REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #19

DUPAGE COUNTY

FINANCIAL AUDIT

(In Accordance with the
Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2007

Summary of Findings:

Total this audit                   3

Total last audit                   1

Repeated from last audit    0

Release Date:

July 24, 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 #19 did not prepare bank reconciliations properly and timely for all of its bank and investment accounts.

• The Regional Office of Education #19’s funds deposited at a financial institution exceeded the amount pledged as collateral by $127,777 at June 30, 2007.

·        The Regional Office of Education #19 did not have sufficient internal controls over property records and transactions.

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

The Regional Office of Education #19 did not prepare bank reconciliations properly and timely for all of its bank and investment accounts.

The Regional Office of Education #19’s funds deposited at a financial institution exceeded the amount pledged as collateral by $127,777 at June 30, 2007.

The Regional Office of Education #19 did not have sufficient internal controls over property records and transactions.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

BANK RECONCILIATIONS NOT COMPLETED PROPERLY AND TIMELY

         The Regional Office of Education #19 did not prepare bank reconciliations properly and timely for all of its bank and investment accounts.  Sound internal controls require bank reconciliations to be performed accurately and promptly.  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. 

         The Regional Office maintained cash and investment balances in 14 bank and investment accounts totaling $2,944,005 as of June 30, 2007.  During the fiscal year, deposits and checks clearing the bank were matched with general entry ledger entries each month.  However, the ROE still had unreconciled differences, thus bank reconciliations for fiscal year 2007 were not completed timely for these bank and investment accounts.  The June 30, 2007 bank reconciliations were completed on January 17, 2008. 

         Based on their review, auditors noted that bank reconciliations were not properly prepared which initially resulted in unreconciled differences in 13 out of 14 bank accounts (93%).  Net differences for those accounts totaled $8,575.  In addition, monthly bank reconciliation statements were not timely reviewed and did not have evidence of review or approval by ROE management.

         Failure to prepare bank reconciliations properly and timely may lead to loss or misuse of assets due to improper control and monitoring of bank accounts.  Unreconciled and unresolved differences in the bank reconciliations render the bank reconciliation process ineffective for identifying improper and unauthorized cash transactions and inaccuracies in financial records.  Failure to review bank reconciliations on a timely basis also renders the bank reconciliation process ineffective for monitoring timeliness and accuracy of reconciliations performed by staff. 

         According to Regional Office management, the exceptions noted were due to lack of staff who could handle the preparation of bank reconciliations.  (Finding 07-1, pages 12-13) 

         Auditors recommended that the DuPage County Regional Office of Education #19 prepare monthly reconciliations accurately and on a timely basis.  Unreconciled differences should be promptly investigated and bank reconciliations should be properly reviewed and approved by the Business Manager.

         The Regional Office #19 responded that it has increased the staff of the Finance Department effective October 2007 by one full time individual.  This position has responsibilities which include monthly bank reconciliations of each bank account, inventory control of the three sites of the Regional Office, and invoicing.  The Regional Office noted that this expansion has given it the personnel needed to comply with the criteria noted in this finding.

INADEQUATE MONITORING OF COLLATERAL ON DEPOSITS

         The Regional Office of Education #19’s funds deposited at a financial institution exceeded the amount pledged as collateral by $127,777 at June 30, 2007.  The Public Funds Deposit Act (30 ILCS 225/1) gives the authorization for deposits in excess of the federally insured limit to be covered by pledged collateral held by the financial institutions’ trust departments in the Regional Office’s name.  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.

         As of June 30, 2007, cash account balances of 13 accounts with one bank totaled $382,283.  The Federal Deposit Insurance Corporation (FDIC) covers up to a maximum of $100,000.  Additional collateral totaling $154,506 was received as of June 30, 2007.  The Regional Office had made formal arrangement with the bank to automatically provide additional collateral for balances exceeding the FDIC coverage.  However, additional collateral was not obtained for the balance of $127,777.

         Failure to secure full collateral on cash and investment balances may result in monetary losses to the Regional Office.  According to Regional Office management, the required additional collateral for the deposits was due to the bank inadvertently omitting one account when assigning collateral.  (Finding 07-2, page 14) 

         Auditors recommended that the DuPage County Regional Office of Education #19 monitor collateral held for its bank accounts.  The Regional Office should also establish controls for confirming amounts pledged by the bank on a regular basis, especially when the cash balances exceed the FDIC level.

         The Regional Office of Education #19 responded that it has met with a representative of the bank and reviewed in detail this finding.  The Regional Office noted that they have put into place a process that will allow them to monitor collateral held for their bank accounts on a regular basis.

CONTROLS OVER PROPERTY RECORDS AND TRANSACTIONS

         The Regional Office of Education #19 did not have sufficient internal controls over property records and transactions.  The Regional Office of Education (ROE) Accounting Manual requires each ROE to maintain detailed fixed asset records for both accounting purposes as well as insurance purposes for fixed assets costing $500 and above.  Generally accepted accounting principles require that an inventory of all fixed assets be maintained and property records be updated to reflect all existing items as of year end.

         In addition, the DuPage County Regional Office of Education #19 policies and procedures on inventory and depreciation of property and equipment state that fixed assets costing $500 and above should be properly tagged and property records should be updated for proper computation of depreciation.

     In the auditors’ detailed testing of the FY 2007 equipment purchases and detailed property listing, they noted the following:

• 43 office equipment items totaling $37,502 were not recorded in the detailed property listing.

• 31 of the 43 (72%) unrecorded equipment items were issued directly to users before being properly tagged.  The equipment items were purchased using the Physical Education Program funds and had a total purchase price of $24,506.

• Two laptops totaling $3,036 were recorded in the detailed property listing with the same tag number.

         The Regional Office subsequently revised the financial statements to include the adjustments necessary to properly record the equipment purchases.  In addition, the equipment items were subsequently tagged. 

         Failure to update property records with correct details results in inaccurate and incomplete property records.  Incomplete fixed asset listings do not provide for an adequate basis for physical control and losses may occur without being detected.  Failure to maintain accurate property records could also result in misstatements in the financial records that may not be detected on a timely basis. 

         According to Regional Office management, failure to tag the equipment items and update the property records is due to lack of staff.  Incorrect tag numbers and recording of expense was due to oversight.  (Finding 07-3, pages 15-16) 

         Auditors recommended that the DuPage County Regional Office of Education #19 update its property records on a timely basis with accurate and complete information.  The fixed asset listing should also be checked for accuracy and completeness through an annual physical inventory.

         Auditors also noted that a regular reconciliation of the general ledger and the detailed property listing should be performed for timely identification and correction of errors in the property records.  Prior to issuance to users, all equipment should be properly tagged for proper identification and tracking. 

         The Regional Office #19 responded that it has increased the staff of the Finance Department effective October 2007 by one full time individual.  This position has responsibilities which include monthly bank reconciliations of each bank account, inventory control of the three sites of the Regional Office, and invoicing.  The Regional Office noted that this expansion has given it the personnel needed to comply with the criteria noted in this finding.

AUDITORS’ OPINION

         Our auditors state the Regional Office of Education #19’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 E. C. Ortiz & Co., LLP.