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, 2011


Release Date:   July 24, 2013

Summary of Findings:
Total this audit: 6
Total last audit:  1
Repeated from last audit: 0

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 #19:

• did not have sufficient internal controls over
the financial reporting process;

• did not have adequate internal control
procedures;

• had expenditure reports that did not agree to
general ledger;

• did not have adequate documentation of payroll
expenditures;

• did not have adequate controls over property
and equipment; and

• did not have proper application of matching
principle.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education # 19 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 did not have sufficient
internal controls over the financial reporting
process.  The Regional Office maintains their
accounting records on the cash basis of
accounting during the fiscal year and posts year
end accrual entries for audit purposes.  The
Regional Office did not have 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, review of the
Regional Office’s accounting records noted the
following:

• The Regional Office did not maintain adequate
internal controls over the processing of all
financial transactions and numerous adjustments
were required to present financial statements in
accordance with generally accepted accounting
principles.

• The Regional Office did not appropriately
account for transfers between funds and numerous
adjustments were required to net transfer
amounts from revenue and expense accounts.

• The Regional Office did not have a reporting
mechanism to identify the specific expenditures
that should be applied to each grant year when
program grants have overlapping grant terms and
are accounted for in the same trial balance.

• The Regional Office was unable to reconcile
capital asset inventory listings with amounts
reported in financial statements.

The Regional Office’s accounting personnel have
not obtained necessary training to become
proficient in the preparation and review of GAAP
based financial statements and to ensure
inclusion of all disclosures as required by the
Governmental Accounting Standards Board (GASB).
(Finding 11-01, pages 16-17)

The auditors recommended that as part of its
internal control over the preparation of
financial statements, including disclosures, the
Regional Office 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 an
individual(s) possessing a thorough
understanding of applicable generally accepted
accounting principles, GASB pronouncements, and
knowledge of the Regional Office’s activities
and operations.

The Regional Office of Education #19 responded
that it agrees with the finding.  The Regional
Office noted that it will continue the
relationship with a private Certified Public
Accountant to prepare (GAAP based) financial
statements that will include all disclosures
required by the Governmental Accounting
Standards Board.  The Project Managers will play
a key role as they will be responsible along
with the Finance Office in the review of their
respective financial documents.  The ROE stated
that these reviews will be done every quarter.
In addition, the Regional Office’s accounting
personnel will receive training in detecting
misstatements and disclosure omissions in a
timely manner.

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education No. 19 is
required to maintain a system of controls over
receipts, disbursements, and reporting to
prevent errors and fraud.  The Regional Office
has not established sufficient controls over its
accounting functions.  Auditors, in their review
of the Regional Office’s accounting records,
noted the following:

• There is a lack of segregation of duties in
the cash disbursements and accounting process.
The fiscal staff has full, unrestricted access
to the accounting software and also can affix
the Regional Superintendent’s electronic
signature to checks.

• There is a lack of segregation of duties in
the cash receipts and accounting process.  The
Accountant opens mail, has full, unrestricted
access to the accounting software and is
responsible for monitoring accounts receivable.

• The Regional Office did not adhere to their
policy of requiring the Regional
Superintendent’s approval of purchases. In 11 of
63 (17%) instances, purchase orders were not
completed or signed by the Regional
Superintendent and/or were approved by the
Accountant using a signature stamp of the
Regional Superintendent.

• The Regional Office charged an expenditure to
only one fund when the supporting documentation
indicated that the expenditure applied to three
separate funds.

According to Regional Office officials,
employees were not aware of what duties should
be segregated to have a more effective process.
(Finding 11-02, pages 18-19)

The auditors recommended that the Regional
Office should adequately segregate duties so
that one individual is not involved in all
aspects of the cash receipts and disbursement
processes.  Additionally, the Regional Office
should implement a system of internal controls
that ensures expenditures are properly approved
before disbursements are made and posted to the
accounting software correctly.

The Regional Office of Education #19 responded
that it agrees with the finding.  A thorough
review will be completed to accomplish the
maximum segregation of duties possible with the
two full time and two part time members of the
finance office.  The Regional Office stated that
a new policy will be written to insure that
there will be three signatures on every purchase
order.  Included in this policy will be the
authorized back-up’s for the Regional
Superintendent and the Director of Finance.  The
initiator of the purchase order should always
sign the original.  The ROE noted that the
Finance Office and all employees who create
purchase orders will be trained to record the
proper fund to avoid corrections that lead to
audit questions.

