internal controls.
The School Code (105 ILCS
5/3-12) also requires that fees deposited into the Institute Fund shall be
used by the Regional Superintendent to defray expenses associated with the
work of the regional professional development review committees to advise the
Regional Superintendent, upon his or her request, and to hear appeals
relating to the renewal of teaching certificates; defray expenses connected
with improving the technology necessary for the efficient processing of
certificates; to defray expenses incidental to teachers’ institutes,
workshops or meetings of a professional nature that are designed to promote
the professional growth of teachers; or for the purpose of defraying the expense
of any general or special meeting of teachers or school personnel of the
region which has been approved by the Regional Superintendent.
The Regional Office of Education #17 transferred $50,000
from the Institute Fund to establish and fund a Staff Development
Intersection program in FY 2002 and an additional $25,000 in FY 2003. The
Regional Office bought a printer, additional memory, and ink cartridges for
$1,672.98 with these funds. The
printer was utilized primarily in the accounting department to print checks,
ledgers, general correspondence and various reports, which were not purposes
delineated in the statutes for the use of Institute Funds. (Finding 04-4, pages 9e-9f).
The Regional Office of Education #17 accepted the recommendation and
stated that inaccurate financial reporting of the Institute Fund balances
will cease. It also stated the
Institute Fund will be expended for the purposes set forth in Illinois School
Code 105 ILCS 5/3-12.
INACCURATE REPORTING OF EXPENDITURES
The Regional Office of Education
#17’s June 30, 2004 expenditure report did not agree to the related general
ledger accounts. The report included
prior year accounts payable amounts as current year expenditures. Also, the grant agreement for the Title-I
Reading First Part B SEA Funds program restricted the amount of the grant
funding that could be spent on planning and administration to 3.5% of the
total grant award. The maximum amount
allowed was $1,665. The June 30, 2004
expenditure report reported $2,703, 5.7% of the grant award, was expended for
planning and administration.
The Illinois State Board of
Education and the U.S. Department of Education require that expenditure
reports reconcile to the related general ledger accounts. In addition, the requirements and
restrictions set forth in grant agreements must be followed. (Finding 04-10, pages 9m-9n)
The Regional Office of Education
#17 accepted the recommendation stating that the grant directors would be
given a general ledger for each of the grants that they are reporting. Each report shall show the expenditures
for the grants. The Regional Office
also noted that the Title I- Reading First Part B SEA Funds grant had an
outstanding receivable that was not paid until after June 30, 2004. The grant was to be reimbursed for
planning activities from professional development finds.
ACCOUNTING FOR GRANT EXPENDITURES IN EXCESS OF
GRANT REVENUES
The Regional Office of Education
#17 does not transfer non-grant revenue into grant funds to cover grant
expenses. Rather, when grant
expenditures exceed grant revenue, the Regional Office transfers the excess
grant expenditures into other funds.
Consequently the Regional Office is unable to
determine
the true operational cost of the grant program. (Finding 04-1, page 9a).
This finding is repeated from
our 2003 audit.
The Regional Office of Education
#17 accepted the recommendation to begin tracking funds by program
expenditures rather than by revenue source. (For previous Regional Office
response, see Digest Footnote #4.)
OTHER FINDINGS
The remaining findings were less
significant and are reportedly being given attention by the Regional Office
of Education #17. We will review
progress toward the implementation of our recommendations during the next
audit.
AUDITORS’ OPINION
Our auditors state they were unable to
express an opinion on the Regional Office of Education #17’s financial
statements as of June 30, 2004 due to a scope limitation created because the
ROE’s accounting records were insufficient to determine the balance of the
cash account at June 30, 2004.
____________________________________
WILLIAM G. HOLLAND, Auditor General
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SPECIAL
ASSISTANT AUDITORS
Our special
assistant auditors were Kemper CPA Group, LLP
DIGEST FOOTNOTES
#1: INADEQUATE
SEGREGATION OF DUTIES – Previous Regional Office Response
In its prior response in 2003,
the Regional Office accepted the finding and agreed to implement the
recommendation in the current fiscal year.
#2: LACK OF SUPPORTING
DOCUMENTATION- Previous Regional Office Response
In its prior response in 2003,
the Regional Office accepted the finding and agreed to implement the
recommendation to have supporting receipts attached to every purchase order
before payment. Purchase receipts
should be reconciled and attached to the credit card receipt, along with any
other supporting documentation for the expenditures on the account.
#3: LACK OF CANCELLATION
OF ORIGINAL INVOICE AFTER PAYMENT – Previous Regional Office Response
In its prior response in 2003,
the Regional Office accepted the finding and agreed to implement the
recommendation to implement controls to ensure expenditures are paid based
upon the original invoice amount with proper cancellation of the invoice to
prevent duplicate payments.
#4: ACCOUNTING FOR
GRANT EXPENDITURES IN EXCESS OF GRANT REVENUES – Previous Regional Office
Response
In its prior response in 2003,
the Regional Office accepted the finding and stated they would begin tracking
funds by program expenditures in the current fiscal year.
Complete Regional Office responses to prior findings are available
upon request from the Auditor General’s Office.
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