REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #26
FULTON, HANCOCK, MCDONOUGH, AND SCHUYLER
COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2019

Release Date:  August 27, 2020

FINDINGS THIS AUDIT:  3

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 2 -- 2
Category 2:  0 -- 1 -- 1
Category 3:  0 -- 0 -- 0
TOTAL:  0 -- 3 -- 3

FINDINGS LAST AUDIT: 5

Category 1: Findings that are material
weaknesses in internal control and/or a
qualification on compliance with State
laws and regulations (material
noncompliance).
Category 2: Findings that are significant
deficiencies in internal control and
noncompliance with State laws and
regulations.
Category 3: Findings that have no
internal control issues but are in
noncompliance with State laws and
regulations.

State of Illinois, Office of the Auditor
General
FRANK J. MAUTINO, 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

• (19-1) The Regional Office of Education
#26 did not provide completed financial
statements in an auditable form by the
August 31 deadline.

• (19-2) The Regional Office of Education
#26 had inadequate internal control
procedures.

• (19-3) The Regional Office of Education
#26 had inadequate internal controls over
inventory.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

DELAY OF AUDIT

The Regional Office of Education #26
(ROE) did not provide completed financial
statements in an auditable form by the
August 31st deadline. The completed
financial statements were provided only
on December 14, 2019.

The ROE is subject to 105 ILCS 5/2-3.17a
which requires the Auditor General’s
office to cause an audit to be made, as
of June 30th of each year, of the
financial statements of all accounts,
funds and other moneys in the care,
custody or control of the regional
superintendent of schools of each
educational service region in the State
and of each educational service center
established in the School Code. The audit
is to be conducted in accordance with
Generally Accepted Government Auditing
Standards (GAGAS).

In accordance with 105 ILCS 5/2-3.17a,
the Auditor General has promulgated
administrative rules and regulations to
govern this process. Those rules, 74 Ill.
Adm. Code 420.320 (c) (2), state that for
audit purposes, each regional office of
education and educational service center
shall make available to the Auditor
General or his designee all books and
records deemed necessary to make and
complete the required audits. The records
shall be in auditable form by August 15
of the succeeding fiscal year. Financial
reports are to be available no later than
August 31 in order for the annual audit
to be completed by an independent auditor
selected by the Auditor General. Annual
financial statements are to be prepared
on an accrual basis of accounting in
accordance with generally accepted
accounting principles (GAAP). In
addition, prudent business practices and
transparency require timely preparation
and completion of financial statements.

The ROE officials indicated competing
priorities resulted in them providing the
supporting reports after August 31st to
the accounting firm they contracted with
in order to prepare the financial
statements and notes. (Finding 19-001,
pages 12 – 13)

The auditors recommended the ROE should
implement procedures to ensure compliance
with 105 ILCS 5/2-3.17a and 74 Ill. Adm.
Code 420.320 (c) (2). Annual financial
statements should be compiled on an
accrual basis of accounting in accordance
with GAAP and should include all the
required disclosures. These financial
statements need to be presented to the
Auditor General’s independent auditors
for audit by the August 31st deadline.

ROE Response: The ROE will implement
procedures to ensure compliance with 105
ILCS 5/2-3.17a and 74 Ill Adm. Code
420.320 (c) (2). Annual financial
statements will be compiled on an accrual
basis of accounting in accordance with
GAAP and will include all the required
disclosures. These financial statements
will be presented to the Auditor
General’s independent auditors for audit
in a timely manner to the best of our
ability.

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education #26
(ROE) did not establish adequate internal
controls concerning back reconciliations
or maintaining accurate fixed asset
records. Bank reconciliations were not
performed timely and property and
equipment records were not always
complete.

The Regional Superintendent of Schools is
responsible for establishing and
maintaining an internal control system
over accounting transactions to prevent
errors and fraud. Sound internal controls
require bank reconciliations to be
performed accurately and promptly.
Reconciling items should be investigated
immediately and adjustments made to the
general ledger accordingly. Bank
reconciliations should also be reviewed
and approved by a person independent of
the preparer in a timely manner.

The ROE Accounting Manual states that
detailed fixed asset records should be
kept both for accounting purposes as well
as insurance purposes. In addition,
generally accepted accounting principles
(GAAP) requires that an inventory of all
capital assets be maintained. Fixed asset
records are a necessary part of the ROE
accounting system, and they should be as
carefully maintained as any other
records.

