REPORT DIGEST

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

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2020

Release Date:  AUGUST 24, 2021

FINDINGS THIS AUDIT:  4

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 1 -- 1
Category 2:  1 -- 1 -- 2
Category 3:  0 -- 1 -- 1
TOTAL:  1 -- 3 -- 4

FINDINGS LAST AUDIT: 3

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

• (20-1) The Regional Office of
Education #26 had inadequate internal
controls over inventory.

• (20-2) The Regional Office of
Education #26 had inadequate internal
control procedures.

• (20-3) The Regional Office of
Education #26 lacked adequate controls
over the review of internal controls
over external service providers.

• (20-4) The Regional Office of
Education #26 did not provide
completed financial statements in an
auditable form by the August 31
deadline.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

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 did
not perform a physical inventory count
at year end; rather, it performed a
physical count after most inventory
had been delivered to Co-op members
and calculated 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 20-001, page
12) 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: ROE 26 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 current timeline. The
physical inventory mandate coupled
with the required timeline would
disrupt operation immensely. An
inventory system is cost prohibitive.

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education #26
(ROE) did not establish adequate
internal controls concerning bank
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 ROE’s internal
control system for which there were no
mitigating controls:

• The ROE maintained 6 bank accounts.
During the audit, it was noted that in
each bank account, monthly
reconciliations were not performed
timely for 2 to 4 months.  Eleven of
51 monthly bank reconciliations (22%)
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 always 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.

Regional Office officials indicated
scheduling conflicts and the change in
the accounting system in April 2020
resulted in untimely bank
reconciliations. They also indicated
competing priorities resulted in not
having adequate controls over the
maintenance of capital assets.
(Finding 20-002, pages 13 – 14) 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.

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.

LACK OF ADEQUATE CONTROLS OVER THE
REVIEW OF INTERNAL CONTROLS OVER
EXTERNAL SERVICE PROVIDERS

As part of the audit process, auditors
requested the Regional Office of
Education #26 (ROE) to provide a
population of the service providers
utilized. The ROE was able to identify
service providers that provided
various hosting and backup services
for the ROE.

The ROE is responsible for the design,
implementation, and maintenance of
internal controls, including the
controls that are outsourced to
service providers, related to
information systems and operations to
ensure resources and data are
adequately protected from unauthorized
or accidental disclosure,
modifications, or destruction.

Generally accepted information
technology guidance endorses the
review and assessment of internal
controls related to information
systems and operations to assure the
accurate processing and security of
information.

During testing, the auditors noted the
ROE had not:
• Developed a formal process for
identifying service providers and for
either obtaining the Service
Organization Controls (SOC) reports
from the service providers and related
subservice organizations or performing
alternative procedures to determine
the impact of such services on its
internal control environment prior to
signing an agreement with the service
provider.
• Documented its review of each of the
SOC reports, or performed alternative
procedures, to evaluate any issues
relevant to the ROE’s internal
controls.
• Monitored and documented the
operation of the Complementary User
Entity Controls (CUECs) relevant to
the ROE’s operations.

Regional Office officials indicated
they understand the importance of a
formal process to monitor service
providers and they have not completed
a policy to address the issues due to
other priorities. (Finding 20-003,
pages 15 – 16)

The auditors recommended the ROE
identify all third-party service
providers and determine and document
if a review of controls is required.
If required the ROE should:
• Obtain SOC reports or perform
independent reviews of internal
controls associated with outsourced
systems including services provided by
subservice organizations, prior to
signing agreements with the providers
and annually thereafter.
• Monitor and document the operation
of the CUECs relevant to the ROE’s
operations.
• Document its review of the SOC
reports or perform alternative
procedures to evaluate all significant
issues to ascertain if a corrective
action plan exists, when it will be
implemented, any impacts to the ROE,
and any compensating controls.
• Review contracts with service
providers to ensure applicable
requirements over the independent
review of internal controls are
included.

ROE Response: The Regional Office
officials will implement a formal
process to monitor service providers,
and a policy to address the issues.

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 on November 16, 2020.

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.

Regional Office officials indicated
the change in accounting system in
April 2020 resulted in delaying the
year end closing activities and
providing the supporting reports after
August 31st to the accounting firm
they contracted with in order to
prepare the financial statements and
notes. (Finding 20-004, pages 17 – 18)
This finding was first reported in
2018.

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.

AUDITORS’ OPINION

Our auditors state the Regional Office
of Education #26’s financial
statements, except for the effects of
the inadequacy of accounting records
related to inventory in the Business-
Type Activities and the Western Area
Purchasing Co-op, as of June 30, 2020
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