EXPENDITURE REPORTS DID NOT AGREE TO GENERAL
LEDGER

Expenditure reports and reimbursement requests
for education programs submitted to the Illinois
State Board of Education (ISBE) and the Will
County Regional Office of Education  #56 should
agree with the expenditures reported on the
Regional Office of Education #19’s general
ledger.
A comparison of expenditure reports to the
Regional Office of Education #19’s  general
ledger revealed instances where the totals on
the final 2011 expenditure reports submitted to
the Illinois State Board of Education did not
agree with the Regional Office’s general ledger.
Additionally, a comparison of reimbursement
requests submitted to the Will County Regional
Office of Education #56 also revealed instances
where the amounts requested for reimbursement
did not agree to the general ledger amounts.
For example:

• The expenditure report submitted to ISBE for
the Regional Safe Schools program reported total
expenditures related to salaries of $212,441
while the general ledger reported total salaries
expenditures of $199,555, a difference of
$12,886.

• The expenditure report submitted to ISBE for
the Technology for Success program reported
total expenditures related to purchased services
of $55,548.  However, $6,200 of costs charged as
support services under purchased services had no
documentation other than the program budget to
support these costs.  Further, the fiscal year
2010 grant period crossed over into fiscal year
2011.  The Regional Office reported $102,573 of
total costs expended during the 2010 grant
period including $90,656 of expenditures
recognized in fiscal year 2010, leaving the
remaining $11,917 to be recognized in fiscal
year 2011.  All expenditures in the general
ledger for fiscal year 2011 appear to have been
applied to the fiscal year 2011 grant leaving $0
expenditures to be applied to the $11,917
remaining from the 2010 grant.

• The expenditure report submitted to ISBE for
the Gifted Education program reported total
expenditures related to salaries of $18,205
while the general ledger reported total salaries
of $0 for fiscal years 2009, 2010 and 2011
(duration of grant period), a difference of
$18,205.

• The expenditure report submitted to the
Illinois Violence Prevention Authority for the
Social/Emotional Learning program reported total
grant expenditures of $167,373 while the general
ledger reported total expenditures of $144,620
for fiscal years 2010 and 2011 (duration of
grant period), a difference of $22,753.

• The expenditure report submitted to ISBE for
the ARRA-Title I-Grants to Local Educational
Agencies program reported total expenditures of
$156,719 while the general ledger reported total
expenditures of $140,105.  The Regional Office
submitted a final expenditure report to ISBE
that reported $10,601 of costs charged as
support services but had no documentation other
than the program budget to support these costs.
Further, the Regional Office did not report all
expenditures under the appropriate ISBE
functional category (except for supplies and
materials).  Total unsupported costs were
$16,614.

• In 4 of 12 (33%) reimbursement requests
submitted to the Will County Regional Office of
Education #56 for the Title I-Grants to Local
Educational Agencies, and Improving Teacher
Quality State Grants, the request did not agree
to general ledger detail in total and/or by
category.  As an example, in the April 2011
reimbursement request, expenditures were over
reported in two separate categories.  The
Regional Office reported $13,130 in
reimbursement request for subs/stipends but the
general ledger reported total expenditures for
this category of $7,177, a difference of $5,953.
Further, the Regional Office reported $27,933 in
reimbursement request for materials, books, and
supplies to support training but the general
ledger reported total expenditures for this
category of $19,933, a difference of $8,000.
Total unsupported costs were $18,184.

According to Regional Office officials, the
Regional Office personnel responsible for
expenditure reports prepared the reports based
on numbers that were not adjusted for year-end
entries. (Finding 11-03, pages 20-23)

The auditors recommended that the Regional
Office personnel responsible for preparing the
expenditure reports should ensure all
expenditure reports are supported by the
appropriate adjusted general ledger maintained
in the Regional Office’s accounting software.

