REPORT DIGEST

 

REGIONAL OFFICE OF EDUCATION # 21

 

FRANKLIN/WILLIAMSON COUNTIES

 

FINANCIAL AND COMPLIANCE AUDIT

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

For the Year Ended:

June 30, 2003

 

Summary of Findings:

 

Total this audit                        10

Total last audit                        17

Repeated from last audit           8

 

Release Date:

December 16, 2004 

 

 

 

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 is also available on

the worldwide web at

http://www.state.il.us/auditor

SYNOPSIS

 

·         Regional Office of Education #21 did not have adequate controls over its fixed assets.  Physical inventories were not consistently performed.  Fixed asset listings had not been maintained or updated with acquisitions or disposals.  As a result, the General Fixed Asset Account Group was omitted from the ROE’s financial statements in non-conformity with generally accepted accounting principles.

 

·         ROE# 21 did not maintain supporting documentation for increases in employee compensation.

 

·         During Fiscal Year 2003, at least $1,127 in personal expenditures were charged by the Regional Superintendent on the American Express Card paid by the Regional Office.  Of these expenditures, $932.91 was reimbursed to the Regional Office (generally 8 to 9 months after the expenses were incurred); the remaining $194.51 was not reimbursed by the Regional Superintendent.

 

·         At least 37 reimbursements for meals, totaling $2,488.67, were billed on the American Express card and paid by the Regional Office.  There was no explanation or other documentation to indicate that these meals were a Regional Office–related business expense.

 

·         Questionable travel reimbursements were paid to travelers, including three instances where the traveler charged meals on the credit card totaling $242 and received per diem reimbursements for the same trips.

 

·         ROE #21 did not maintain a fiscal policies and procedures manual during the audit period.

 

·          ROE #21 did not have a proper segregation of duties in the accounting function. 

 

·          ROE #21 did not maintain an adequate cost allocation plan.

 

·          Documentation supporting some payments to related parties was lacking, including timesheets not signed by a supervisor and/or employee.

 

·          Of 50 expenditures and related vendor invoices reviewed, 48 (96%) were not properly cancelled after payment.

 

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

 


                                                                                   

REGIONAL OFFICE OF EDUCATION # 21

 FRANKLIN AND WILLIAMSON COUNTIES

 

FINANCIAL AND COMPLIANCE AUDIT

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

For The Year Ended June 30, 2003

 

 

 

 

FY 2003

FY 2002

TOTAL REVENUES

$4,216,992

$5,141,628

Local Sources

$463,740

$516,163

% of Total Revenues

11.00%

10.04%

State Sources

$1,558,441

$1,731,877

% of Total Revenues

36.96%

33.68%

Federal Sources

$2,194,811

$2,893,588

% of Total Revenues

52.05%

56.28%

 

TOTAL EXPENDITURES

$4,281,040

$4,991,086

Salaries and Benefits

$2,318,298

$2,452,979

% of Total Expenditures

54.15%

49.15%

Purchased Services

$922,270

$1,293,615

% of Total Expenditures

21.54%

25.92%

All Other Expenditures

$1,040,472

$1,244,492

% of Total Expenditures

24.30%

24.93%

 

 

 

COST OF PROPERTY AND EQUIPMENT

 

$ 1

 

$ 1

 

1 A schedule of general fixed assets was not maintained, therefore a qualified opinion was issued.

* Percentages may not add due to rounding.


REGIONAL SUPERINTENDENT 

During Audit Period:  Honorable Barry Kohl

Currently:  Honorable Barry Kohl


 

 

 

 

 

 

 

 


Physical inventories were not consistently performed.  Fixed asset listings had not been maintained or updated with acquisitions or disposals. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Regional Office of Education #21 increases some employees’ salaries as additional funding becomes available; however, no supporting documentation for the increases in employee compensation is maintained. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


During the period July 1, 2002 through June 30, 2003, at least $1,127 in personal expenditures were charged by the Regional Superintendent to the American Express card and paid by the Regional Office. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There was no explanation or other documentation attached to the American Express bill to indicate that the meal expenditures incurred were Regional Office-related business expenses. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There was inadequate documentation to support some payments to related parties.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regional Office of Education #21 does not maintain a cost allocation plan or an approved indirect cost rate to allocate indirect costs.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auditors identified several issues regarding travel reimbursements paid by Regional Office of Education #21. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Regional Office did not maintain a fiscal policies and procedures manual during the audit period. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

 

 

LACK OF CONTROL OVER FIXED ASSETS

 

        The Regional Office of Education #21 did not have adequate controls over its fixed assets.  The Regional Office of Education (ROE) Accounting Manual requires each ROE to maintain detailed fixed asset records for both accounting and insurance purposes.  The Regional Office of Education #21 had not established formal policies or procedures to monitor and control equipment and other fixed assets, as of June 30, 2003.  Physical inventories were not consistently performed.  Fixed asset listings had not been maintained or updated with acquisitions or disposals. 

