REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #20: EDWARDS,
HARDIN, GALLATIN, POPE, SALINE, WABASH, WAYNE
AND
WHITE COUNTIES

FINANCIAL AUDIT
For the Year Ended:  June 30, 2013

Release Date:  July 31, 2014

Summary of Findings:
Total this audit: 3
Total last audit: 3
Repeated from last audit: 2

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 #20 did not
have adequate internal control over the
payroll process.

• The Regional Office of Education #20 did not
have sufficient internal controls over the
financial reporting process.

• The Regional Office of Education #20 used
McKinney-Vento Education for Homeless Children
and Youth funds to purchase gift cards at the
end of the grant period.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE INTERNAL CONTROL OVER FINANCIAL
PROCESSES

The Regional Office of Education #20 did not
have adequate internal control over financial
processes.  The Regional Superintendent of
Schools is responsible for establishing and
maintaining an internal control system over
the payroll process to prevent errors or
fraud.

Auditors noted the following weaknesses in the
Regional Office’s internal controls:

• There was no salary contract approved by the
Regional Superintendent for 3 out of 16 (19%)
individuals tested.

• The salary as stated on the contract did not
match the amount the employee was paid for 1
out of 16 (6%) individuals tested.

The Regional Office of Education #20 did not
have adequate controls in place over the
payroll process.  Unauthorized payroll and
changes in payroll rates could result in
employees receiving incorrect payment for
their services.

According to the Regional Office of Education
#20 officials, the Regional Office did not
have proper internal control procedures over
the payroll processes. (Finding 2013-001, page
11a) This finding was first reported in 2011.

Auditors recommended that the Regional Office
of Education #20 should establish and
implement controls over the payroll process to
ensure every employee has a contract in their
personnel file that is signed by the Regional
Superintendent.

The Regional Office of Education #20 responded
that as of July 1, 2013, a salary and benefits
statement for each employee had been approved,
signed, and dated by the Regional
Superintendent.  The Regional Office noted
that this will reflect salaries and benefits
for each employee. Any changes to the
employee’s salary or compensation throughout
the year will be reflected on a similar
document.  (For previous Regional Office
response, see Digest Footnote #1.)

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #20 is
required to maintain a system of controls over
the preparation of financial statements in
accordance with generally accepted accounting
principles (GAAP).  The Regional Office’s
internal controls over GAAP financial
reporting should include adequately trained
personnel with the knowledge, skills and
experience to prepare GAAP based financial
statements and include all disclosures as
required by the Governmental Accounting
Standards Board (GASB).

The Regional Office of Education #20 did not
have sufficient internal controls over the
financial reporting process.  The Regional
Office of Education #20 maintains its
accounting records on cash basis of accounting
during the fiscal year and posts year-end
accrual entries for financial statement
purposes.  While the Regional Office maintains
controls over the processing of most
accounting transactions, 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’s
financial information prepared by the Regional
Office of Education #20, auditors noted the
following:

• Numerous adjusting entries were required to
present the financial statements in accordance
with generally accepted accounting principles.
• Receipts were not recorded as received, or
periodically throughout the year; instead they
were recorded subsequent to year end in a lump
sum.
• The fixed asset listing incorrectly
calculated beginning accumulated depreciation,
current year depreciation expense, ending
accumulated depreciation, and omitted asset
acquisitions.
• There was not sufficient documentary
evidence maintained to adequately support
adjusting journal entries.
• Bank reconciliations were not prepared on a
monthly basis.  They were prepared after year
end in preparation for the annual audit.
• School Facility Tax revenue was netted with
expenses.
The Regional Office of Education #20’s
bookkeeping staff did not reconcile bank
accounts, enter receipts, receivables,
payables, and fixed asset schedules until they
prepare for the annual audit at year end which
did not allow time for analysis and review
before submission to auditors.  Further, the
bookkeeping staff did not keep support for
journal entries.  (Finding 2013-002, pages
11b-11c) This finding was first reported in
2011.

The auditors recommended that, as part of
internal control over the preparation of
financial statements, the Regional Office of
Education #20 should implement comprehensive
preparation procedures 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
#20’s activities and operations.  The
procedures should include timely completion of
monthly bank reconciliations, timely recording
of revenue, proper accounting for revenue and
expenses, and proper recording of all accounts
receivable and payable.  The Regional Office
should also review the fixed asset listing to
ensure beginning accumulated depreciation as
well as current year depreciation has been
correctly calculated.  Finally, the Regional
Office should maintain documentation for all
journal entries that are made throughout the
year.

The Regional Office of Education #20 responded
that as of July 1, 2013, it is reconciling
bank accounts, recording receipts,
receivables, payables and fixed asset
schedules on a timely basis, instead of
recording them in preparation for the annual
yearend audit.  The Regional Office stated
that a binder containing all journal entries
with backup is being kept.  The School
Facility Tax revenue is no longer being netted
with expenses.  (For previous Regional Office
response, see Digest Footnote #2.)

CONTROLS OVER GRANT DISBURSEMENTS

As a recipient of federal, State, and local
funds from various granting agencies, the
Regional Office must incorporate certain
procedures into their operations in order to
comply with the grant agreements with these
entities.  In addition, the Regional Office
should comply with Circular A-87 when making
purchases with federal funds.

During testing, auditors noted federal grant
funding received for the McKinney-Vento
Education for Homeless Children and Youth was
used by the Regional Office of Education to
purchase department store gift cards in the
amount of $4,277.  The gift cards were
purchased right before the end of the grant
period and were specifically purchased so the
Regional Office could spend the funding during
the current grant period and not return the
funds to the grantor.  In addition, without
proper documentation obtained for gift card
purchases, unallowable costs could be
incurred.  The bookkeeper stated that the
funds could not be spent prior to the end of
the grant period therefore, the Regional
Office purchased gift cards.

The Regional Office of Education #20 did not
have a system of internal controls in place to
ensure that purchases are made with federal
grant funds within the period of availability.
(Finding 2013-003, page 11d)

The auditors recommended that the Regional
Superintendent should ensure that all federal
grant funds are spent prior to the end of the
grant period or the funds should be returned.

The Regional Office of Education #20 responded
that as of July 1, 2013, gift cards were no
longer being purchased by the Regional Office
with McKinney-Vento Education for Homeless
Children and Youth funds.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #20’s financial statements as of
June 30, 2013 are fairly presented in all
material respects.

WILLIAM G. HOLLAND
Auditor General

WGH:JRB

AUDITORS ASSIGNED:  Kemper CPA Group LLP were
our special assistant auditors.

DIGEST FOOTNOTES

#1: Inadequate Internal Control Over Financial
Processes - Previous Regional Office Response

In its prior response in 2012, the Regional
Office of Education #20 responded that as of
July 1, 2012, a salary and benefits statement
for each employee had been approved, signed,
and dated by the Regional Superintendent.  The
Regional Office noted that this will reflect
salaries and benefits for each employee, and
any changes to an employee’s salary or
compensation throughout the year will be
reflected in a similar document.  The Regional
Office stated that duplicate payment of this
expense was an oversight.  The Regional Office
of Education will continue to follow its
policy of only paying vendors once an
appropriate vendor invoice has been received.


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

In its prior response in 2012, the Regional
Office of Education #20 responded that as of
July 1, 2012, it is recording receipts when
received, instead of recording them in
preparation for the annual year end audit.
The Regional Office noted that it hired new
fiscal staff as of August 1, 2012.  The ROE
stated that it has also implemented new
accounting software with proper training for
its employees.  The Regional Office stated
that this should address the issues of
inadequate internal controls as well as help
with the preparation of the financial
statements on a timely basis.