The Regional Office of Education #19 responded
that it agrees with the finding.  The Regional
Office stated that the expenditure reports may
not always agree with the general ledger.  An
example would be a program that is funded by a
state grant and local funds.  In Finding 11-01,
the ROE talked about quarterly reviews with the
Project Managers.  The ROE noted that this is
the time to correct items charged to the grant
in error.  The journal entry will be done
promptly and adequately explained and identified
to the proper year (Ex. FY 12) on the general
ledger report.  The Regional Office stated that
a reconciliation will be prepared thoroughly
documenting the difference between the
expenditure report and the general ledger
report.

INADEQUATE DOCUMENTATION OF PAYROLL EXPENDITURES

Office of Management and Budget (OMB) Circular
A-87, Cost Principles for State, Local and
Indian Tribal Governments, establishes
principles and standards for determining costs
for federal awards carried out through grants,
cost reimbursement contracts, and other
agreements with State and local governments and
federally recognized Indian tribal governments.
To be allowable under federal awards, costs must
meet certain general criteria.  Those criteria,
among other things, require the expenditures
must be allocable, reasonable, and supported by
adequate documentation.

Part 4 of the OMB Circular A-133 Compliance
Supplement for the Department of Education
prescribes that employee time and effort
distribution records must be maintained to
document the portion of time and effort
dedicated to the single cost objective and each
program or other cost objective supported by
non-consolidated Federal funds or other revenue
sources.

During our review of 10 payroll transactions for
10 separate employees, auditors  noted the
following:

• In 2 of 10 (20%) payroll transactions were not
approved by a responsible official of the
governmental unit.

• In 4 of 10 (40%) payroll transactions were not
adequately supported by personnel activity
reports or equivalent documentation.

• In 1 of 63 (2%) expenditure transactions, the
Regional Office allocated and charged costs
related to administration support to the ARRA -
Title I – Grants to Local Educational Agencies
program solely based on budgets.  No personnel
activity reports were prepared or completed to
support these costs nor does the Regional Office
utilize a cost allocation plan.

The Regional Office did not have established
policies and procedures regarding salaries and
benefits that incorporates the requirements of
Allowable Costs/Cost Principles of OMB Circular
A-87, Cost Principles for State, Local and
Indian Tribal Governments for compensation for
personnel services. (Finding 11-04, pages 24-27)

The auditors recommended that the Regional
Office should develop and implement adequate
policies and procedures to ensure compliance
with the Allowable Costs/Cost Principles of OMB
Circular A-87, Cost Principles for State, Local
and Indian Tribal Governments for compensation
for personnel services.  These policies and
procedures should include requiring staff
involved in multiple programs to submit
personnel activity reports by program or a time
and effort report by program.  The Regional
Office should also establish a payroll cost
allocation procedure that allows for computation
and comparison of actual time charged with
budgeted or pre-determined allocation rates on a
regular basis.  Payroll charges by program
should be based on the time devoted and
identified specifically to the performance of
those programs.

The Regional Office of Education #19 responded
that it agrees with the finding.  The Regional
Office stated that it is in the process of
revising its time sheets to insure that the time
spent is properly recorded against the program
employees are working on and is approved by the
respective project managers.  A training session
sponsored by the Finance Office will be held
with all ROE employees and consultants to insure
compliance with all of the requirements of OMB
Circular A-87.  The Regional Office noted that a
Certification from employees of federal programs
will be required every six months indicating
they worked full time on these programs.  A
policy will be developed to create a cost
allocation plan.  The ROE stated that as
indicated in Finding 11-01, a training session
for the Finance Office will be held to determine
if all of the changes above meet the
requirements of OMB Circular A-87.

INADEQUATE CONTROLS OVER PROPERTY AND EQUIPMENT

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 or more. Generally
accepted accounting principles require that an
inventory of all fixed assets and depreciation
schedules for assets meeting the capitalization
threshold for reporting be maintained.

The ROE Accounting Manual also states that the
fixed asset inventory records should include:
the inventory control number (tag number); major
asset class; function and activity; reference to
the acquisition source document; acquisition
date; vendor; a short description of the asset;
unit charged with custody; location; fund and
account from which purchased; method of
acquisition; estimated useful life and method of
depreciation; estimated salvage value; and date,
method, and authorization of disposition.