 

        As a result of the above conditions, the General Fixed Asset Account Group was omitted from the ROE’s financial Statements.  Inclusion of the General Fixed Asset Account Group is required for conformity with generally accepted accounting principles. (Finding 03-02, pages 15 – 17)   This finding is repeated from our 2002 audit.

 

        The auditors recommended that the Regional Office of Education #21 develop a formal fixed asset policy and procedures manual, as well as maintain accurate fixed asset listings.  The Regional Office of Education #21 responded that it is following the auditors’ recommendation with regards to acquisitions, transfers and disposals.  On-site inventory is being conducted on an annual basis.  (For previous Regional Office response, see Digest Footnote #1.)

 

 

LACK OF PAY-RATE AUTHORIZATIONS

 

        The Regional Office of Education #21 increases some employees’ salaries as additional funding becomes available; however, no supporting documentation for the increases in employee compensation is maintained.  Annual pay raises are also not supported by any documentation to justify the increase, such as an employee evaluation.  Employee compensation not supported by approved documentation may result in incorrect compensation for services provided.

 

        The Regional Superintendent stated that pay rates change based on funding availability and changes are discussed with employees.  He also stated that informal job performance evaluations are conducted as he deems necessary. (Finding 03-03, pages 18 – 19)   This finding is repeated from our 2002 audit.

 

        The auditors recommended that the Regional Office maintain documentation for employees that establishes a pay rate commensurate with the responsibilities assigned and that formal, documented  job evaluations be conducted annually.  The Regional Office of Education #21 responded that documentation for employee pay increases will be documented and maintained, and annual performance evaluations will be performed for Regional Office employees.  (For previous Regional Office response, see Digest Footnote #2.)

 

 

UNALLOWABLE EXPENDITURES

 

        The Regional Superintendent used an American Express card to pay for goods purchased for the Regional Office as well as travel expenses for certain ROE employees.  Each month, the credit card statement was received by the Regional Office and the Regional Office paid in full all the expenses on the statement. 

 

        During the period July 1, 2002 through June 30, 2003, at least $1,127 in personal expenditures were charged by the Regional Superintendent to the American Express card and paid by the Regional Office.  Of these expenditures, $932.91 was reimbursed to the Regional Office.  The reimbursement, however, occurred 8 to 9 months after the expenses were incurred and billed on the American Express card. 

 

 

        The remaining $194.51 in personal expenses was not reimbursed by the Regional Superintendent to the Regional Office.  These expenses were generally for out-of-state personal travel.  Using Regional Office funds for personal purposes is an inappropriate use of public funds. (Finding 03-04, pages 20 – 21)   This finding is repeated from our 2002 audit.

 

        The auditors recommended that the Regional Office of Education # 21 establish and follow a policy that prohibits personal expenditures to be paid with Regional Office funds.  Furthermore, the auditors recommended that the Regional Superintendent reimburse the Regional Office for all personal expenses paid by the Regional Office in Fiscal Year 2003.

 

         The Regional Office of Education #21 responded that all personal expenses paid by the Regional Office have been reimbursed.  Also, internal controls have been established to ensure that personal expenses are not paid by the Regional Office.  The auditors commented that the Regional Office had not provided documentation showing that all personal expenses have been reimbursed.  (For previous Regional Office response, see Digest Footnote #3.)

 

 

LACK OF SUPPORTING DOCUMENTATION

 

         Expenditures or reimbursements for meals by Regional Office of Education #21 should be supported by documentation showing how the meal expense relates to a program.  We noted at least 37 reimbursements for meals, totaling $2,488.67, that were billed on the American Express card for the 12 months ending June 30, 2003.  In most instances, restaurant receipts were attached to support the meal expenditure, which represents corrective action taken by the Regional Office to partially address the prior year’s audit finding.

