FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
ALLOCATION OF COSTS
The Regional Office of Education #21
has not implemented a cost allocation
plan or an approved indirect cost rate to allocate indirect costs in
accordance with OMB Circular A-87. The
ROE invoices the various grants and programs it administers for central
service activities, including support salaries and related benefits,
accounting and secretarial services, and space rent based on the grants’
budgeted costs (rather than as part of a Cost Allocation Plan). Such salaries and benefits are allowable
expenditures under OMB Circular A-87.
However, where employees work on multiple activities or cost
objectives, a distribution of their salaries or wages is required to be
documented in accordance with the provisions of OMB Circular A-87 or be
included in the ROE’s cost allocation plan.
Rent costs are also an allowable expenditure, subject to limitations
included in OMB Circular A-87.
Grants, cost reimbursement
contracts, and other agreements with the federal government should bear their
fair share of costs recognized under principles established by the federal Office
of Management and Budget.
Auditors recommended that the
Regional Office develop a cost allocation plan or establish an approved
indirect cost rate in accordance with OMB Circular A-87 which addresses
allowable costs to all applicable programs. (Finding 07-01, pages 14-15) This finding was first reported in 2000.
The Regional Office of Education #21
responded that the office has developed a cost allocation plan during FY
2007. They noted that they had spent
several months, after the development of the plan, tracking expenditures to
determine proper allocations to respective programs. They noted that the plan is being used to
bill the first half of FY 2008 and is in place to bill each program its share
of the costs from this point forward. (For previous Regional Office response,
see Digest Footnote #1.)
CONTROLS OVER
COMPLIANCE WITH LAWS AND REGULATIONS
The Illinois School Code (105 ILCS
5/3-7) states that each school district shall, as of June 30 each year, cause
an audit to be made of its accounts.
Each school district shall on or before October 15 of each year,
submit an original and one copy of such audit to the Regional
Superintendent. If any school district
fails to supply a copy of such audit report on or before October 15, or
within such time extended by the Regional Superintendent from that date, not
to exceed 60 days, then it shall be the responsibility of the Regional
Superintendent to cause such audit to be made.
The Regional Office of Education #21 was unable to supply evidence that
2 of the 16 school district financial statement audit reports were submitted
to the ROE by October 15, 2006 or by the extension date. One school district’s financial statement
audit report was submitted 46 days after the allowable extension date of
December 14, 2006. The remaining school
district’s financial statement audit report had not been submitted as of
September 25, 2007.
The Regional Office implemented a
log to evidence the receipt of the financial statements from the school
districts and grants extensions when requested; however, the Regional Office
granted an extension to the school district past the allowable 60 day
period.
Auditors recommended that the
Regional Office monitor the log evidencing the receipt of audits from the
school districts and make additional requests to ensure that they are
received in a timely manner, as required by 105 ILCS 5/3-7. (Finding 07-02,
pages 16-17)
The Regional Office #21
responded that procedures are in place to track the information that the
school districts send to the ROE and to insure that it is completed in a
timely manner. The Regional Office
noted that the audit report for the school district is now on file.
FAILURE TO ALLOCATE
INTEREST EARNED
The Regional Office of
Education #21 did not allocate interest earned from its commingled bank account
to each source of funds. The Regional
Office of Education Accounting Manual states that if
dollars from two or more sources of funds are combined in one bank account
and/or fund, the ROE must allocate, no less than monthly, a portion of the
interest earned on that bank account or fund to each source of funds.
Auditors
recommended that the Regional Office implement its plan to allocate interest
earned on commingled funds to each source of funds and follow the appropriate
State and federal statutes and regulations. (Finding 07-03, pages 18-20) This finding was first reported in 2005.
The
Regional Office of Education #21 responded that it developed an interest
earned allocation plan in September 2007.
The interest earned in FY 2007 was calculated using this plan. They noted that the interest for each of
their accounts for FY 2008 has been deposited into an “Interest Earned” Fund
in their accounting system. They noted
that this fund breaks down interest among the accounts on file. (For previous Regional Office response, see
Digest Footnote #2.)
