REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #26

HANCOCK AND MCDONOUGH COUNTIES

FINANCIAL AUDIT

(In Accordance with the

Single Audit Act and

OMB Circular A-133)

For the Year Ended:

June 30, 2008

Summary of Findings:

Total this audit                    2

Total last audit                    2

Repeated from last audit     2

Release Date:

March 31, 2009

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

http://www.auditor.illinois.gov

SYNOPSIS

• The Regional Office of Education #26 did not have sufficient internal controls over the financial reporting process. 

• The Regional Office of Education #26 did not maintain a cost allocation plan to allocate indirect costs in accordance with OMB Circular A-87.

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

The Regional Office of Education #26 did not have sufficient internal controls over the financial reporting process. 

The Regional Office of Education #26 did not maintain a cost allocation plan to allocate indirect costs in accordance with OMB Circular A-87.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

Controls Over Financial Statement Preparation

         The Hancock/McDonough Regional Office of Education #26 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 #26 did not have sufficient internal controls over the financial reporting process.  The Regional Office maintains their accounting records on the accrual basis for disbursements and the cash basis for receipts.  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 did not have adequate controls over the maintenance of complete records of accounts receivable, accounts payable, and deferred revenues. 

• Numerous adjustments were required to present financial statements in accordance with generally accepted accounting principles. 

         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 08-01, pages 15-16)

         The auditors recommended that, as part of its internal control over the preparation of its financial statements, including note disclosures, the Regional Office of Education #26 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 #26 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.

LACK OF COST ALLOCATION PLAN

         The Regional Office of Education #26 did not maintain a cost allocation plan to allocate indirect costs in accordance with OMB Circular A-87.  The Regional Office 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.  Regional Office of Education #26 management has performed time studies for all employees and has developed a fair allocation of rent expense based on square footage usage of the facilities to be incorporated into the plan when completed.

         Grants, cost reimbursement contracts, and other agreements with the federal government (collectively known as Federal Awards) should bear their fair share of costs recognized under principles established by the federal Office of Management and Budget (OMB).  Costs are allocable to federal awards if the goods or services involved are chargeable or assignable to the award in accordance with the relative benefits received.  Where an accumulation of indirect costs will ultimately result in charges to a Federal Award, a cost allocation plan is required as described in Attachments C, D, and E of OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments. 

         The Regional Office of Education allocated a total of $29,089 of indirect costs to its two major federal programs.  While these costs were approved in the grant budgets, without documentation of the basis for, and rationale behind the allocations, the amounts over- or under-charged to the programs cannot be readily determined.  Based on the total amount of allocated costs charged to the programs, any amount deemed to be over-charged to the award most likely would be considered immaterial. (Finding 08-02, pages 17-18).  This finding was first reported in 2003.

         Auditors recommended that the Regional Office of Education #26 should develop a cost allocation plan in accordance with OMB Circular A-87 which addresses allowable costs to all applicable programs.

         The Regional Office responded that the lack of a cost allocation plan is addressed in the following manner:  Allocation of indirect wages will be based upon a time study for those Regional Office of Education employees engaged in work for multiple grants.  The study will document the amount of time being spent by those employees in those grant or Regional Office activities.  The Regional Office noted that those employees who do not work in multiple grants will log their time for one pay period per month.  A statement of financial procedures has been developed for each major grant activity to clarify the financial relationships existent between Regional Office of Education #26 and the various grants for which the office is the fiscal agent.  Direct costs for wages, rent, telephone, copier, and other expenses are charged to the specific grant.  (For previous Regional Office response, see Digest Footnote #1.)

AUDITORS’ OPINION

         Our auditors state the Regional Office of Education #26’s financial statements as of June 30, 2008 are fairly presented in all material respects.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KJM

SPECIAL ASSISTANT AUDITORS

         Our special assistant auditors were Ginoli & Company Ltd.

DIGEST FOOTNOTE

#1: LACK OF COST ALLOCATION PLAN – Previous Regional Office Response

         The Regional Office responded that it completed a time study in November 2007.  This time study ran for one year and required all employees to record the activity in which they were engaged at four different times of the day.  This was done on a daily basis.  Entries were recorded on a computer spreadsheet which calculated the percentage of time spent working in each of the grants administered by the Regional Office.  One of the “tabs” of each employee’s spreadsheet was a “total” sheet that accumulated all the entries and posted an up-to-date summary of the percentages of time spent working in each grant.  Special attention was paid to those employees working in multiple grants, as we knew those were of most interest to our auditor.  The data gathered from this activity is now used to assist with the budget planning our grant writers perform.

         In addition, the Regional Office noted that it is their plan to further document the activity of those working in multiple grants by requiring those employees to maintain a log of hours spent working in each grant.  This will be implemented with the start of the new calendar year.

         The Regional Office noted that it is the fiscal agent for multiple grants, both federal and State in origin.  Regional Office of Education #26 charges each grant an amount for rent that reflects that particular grant’s use of the fiscal agent and that grant’s ability to contribute.  The Regional Office believes such charges are reasonable and are in the best interest of the grant.

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