The Regional Office did not have adequate
controls over property and equipment.  The
Regional Office maintains two inventory
listings, one kept by Information Technology
(IT) personnel and one kept by Fiscal personnel.
The Regional Office has not performed a
reconciliation between the two listings.  The
annual physical inventory is conducted from the
IT inventory listing.  The inventory listings
provided by the Regional Office were inaccurate
and incomplete.  Auditors noted the following:

• Many items on both inventory listings did not
include all information required by the ROE
Accounting Manual and the Illinois State Board
of Education’s State and Federal Grant
Administration Policy and Fiscal Requirements
and Procedures.

• There were many inconsistencies in both
inventory listings and many items lacked
sufficient detailed descriptions, information
for identification and/or reconciliation of
items between listings.

• 2 of 25 (8%) items selected for testing from
the Fiscal Department inventory listing could
not be located.

• 2 of 25 (8%) items selected for testing from
the Fiscal Department inventory listing were
found in locations inconsistent with the
location noted on the inventory listing.

• 1 of 25 (4%) tagged items selected for testing
was incorrectly described in the IT inventory
listing.

• The Regional Office did not have a formal
process in place to track dispositions of
assets.

According to the Regional Office, fiscal
employees were not aware of requirements of the
ROE Accounting Manual and the Illinois State
Board of Education’s State and Federal Grant
Administration Policy and Fiscal Requirements
and Procedures. (Finding 11-05, pages 28-30)

The auditors recommended the Regional Office
should establish and implement detailed written
policies and procedures for inventory that
comply with the requirements of both the ROE
Accounting Manual and the Illinois State Board
of Education’s State and Federal Grant
Administration Policy and Fiscal Requirements
and Procedures to effectively and efficiently
monitor property acquisitions, transfers and
disposals, and provide for accurate reporting of
fixed asset balances.

The Regional Office of Education #19 responded
that it agrees with the finding.  The Regional
Office is currently reconciling the fixed assets
inventory to reflect items over $2,000 and
include all information required by the ROE
Accounting Manual and the Illinois State Board
of Education’s State and Federal Grant
Administration Policy and Fiscal Requirements
and Procedures.  In addition, the ROE’s policies
and procedures for inventory are being revised
to insure full compliance and include the use of
the accounts payable system for fixed assets
which is used to compile the list of purchases
for future audits.  The Regional Office stated
that the procedure will include all of the items
in the recommendation provided by the Auditor
for Finding 11-05.

IMPROPER APPLICATION OF MATCHING PRINCIPLE

According to generally accepted accounting
principles, revenues should be recognized when
they are realized and realizable and are earned,
no matter when cash is received.  When applying
the matching principle, expenses are incurred
and offset against recognized revenues which
were generated from those expenditures,
regardless of when cash is paid out.

The Regional Office did not always properly
apply the matching principle.  It appears the
Regional Office did not properly match grant
revenues to grant expenses in the prior fiscal
year resulting in revenue being recognized in
the current year without having expenditures to
support the revenues.  However, as noted in
finding 11-01, the Regional Office did not have
a reporting mechanism to identify the specific
expenditures that should be applied to each
grant year when program grants had overlapping
grant terms and were accounted for in the same
trial balance.  This makes the matching
principle difficult to apply and calculation of
any overstatement or understatement of revenue
impossible to determine.

According to the Regional Office, fiscal staff
lacks the training and understanding of
generally accepted accounting principles
regarding the application of the matching
principle. (Finding 11-06, pages 31-32)

The auditors recommended that the Regional
Office of Education #19 should implement
procedures to track grant expenditures by each
grant when grant terms overlap to ensure the
matching principle is applied properly and the
appropriate amount of grant revenue is
recognized.  The Regional Office should also
ensure its fiscal staff is knowledgeable of
generally accepted accounting principles.

The Regional Office of Education #19 responded
that it agrees with the finding.  The Regional
Office noted that in finding 11-03, grant
expenditures and revenue should be identified to
the proper year (Ex. FY 12) thus making it
possible to apply the GAAP Matching Principle.
In addition, the ROE indicated in finding 11-01,
accounting personnel will be trained in the
applicable GAAP standards.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #19’s financial statements as of June
30, 2011 are fairly presented in all material
respects except for the effects of such
adjustments, if any, as might have been
determined to be necessary had auditors been
able to satisfy themselves about the existence
and valuation of the capital assets.

WILLIAM G. HOLLAND
Auditor General

WGH:KJM

AUDITORS ASSIGNED:   Sikich LLP were our special
assistant auditors.