The ROE Accounting Manual also states
that all fixed assets should be tagged in
some fashion with an inventory control
number that is assigned to that asset in
the fixed asset inventory records.

The State and Federal Grant
Administration Policy and Fiscal
Requirements and Procedures issued by the
Illinois State Board of Education
dictates procedures for managing
equipment acquired with State and/or
federal funds. These include procedures
to ensure, among others that (1) adequate
records are maintained for all equipment,
and (2) dispositions are recorded in the
fixed assets inventory records.

Auditors noted the following weaknesses
in the Regional Office of Education #26’s
(ROE) internal control system for which
there were no mitigating controls:

• The ROE maintains 6 bank accounts.
During the audit, it was noted that in
each bank account, monthly
reconciliations were not performed timely
for 2 to 5 months. Twenty of 72 (28%)
monthly bank reconciliations were
performed more than a month late.

• The ROE did not have adequate controls
over the maintenance of complete records
of capital assets. The ROE had a capital
assets schedule; however, it did not
include all the important information
including the location, serial numbers
and tag numbers. The auditors noted the
process of tagging assets was not
consistent and not all items were being
tagged. Auditors also noted there were no
procedures in place or formal forms being
utilized for equipment transfers and
disposals. There was no monitoring of
computers issued to employees that could
be in various locations and personally
assigned laptops that could have
confidential information.

Regional Office officials indicated
competing priorities resulted in these
untimely bank reconciliations. Regional
Office officials also indicated they do
not have enough resources to perform a
full physical inventory of assets. In
addition, the ROE has not established or
documented sufficient internal control
procedures over capital assets. (Finding
19-002, pages 14 – 16) This finding was
first reported in 2012.

The auditors recommended the ROE should
prepare monthly bank reconciliations on a
timely basis. This would ensure that the
cash balance per ledger is accurate and
cash transactions are fully accounted
for. Additionally, the ROE should
establish and document internal control
procedures to ensure its capital assets
schedule is maintained in accordance with
GAAP and the ROE Accounting Manual. The
capital assets schedule should be
reconciled to the general ledger capital
assets and capital outlay accounts. The
auditors also recommended the ROE should
evaluate data maintained on computers and
ensure those containing confidential
information are adequately protected with
methods such as encryption.

ROE Response: The Regional Office will
prepare monthly bank reconciliations on a
timely basis. The Regional Office will
establish and document internal control
procedures to ensure its capital asset
schedule is maintained in accordance with
GAAP and the ROE Accounting Manual. The
capital asset schedule will be reconciled
to the general ledger capital asset and
capital outlay accounts. The Regional
Office will also evaluate data maintained
on computers and ensure those containing
confidential information are adequately
protected with methods such as
encryption.


INADEQUATE INTERNAL CONTROLS OVER
INVENTORY

The Regional Office of Education #26
(ROE) was not able to provide auditors
with documentation to support the
provided inventory value of the Western
Area Purchasing Co-op. In addition, the
inventory value recorded in the ROE’s
general ledger was not adjusted to the
year-end value.

The Regional Superintendent of Schools is
responsible for establishing and
maintaining an internal control system
over accounting transactions, including
inventory, to prevent errors and fraud.

Regional Office officials indicated the
Western Area Purchasing Co-op does not
perform a physical inventory count at
year end; rather, they perform a physical
count after most inventory has been
delivered to Co-op members and calculate
the year-end inventory value from
supporting documents, such as vendor
invoices, shipping manifests, and
receipts of delivery to Co-op members.
These documents did not support the
inventory value reported by the Co-op.
(Finding 19-003, page 17) This finding
was first reported in 2015.

The auditors recommended the Western Area
Purchasing Co-op staff should perform a
physical inventory count on or near the
fiscal year end or should maintain
adequate documentation to support the
calculated year-end value. The accurate
inventory value should be recorded in the
ROE’s general ledger.

ROE Response: The Regional Office and the
Western Area Purchasing Co-op staff
accept the risk involved with this
finding as there is inadequate staff and
resources to perform physical inventory
on the current timeline. The physical
inventory mandate coupled with the
required timeline would disrupt operation
immensely. An inventory system is cost
prohibitive.
AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #26’s financial statements,
except for the Business-Type Activities
and the Western Area Purchasing Co-op, as
of June 30, 2019 are fairly presented in
all material respects.

This financial audit was conducted by the
firm of Adelfia LLC.

JOE BUTCHER
Division Director

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

FJM:JRB