INADEQUATE CONTROLS OVER PROPERTY AND EQUIPMENT
The
Regional Office of Education #21 did not have adequate controls over the
recording and reporting of fixed assets.
The Regional Office did not have procedures in place to ensure that
acquisitions over the established capitalization threshold were added to the
Regional Office’s fixed asset records, resulting in the omission of five
items totaling $3,369 that were inadvertently expensed. Additionally, the Regional Office did not
provide complete information as to the useful lives of the above
acquisitions, as well as two additional items that were added to the fixed
asset records during the fiscal year.
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 required that an inventory of all fixed assets and
depreciation schedules for assets meeting the capitalization threshold for
reporting be maintained.
Due to
turnover in a custodian position, the Regional Office of Education #21 had
insufficient controls over recording and reporting fixed assets. Auditors recommended that the Regional
Office adhere to its fixed asset policy and procedures manual to effectively
and efficiently monitor property acquisitions, transfers and disposals, and
provide for accurate reporting of fixed asset balances. (Finding 07-04, pages
21-22)
Regional
Office of Education #21 responded that it is following its policy and
procedures manual in regards to inventory of fixed assets. The Office continues to evaluate its
procedures to complete this task in a more efficient manner.
Controls
Over Financial Statement Preparation
The Regional Office of Education #21
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 of Education #21
did not have sufficient internal controls over the financial reporting
process. The Regional Office maintains
their accounting records on the cash basis of accounting. While the Regional
Office maintains controls over the processing of most accounting
transactions, there are not 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.
In their review of the Regional
Office’s accounting records, auditors noted the following:
-
Numerous
adjustments were required to present financial statements in accordance
with generally accepted accounting principles.
-
The Regional Office did not have adequate controls over the
maintenance of complete records of accounts receivable and accounts
payable. Additionally, no entries
were provided to reconcile the ROE’s grant activity, such as posting
grant receivables and deferred revenue.
The auditors recommended that, as part
of its internal control over the preparation of its financial statements,
including disclosures, the Regional Office of Education #21 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 a
properly trained individual(s) possessing a thorough understanding of
applicable generally accepted accounting principles, GASB pronouncements, and
knowledge of the Regional Office of Education’s activities and operations. (Finding
07-05, pages 23-24)
The Regional Office of Education #21 responded that it will continue to
contract with a local auditing firm to assist them as they navigate through
various issues resulting from past management problems. The ROE noted that at the present time, the
additional costs to the ROE of hiring and training additional staff to do
this task outweigh the benefits. The
ROE noted that it will review, approve, and accept responsibility for the
proposed audit adjustments and the financial statements and related notes.
AUDITORS’ OPINION
Our auditors state the Regional Office of
Education #21’s financial statements
as of June 30, 2007 are fairly stated in all material respects.
_____________________________________
WILLIAM
G. HOLLAND, Auditor General
WGH:KJM
SPECIAL ASSISTANT AUDITORS
Our special assistant auditors were
Sikich, LLP.
DIGEST FOOTNOTES
#1:
IMPROPER ALLOCATION OF COSTS –
Previous Regional Office Response
In its prior response in 2006, the Regional
Office responded that it had a cost allocation plan which would enable the
proper allocation of costs to grant funding sources. This cost allocation plan outlined the
methods to be used to allocate both direct and indirect costs to grants. This cost allocation plan was to be applied
to federal and State grants, as well as any other grants for which costs must
be allocated. Employees whose salaries
are paid from multiple funding sources are required to complete time
sheets. Costs are determined and
allocated based on formulas which ensure that only the actual cost of grant
operation is charged to the grant. The
condition of grants being excessively charged has stopped. The ROE has also received an approved
indirect cost rate from the Illinois State Board of Education.
#2:
FAILURE TO ALLOCATE INTEREST EARNED – Previous Regional Office
Response
In its prior response in
2006, the Regional Office responded that an Interest Allocation Plan has been
developed which ensures that interest earned from grant funds will be
allocated back to the grant source and used as part of the program as
approved in the original grant agreement.
This allocation was to be made monthly with a report going to the
Superintendent and Program Director which should help ensure proper
utilization.
Complete Regional Office responses to prior
findings are available upon request from the Auditor General’s Office.
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