 

          However, there was no explanation or other documentation attached to the American Express bill to indicate that the meal expenditures incurred were Regional Office-related business expenses.  (Finding 03-05, pages 22 – 23)   This finding is repeated from our 2002 audit.

 

        The auditors recommended that the Regional Office of Education #21 should establish a policy which requires that each receipt for a meal expenditure submitted for reconciliation to the credit card statements should include documentation showing the purpose of the expenditure, to which program it applies, and for whom the meal was purchased.  The Regional Office responded that it now requires meal reimbursements to be accompanied by a receipt and documentation showing the purpose of the expenditure.  (For previous Regional Office response, see Digest Footnote #4.)

 

 

LACK OF DOCUMENTATION FOR SOME PAYMENTS TO RELATED PARTIES

 

        The Regional Office of Education #21 contracted with the Superintendent’s son and step-son, and employed the ECHO Director’s sons to provide various reorganizing and cleaning services at various times during the audit period.  The following exceptions were noted:

 

·        Timesheets for one of the ECHO Director’s sons supported only $2,200 of the $2,530 paid to the son.

·        Timesheets to support the $6,600 paid to the ECHO Director’s other son were provided and were signed by the supervisor but not the employee.

·        Timesheets were provided to support $2,160 paid to the Superintendent’s son, but were not signed by either the supervisor or the employee.

·         A signed contract, but no timesheets, was provided to support the $1,000 paid to the Superintendent’s step-son.  (Finding 03-07, pages 27 – 28)   This finding is repeated from our 2002 audit.

 

        The auditors recommended that the Regional Office of Education #21 require that all payroll costs be supported by approved time and attendance records and that the Regional Office seek reimbursement for unsupported payroll expenditures.  The Regional Office responded that timesheets for related parties were kept and fees were set at the amount that would be charged if the ROE was contracting with an independent party.  The auditors commented that the Regional Office had not provided the missing time sheets or documentation  showing that unsupported payroll amounts were repaid.  (For previous Regional Office response, see Digest Footnote #5.)

 

 

IMPROPER ALLOCATION OF COSTS

 

        Regional Office of Education #21 does not maintain a cost allocation plan or an approved indirect cost rate to allocate indirect costs, in accordance with federal OMB Circular A-87.  The Regional Office allocated indirect costs to several programs.  While these costs were approved in the grants’ budget, without documentation of the basis for, and rationale behind the allocations, the amounts over- or under-charged to the program cannot be readily determined.  (Finding 03-10, pages 36 – 37)  This finding is repeated from our 2002 audit.

 

        The auditors recommended that the Regional Office develop a cost allocation plan.  The Regional Office responded that it is seeking assistance with developing a cost allocation plan that more sufficiently meets requirements.  (For previous Regional Office response, see Digest Footnote #6.)

 

 

QUESTIONABLE TRAVEL REIMBURSEMENTS

 

       Auditors identified several issues regarding travel reimbursements paid by Regional Office of Education #21.  These included:

 

·           In at least three instances, the traveler charged meals to the credit card used by the Regional Office and received a per diem reimbursement for the same trip. A total of $242 in meals were charged to the credit card on these trips.

·           The Regional Office paid for two nights’ out-of-state lodging ($407.60) for an employee when, based on conference documentation, only one night’s lodging appeared to be related to Regional Office business.

·           On two trips there were inconsistencies among information recorded on the travel voucher, credit card statement, and follow-up information provided to the auditors by the Regional Office.  For example, the traveler listed Rockford as the destination on the travel voucher and received mileage reimbursement to and from Rockford.  However, in response to an inquiry from auditors, the Regional Office reported the purpose of the trip was for a meeting in Bloomington.  Expenses were incurred on the credit card in both cities.  Based on the documentation provided, it was not clear whether the expenses incurred in Rockford were business related. (Finding 03-09, pages 32 – 35)

 

        The auditors recommended that the Regional Office of Education #21 strengthen internal controls over the reimbursement of travel expenses and that employees should repay the Regional Office for any excess or undocumented travel reimbursements received.  In its response, the Regional Office provided explanations for some of the questioned travel expenses, but no additional documentation to support these explanations was provided. Also, the Regional Office’s response did not address the corrective actions the Regional Office will take to strengthen control over travel or any reimbursements made to the Regional Office by employees for excess or undocumented travel expenses.

