REPORT DIGEST
REGIONAL OFFICE OF EDUCATION #22: FULTON AND SCHUYLER
COUNTIES
FINANCIAL AUDIT
For the Year Ended June 30, 2010
Release Date: June 28, 2011
Summary of Findings:
Total this audit: 3
Total last audit: 1
Repeated from last audit: 1
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 #22 did not have
sufficient internal controls over the financial reporting process.
• The Regional Office of Education #22 did not record year
end obligations as liabilities.
• The Regional Office of Education #22 did not report
expenditures according to grant agreements.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
CONTROLS OVER FINANCIAL STATEMENT PREPARATION
The Regional Office of Education #22 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 #22 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. For
example, auditors, in their review of the Regional Office’s accounting records,
noted the following:
• The Regional Office’s financial information required numerous adjusting entries to present the 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, accounts payable,
or deferred revenue. While the Regional
Office did maintain records to indicate the balances of accounts payable,
accounts receivable, and deferred revenue, no entries were provided to
reconcile the Regional Office of Education #22’s grant activity, such as
posting grant receivables and deferred revenue.
According to Regional Office officials, they did not have
adequate funding to hire and/or train their accounting personnel in order to
comply with these requirements. (Finding 10-01, pages 10a-10b) This finding was
first reported in 2007.
The auditors recommended that, as part of its internal
control over the preparation of financial statements, including disclosures,
the Regional Office of Education #22 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.
The Regional Office of Education #22 responded that it
understands the nature of this finding and realizes that this circumstance is
not unusual in an organization of this size.
The Regional Office accepts the degree of risk associated with this
condition because the added expense of seeking additional accounting expertise
to prepare and/or review financial statements would take away from the funds
available to provide educational services for the schools in the region. The Regional Office responded that in an
attempt to correct this finding the Regional Office sent the controller to
various trainings to better understand accrual accounting and reporting under
generally accepted accounting principles (GAAP). In addition, the Regional Office will solicit
help in preparing financial statements from the new County accountant. (For previous Regional Office response, see
Digest Footnote #1.)
RECORDING OBLIGATIONS
Generally accepted accounting principles require obligations
at year end to be recorded as liabilities to the entity. The Regional Office prepared and signed
payroll checks for its July 15, 2010, July 31, 2010, and August 15, 2010 pay
periods prior to June 30, 2010, but did not disburse the checks to the employees
until the appropriate pay dates. The
Regional Office posted the payroll expenditures for these pay periods to their
general ledger prior to June 30, 2010 as reductions of cash and as
expenditures.
The Regional Office’s cash and liabilities were understated. According to Regional Office officials, they
were not aware of the proper reporting of obligated salaries at year end.
The auditors recommended that the Regional Office should
report obligated salaries at year end as liabilities to the Regional Office and
prepare the actual payroll checks at the end of the appropriate payroll period.
The Regional Superintendent of the Regional Office of
Education #22 responded that she agrees with the auditor’s recommendation.
EXPENDITURE REPORTING
Grant agreements require the Regional Office to report
actual expenditures incurred rather than reporting expenditures based on the
amount budgeted in the grant agreement.
The Regional Office did not document the time and effort of employees
that work for or are paid from multiple grants so that salaries can be
allocated to the grants based on actual cost.
Grant programs may have been over or under allocated for salary and
benefit costs.
According to Regional Office officials, they were not aware
of the requirement to formally document the time and effort of employees paid
from multiple grants.
The auditors recommended that the Regional Office should
formally document the time and efforts spent on each grant for employees paid
from multiple grant sources and allocate actual costs to each grant
accordingly.
The Regional Superintendent of the Regional Office of
Education #22 responded that she agrees with the auditor’s recommendation.
AUDITORS’ OPINION
Our auditors state the Regional Office of Education #22’s
financial statements as of June 30, 2010 are fairly presented in all material
respects.
WILLIAM G. HOLLAND
Auditor General
WGH:KJM
AUDITORS ASSIGNED:
Kemper CPA Group, LLP were our special assistant auditors.
DIGEST FOOTNOTES
#1: Controls Over Financial Statement Preparation - Previous
Regional Office Response
In its prior response in 2009, the Regional Office of Education #22 responded that it understands the nature of this finding and realizes that this circumstance is not unusual in an organization of this size. The Regional Office management is currently confident with the abilities of the accounting staff to prepare cash basis financial information as needed for reporting throughout the year. Management will review year end reporting controls annually and investigate the cost of training staff to reach an appropriate level of expertise to do a comprehensive preparation and/or review of financial statements. Management will pursue additional training when it is considered cost beneficial since training costs would take away from the funds available to provide educational services for the schools in the region.