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, 2013


Release Date:   February 20, 2014

Summary of Findings:
Total this audit: 4
Total last audit:  2
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 #26:

• did not have sufficient internal controls over
the financial reporting process;

• did not have adequate internal control
procedures;

• did not have adequate internal controls over
expenditures; and

• was not in compliance with reporting
requirements for a grant.

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).  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 #26 did not
have sufficient internal controls over the
financial reporting process.  The Regional
Office maintains its accounting records on cash
basis 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.  For example,
auditors, in their review of the Regional
Office’s financial information prepared by the
Regional Office of Education #26, noted the
following:

• The Regional Office did not have adequate
controls over the maintenance of complete
records of accounts receivable, accounts
payable, or unearned revenue.  While the
Regional Office maintained records to indicate
the balances of accounts receivable, accounts
payable, and unearned revenue, no entries were
provided to reconcile the Regional Office of
Education #26’s grant activity, such as posting
grant receivables and unearned revenue.

• A loan of cash between two general fund
accounts was recorded as an expenditure in the
Interest Fund and as a revenue in the Online
Payment Fund.
According to Regional Office officials, current
funding levels were not adequate to hire and/or
train accounting personnel in order to comply
with these requirements. (Finding 2013-001,
pages 14a-14b) This finding was first reported
in 2007.

The auditors recommended that, as part of
internal control over the preparation of
financial statements, the Regional Office of
Education #26 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(s) possessing a
thorough understanding of applicable GAAP, GASB
pronouncements, and knowledge of the Regional
Office of Education’s activities and operations.

The Regional Office of Education #26 responded
that it accepts the degree of risk associated
with this condition because the additional
expense to seek outside 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 also noted that it
will continue to work with the other Regional
Offices of Education to determine the most
effective method of ensuring that its employees
possess the knowledge required to compile the
necessary GAAP-based financial statements.  The
organization will also research the possibility
of having another accounting company prepare its
financial statements independent of the
auditors.  (For previous Regional Office
response, see Digest Footnote #1.)

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Superintendent of Schools is
responsible for establishing and maintaining an
internal control system over accounting
transactions to prevent errors and fraud.
Auditors noted the following weaknesses in the
Regional Office of Education #26’s internal
control system for which there were no
mitigating controls:

A. For one bank account, there was inadequate
segregation of duties over the bank
reconciliation process.  The same individual who
prepares the bank reconciliations for this
account also opens the bank statements when
received in the mail.  In addition, there was no
documented review of the related bank
reconciliations by management or an individual
independent of the reconciliation and general
ledger process.

B. Several instances where administrative costs
and the associated reimbursing transfer of cash
were recorded as revenues and expenditures in
both the special revenue fund that incurred the
cost and in a general fund from which expenses
were paid, resulting in double-booking of
revenues and expenditures.

C. Capital asset additions in the amount of
$11,511 were not included on the Regional
Office’s asset listing.

D. There was not adequate documentation of
inventory counting procedures by the employees
of the Western Area Purchasing Co-op when
inventory is received, segregated for delivery
to Co-op members, and delivered to the Co-op
members.

E. One instance where a member of management did
not review or approve the payroll report.

F. Two instances where the bank reconciliation
did not agree to the general ledger cash
balance.  In the case of the Administrators
Roundtable Fund, two months of activity in the
fund were not recorded in the accounting system.
In the case of the Fingerprinting Fund, the
opening balance was not correctly recorded and
an outstanding disbursement check was not
recorded in the accounting system.

G. Revenue of $6,145 in the Education for
Homeless Children and Youth grant that remained
unspent at the end of the final grant period in
the Adult Learning Resource Center Fund was not
recorded as due back to the grantors.

H. The disbursements for the Fingerprinting Fund
are not subject to the Regional Office’s
established internal control procedures over
disbursements.  In addition, this Fund included
credit card payment receipts from three
additional special revenue funds that were not
transferred to and recorded in the appropriate
funds.

The Regional Office of Education #26 has not
established or documented sufficient internal
control procedures. (Finding 2013-002, pages
14c-14f)

The auditors recommended that the Regional
Office of Education #26 should do the following:

A. Management or an individual independent of
the bank reconciliation process should receive
the unopened bank statements to review prior to
the reconciliation preparation.  In addition,
management or an individual independent of the
reconciliation process should review the bank
reconciliations for all bank accounts to ensure
that the reconciliation is completed in a timely
manner and that the reconciled balance agrees to
the general ledger.  The bank reconciliation
should be initialed and dated by both the
preparer and the reviewer.

B. Administrative costs should be recorded in
the fund that incurred the expenses.  The
associated transfer of cash to reimburse the
fund that paid the costs should be recorded as
an offset to the associated expenditure account
in the reimbursed fund, or this activity should
be recorded in an internal service fund.

C. The Regional Office should establish
procedures to ensure their capital asset listing
is maintained in accordance with the Regional
Office’s capital asset policy.