 

 

OTHER INTERNAL CONTROL FINDINGS

 

        The audit report contained three other findings related to deficiencies in the Regional Office’s internal controls.  These included:

 

·        The Regional Office did not maintain a fiscal policies and procedures manual during the audit period.  In addition, a fiscal policies and procedures manual completed in August 2003 does not reflect the current procedures of the Regional Office.  (Finding 03-06, pages 24 – 26)   This finding is repeated from our 2002 audit.

 

The auditors recommended that the Regional Office develop a policies and procedures manual.  The Regional Office responded that it has updated its manual.  (For previous Regional Office response, see Digest Footnote #7.)

 

·        The Regional Office does not have proper segregation of duties in the accounting function and is not adequately safeguarding all assets.  For example, blank check stock is stored in an unlocked file cabinet in an area accessible to the public and staff.  (Finding 03-08, pages 29 – 31)

 

The auditors recommended specific actions the Regional Office should take to strengthen internal controls.

 

·        Forty-eight of 50 (96%) vendor invoices were not properly cancelled after payment.  Invoices should be cancelled to prevent duplicate payment of an invoice.  (Finding 03-01, page 14)   This finding is repeated from our 2002 audit.

 

The auditors recommended that the Regional Office properly cancel all vendor invoices.  The Regional Office responded that staff members have begun stamping the actual invoice PAID.  (For previous Regional Office response, see Digest Footnote #8.)

  

 

AUDITORS’ OPINION

 

        Our auditors state the Regional Office of Education    # 21’s financial statements as of June 30, 2003 are fairly stated in all material respects except for the effect of the omission of the General Fixed Asset Account Group. The General Fixed Asset Account Group should be included in order to conform with generally accepted accounting principles.  The auditors’ report also contains an emphasis of matter paragraph due to contingent liabilities created by possible violation of restrictive provisions of grants. 

 

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:JRB:ro

 

SPECIAL ASSISTANT AUDITORS

 

        Our special assistant auditors were Sikich Gardner & Co., LLP

 

DIGEST FOOTNOTES

#1:  LACK OF CONTROL OVER FIXED ASSETS – Previous Regional Office Response

In its prior response in 2002, the Regional Office agreed with the finding, responding that they were in the process of training staff on new inventory software.

#2:  LACK OF PAY-RATE AUTHORIZATIONS – Previous Regional Office Response

In its prior response in 2002, the Regional Office agreed with the finding, stating that employees’ salaries should be commensurate with the responsibilities assigned.

#3:  UNALLOWABLE EXPENDITURES – Previous Regional Office Response

In its prior response in 2002, the Regional Office did not concur with the finding that the expenditures were unallowable.

#4:  LACK OF SUPPORTING DOCUMENTATION – Previous Regional Office Response

In its prior response in 2002, the Regional Office agreed with the finding, stating that supporting invoices, seminar documentation supporting travel needs, and airline ticket receipts, should be attached to the credit card statement. 

 

 

 

#5:  LACK OF DOCUMENTATION FOR SOME PAYMENTS TO RELATED PARTIES – Previous Regional Office Response

In its prior response in 2002, the Regional Office did not concur with the finding that there was inadequate documentation of the responsibilities undertaken and detailed documentation demonstrating the time and effort expended by related parties to accomplish their assigned responsibilities. 

#6:  IMPROPER ALLOCATION OF COSTS – Previous Regional Office Response

In its prior response in 2002, the Regional Office agreed with the finding stating that payments made should be supported by proper documentation and should be for actual costs incurred, not budgeted grant amounts. 

#7:  NO POLICIES AND PROCEDURES MANUAL – Previous Regional Office Response

In its prior response in 2002, the Regional Office agreed with the finding stating that management will revise its current policies and procedures manual to include the Regional Office of Education’s fiscal and administrative procedures and recommendations.

#8:  LACK OF CANCELLATION OF INVOICE AFTER PAYMENT – Previous Regional Office Response

In its prior response in 2002, the Regional Office agreed with the finding stating that management is currently revising the receipting system to make it clearer to the bookkeeper whether deposits are refunds or revenues.   

Complete Regional Office responses to prior findings are available upon request from the Auditor General’s Office.