REPORT DIGEST

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

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2021

Release Date:  Aug. 17, 2022

FINDINGS THIS AUDIT:  4

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

FINDINGS LAST AUDIT: 4

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

INTRODUCTION

SYNOPSIS

• (21-1) The Regional Office of
Education #26 had inadequate internal
controls over inventory.

• (21-2) The Regional Office of
Education #26 did not have sufficient
internal controls over the financial
reporting process.

• (21-3) The Regional Office of
Education #26 lacked adequate controls
over the review of internal controls
over external service providers.

• (21-4) 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 21-001, 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.

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #26
(ROE) did not have sufficient internal
controls over the financial reporting
process. The draft financial
statements originally submitted did
not implement the Governmental
Accounting Standards Board (GASB)
Statement No. 84 and were missing the
Statement of Fiduciary Net Position
and Statement of Changes in Fiduciary
Net Position. There was also no
disclosure related to GASB Statement
No. 84 implementation. The ROE
subsequently submitted revised
financial statements implementing the
requirements of GASB Statement No. 84.

State statute 105 ILCS 5/2-3.17a
allows a Regional Office of Education
or Educational Service Center to
utilize a cash basis, modified cash
basis, or generally accepted
accounting principles (GAAP) basis of
accounting to prepare the financial
statements for audit. The ROE has
chosen to utilize the GAAP basis of
accounting for financial statement
reporting.

The ROE is required to maintain a
system of controls over the
preparation of financial statements.
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 GASB.

During auditors’ review of subsequent
payments, auditors noted two
disbursements totaling $27,552 for
supplies and purchased services
incurred in fiscal year 2021 were not
reported as accounts payable in the
proprietary fund and government-wide
financial statements prepared by the
ROE. These unrecorded liabilities
required material adjustments to the
financial statements.

During the audit, auditors also noted
the inventory and the due to other
local governments reported in the
proprietary fund and government-wide
financial statements prepared by the
ROE were overstated by $19,949 due to
a mathematical error. These
misstatements required material
adjustments to the financial
statements.

Regional Office officials indicated
this was an oversight. (Finding
21-002, pages 13 – 14)

The auditors recommended the ROE
should implement comprehensive
preparation and/or review procedures
as part of its internal control over
the preparation of financial
statements to ensure that the
financial statements, including
disclosures, are complete and
accurate. These procedures should be
performed by a properly trained
individual(s) possessing a thorough
understanding of the applicable GAAP,
GASB pronouncements, and knowledge of
the ROE’s activities and operations.
Year-end cut-off entries for accruals
should be reviewed to ensure they are
complete and are charged to the proper
account and correct fiscal year.

Additionally, ROE management should
determine if changing from the GAAP
basis to the cash or modified cash
basis of accounting would be allowable
or beneficial to the ROE and users of
the ROE statements.

ROE Response: The ROE will more
closely review reports supplied for
financial statement preparation to
assure accuracy of mathematical
computations.

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; however, officials have not
completed a policy to address the
issues due to other priorities.
(Finding 21-003, 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 implemented a process to
review and monitor service providers,
and a policy to address the issues.
However, the ROE’s procedure was
inadequate to fulfill this requirement
as expected. The ROE will review and
rectify this process to address this
issue going forward.

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 December 1, 2021.

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).
The ROE may utilize a cash basis,
modified cash basis, or generally
accepted accounting principles (GAAP)
basis of accounting to prepare the
financial statements for audit. The
ROE has chosen the GAAP basis of
accounting for financial reporting.

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. In addition, prudent
business practices and transparency
require timely preparation and
completion of financial statements.

Regional Office officials indicated
competing priorities within the
accounting firm they contracted with
to prepare the financial statements
resulted in the delay in providing
completed financial statements in an
auditable form by the August 31st
deadline. (Finding 21-004, 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).
Additionally, ROE management should
determine if changing to the cash or
modified cash basis would be allowable
and beneficial to the ROE and users of
its financial statements. 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 address and
implement procedures to ensure
compliance with 105 ILCS 5/2-3.17a and
74 Ill. Adm. Code 420.320 (c) (2). As
of FY2022, annual financial statements
will be compiled on a cash basis of
accounting and will include all
required disclosures. The ROE will
supply reports and work closely with
the accounting firm contracted to
prepare financial statements, in a
timely manner. These financial
statements will be presented to the
Auditor General’s independent auditors
for audit 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, 2021
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