D. To provide documentation of the Regional
Office’s internal controls over inventory, the
Western Area Purchasing Co-op employees should
document who performed the inventory count and
the date each count was completed when inventory
is received, segregated for Co-op members, and
delivered to Co-op members.  This information
should be documented on the packing slips, Co-op
member’s order forms, and delivery forms
respectively.

E. A member of management should review and
approve all payroll disbursements prior to
payment.

F. All activity in all funds should be timely
recorded in the accounting system.  Reconciled
bank balances should be reviewed to ensure they
agree with the general ledger.

G. Absent an extension or permission from the
grantor to carry unspent funding forward to the
next grant period, any unspent grant funds at
the end of the grant period should be returned
to the grantor or recorded as due to the
grantor.

H. All disbursements of the Regional Office
should follow the established internal control
procedures governing support, review, and
approval of disbursements.  Receipts of
restricted funding for other special revenue
funds should be recorded in the appropriate
fund.

The Regional Office of Education #26 responded
that it accepts the current auditors’
recommendations and has revised
Hancock/McDonough Regional Office of Education
policies, procedures and/or practices to address
the findings noted.

INADEQUATE INTERNAL CONTROLS OVER EXPENDITURES

The Regional Superintendent of Schools is
responsible for establishing and maintaining an
internal control system over accounting
transactions, including disbursements, to
prevent errors and fraud and to ensure
compliance with applicable requirements for
federal awards.

During testing, auditors noted the following:

A. In 4 out of 17 (24%) credit card statements
examined, original receipts were not attached
and reconciled to the statements; one (1) of the
statements included costs that were charged to
the Special Education-Grants for Infants and
Families grant (CFDA 84.181).  In addition,
there was no indication of management’s approval
of the expenditure or authorization for payment
of the charges on one of the statements.

B. Most journal entries were not supported by
documentation, and none had evidence of review
by someone independent of the general ledger
process.  Five journal entries affecting costs
charged to the Special Education-Grants for
Infants and Families grant (CFDA 84.181) had
adequate support but were lacking evidence of
independent review.

C. Original supporting documentation for two
expenditures charged to the Special Education-
Grant for Infants and Families grant (CFDA
84.181) could not be located.  One (1)
expenditure charged to the Fund for the
Improvement of Education grant (CFDA 84.215X)
lacked supporting documentation indicating
review by someone independent of the general
ledger process.

The Regional Office of Education #26 has not
established or documented sufficient internal
control procedures over expenditures. (Finding
2013-003, pages 14g-14i)

The auditors recommended that the Regional
Office of Education #26 should do the following:

A. All original credit card receipts should be
reviewed, approved, and reconciled to credit
card statements prior to the credit card
statement being paid.

B. All journal entries should be accompanied by
supporting documentation and have documented
review and approval by someone independent of
the general ledger processes.

C. Supporting documentation for all transactions
should be maintained in such a way that it can
be timely located in the event of any questions
or disputes from vendors, grantors, clients, or
auditors about their occurrence, amount,
classification, timing, or obligations.

The Regional Office of Education #26 responded
that it accepts the current auditors’
recommendations and has revised policies,
procedures and/or practices to address the
findings noted.

COMPLIANCE WITH REPORTING REQUIREMENTS

According to the grant agreement for the Fund
for the Improvement of Education and federal
regulations included by reference, the Regional
Office is required to administer the grant using
a financial management system that provides for
the accurate, current, and complete disclosure
of the financial results in accordance with
applicable reporting requirements.  The grant
agreement requires an annual performance report
and a final performance report at the end of the
grant period that explains the variances between
budgeted and actual expenditures.

The auditors noted that actual expenditures
reported on the final grant performance report
for this grant award did not agree to the
Regional Office’s accounting records.  Total
expenditures were underreported by $27,741.

The Regional Office of Education #26 did not
prepare the grant performance report using
information obtained from the Regional Office’s
accounting system. (Finding 2013-004, pages
15a-15b)

The auditors recommended that the Regional
Office of Education #26 should prepare grant
reports that disclose financial information
using current and accurate financial data based
on reports obtained from the Regional Office’s
accounting system.  The final grant performance
report should be amended to reflect accurate
expenditures by line item and in total and be
resubmitted to the granting agency.

The Regional Office of Education #26 responded
that it accepts the auditors’ recommendations
and has revised policies, procedures and/or
practices to address the findings noted.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #26’s financial statements as of June
30, 2013 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 FOOTNOTE

#1: CONTROLS OVER FINANCIAL STATEMENT
PREPARATION – Previous Regional Office Response

In its prior response in 2012, the Regional
Office of Education #26 responded that it
accepts the degree of risk associated with this
condition because the additional expense to seek
outside 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 also noted that it will continue
to work with the other Regional Offices of
Education to determine the most effective method
of ensuring that its employees possess the
knowledge required to compile the necessary
GAAP-based financial statements.