REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #33:
HENDERSON, KNOX, MERCER AND WARREN
COUNTIES

FINANCIAL AUDIT (IN ACCORDANCE WITH
THE UNIFORM GUIDANCE)
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: 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

INTRODUCTION

• (21-1) The Regional Office of
Education #33 did not have adequate
internal control procedures.

• (21-2) The Regional Office of
Education #33 did not have sufficient
internal controls over the financial
reporting process.

• (21-3) The Regional Office of
Education #33 did not have adequate
controls over the review of internal
controls over external service
providers.

• (21-4) The Regional Office of
Education #33 did not provide
completed financial statements in an
auditable form by the August 31
deadline.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education #33
(ROE) did not have adequate internal
control procedures. Auditors noted the
following weaknesses in the ROE’s
internal control system for which
there were no mitigating controls:

• No documented evidence of
independent review of completed bank
reconciliations. In addition, we noted
that for 2 bank accounts, monthly
reconciliations were not performed
timely for 12 out of 12 months (100%).
Twenty-four of 24 (100%) monthly bank
reconciliations were reconciled more
than 30 days after month-end (19 to
292 days late).
• Untimely deposit of receipts.
Auditors noted 10 of 40 receipts
tested (25%), totaling $121,792, were
not timely deposited, ranging from 9
to 29 days late.

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

Regional Office officials indicated
employee resignation, staff
transition, and competing priorities
resulted in the conditions noted
above. (Finding 21-001, pages 14 – 15)
This finding was first reported in
2016.

The auditors recommended the ROE
should have an individual, independent
of the general ledger processes,
review the bank reconciliation to
ensure timely completion and agreement
to the general ledger. This review
should be documented. The ROE should
implement controls and maintain
adequate documentation to ensure cash
receipts are deposited in a timely
manner.

ROE Response:  The Regional Office of
Education No. 33 will have an
individual, independent of the general
ledger processes, review the bank
reconciliation to ensure timely
completion and agreement to the
general ledger. He/she will document
the review. The Regional Office of
Education No. 33 will also implement
controls and maintain adequate
documentation to ensure cash receipts
are deposited in a timely manner.

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #33
(ROE) did not have sufficient internal
controls over the financial reporting
process. The ROE maintained its
accounting records on the cash basis
of accounting during the fiscal year
and posted year-end accrual entries
for financial statement purposes.
While the ROE maintained controls over
the processing of most accounting
transactions, there were not
sufficient controls over the
preparation of the generally accepted
accounting principles (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.

The School Code (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 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.
ROE 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 as required by the
Governmental Accounting Standards
Board (GASB).

During the auditors’ review of
subsequent collections, auditors noted
a receipt totaling $45,100 for
professional development courses
rendered in fiscal year 2021 received
in July 2021 was not reported in the
proprietary fund and government-wide
financial statements prepared by the
ROE. This required a material
adjustment to the financial
statements.

The ROE management indicated this was
an oversight. (Finding 21-002, pages
16 – 17)

The auditors recommended the ROE
should establish procedures to ensure
that financial statements be carefully
reviewed for proper accounting and
reporting in accordance with GAAP.
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 Regional Office of
Education No. 33 will establish
procedures to ensure that financial
statements be carefully reviewed for
proper accounting and reporting in
accordance with GAAP. Year-end cut-off
entries for accrual will be
reevaluated to ensure they are
complete and are charged to the proper
account and correct fiscal year.

The Regional Office of Education No.
33 intends to change from the GAAP
basis to the cash basis of accounting
beginning July 1, 2021. The ROE has
retained the accounting firm who
prepared the Fiscal Year 2021
financial statements for Fiscal Year
2022 for the transition.

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 #33 (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 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. This responsibility is
not limited due to the process of
being outsourced.

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
obtaining the Service Organization
Controls (SOC) reports from the
service providers and related
subservice organization 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 did not realize the
current process did not address all
the issues noted. (Finding 21-003,
pages 18 – 19)

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.
• Document its review of the SOC
reports or perform alternative
procedures to evaluate all significant
issues to ascertain if a corrective
action plan exists and when it will be
implemented, any impacts to the ROE,
and any compensating controls.
• Monitor and document the operation
of the CUECs relevant to the ROE’s
operations.
• Review contracts with service
providers to ensure applicable
requirements over the independent
review of internal controls are
included.

ROE Response: The ROE will continue to
identify all third-party service
providers and determine and document
if a review of controls is required.
If required, the ROE will:
• 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.
• Document its review of the SOC
reports or perform alternative
procedures to evaluate all significant
issues to ascertain if a corrective
action plan exists and when it will be
implemented, any impacts to the ROE,
and any compensating controls.
• Monitor and document the operations
of the CUECs relevant to the ROE’s
operations.
• Review contracts with service
providers to ensure applicable
requirements over the independent
review of internal controls are
included.

DELAY OF AUDIT

The Regional Office of Education #33
(ROE) did not provide completed
financial statements in an auditable
form by the August 31 deadline. The
financial statements were provided on
November 12, 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 chose 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 resulted in the
delay in the preparation of Fiscal
Year 2021 financial statements.
(Finding 21-004, pages 20 – 21) 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 should determine if
changing to the 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 31 deadline.

ROE Response: The Regional Office of
Education No. 33 will implement
procedures to ensure compliance with
105 ILCS 5/2-3.17a and 74 Ill. Adm.
Code 420.320 (c) (2). Additionally,
the ROE has been given the authority
to switch over to the cash basis of
accounting and is planning to do so
beginning July 1, 2021. Fiscal Year
2022 financial statements will be
presented to the Auditor General’s
independent auditors for audit by the
August 31 deadline.

AUDITORS’ OPINION

Our auditors state the Regional Office
of Education #33’s financial
statements 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:BAO