REPORT DIGEST
REGIONAL OFFICE OF EDUCATION #48
PEORIA COUNTY
FINANCIAL AUDIT (In Accordance with the Single Audit Act and
OMB Circular A-133)
For the Year Ended: June 30, 2011
Release Date: January 26, 2012
Summary of Findings:
Total this audit: 3
Total last audit: 4
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
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SYNOPSIS
• The Regional Office of Education #48 did not have adequate
internal controls over compliance with grant agreements.
• The Regional Office of Education #48 did not have
sufficient internal controls over the financial reporting process.
• The Regional Office of Education #48 did not properly
recognize and disclose expenses and liabilities related to postemployment
benefits other than pensions as required by Governmental Accounting Standards
Board Statement No. 45.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
INADEQUATE INTERNAL CONTROLS OVER COMPLIANCE
As a recipient of federal, State, and local funds from
various grantor agencies, the Regional Office must incorporate certain
procedures into their operations in order to comply with the grant agreements
with these entities. The Regional Office
is required to accurately spend funding in accordance with budgets submitted to
grantors and accurately submit expenditure reports timely. In addition, the Regional Office must supply
any subrecipients of its federal awards with certain information on the related
federal program.
During testing, auditors noted the following:
B. The
Regional Office did not receive pre-approval when it used funds for purposes
different than what had originally been budgeted for a program funded by the
University of North Carolina. The
Regional Office staff was not aware there was a budgeting process for the
Regional Office’s agreement with the University of North Carolina.
C. The
Regional Office did not provide all required information to subrecipients for
funding provided through the Title I Grants to Local Educational Agencies. The
Regional Office staff was not aware of all the requirements related to required
information in subrecipient agreements.
D. The
Regional Office did not timely file expenditure reports for the ARRA-Title I Grants to Local Educational Agencies. According to ROE staff, the expenditure
report was inadvertently filed late.
E. The
Regional Office did not properly record reimbursements received from other
local governments for joint costs incurred to put on a professional development
workshop. According to ROE officials,
the Regional Office was not aware of the proper reporting of cost reimbursements
for joint activities.
F. Payments made to subrecipients
of ROE/ISC Operations funding were not reported as
payments to other governments, but rather reported by the line item for which
the ROE believed the subrecipient would use the funding. According to Regional Office officials, the
ROE was not aware of the proper reporting of payments to subrecipients for the
grant program. (Finding 11-1, pages 12
a-e)
The auditors recommended that the Regional Office should:
A. Require that all expenditure reports be reviewed by
someone independent of recording the expenditures prior to submission.
B. Submit an amended budget to grantors if planned
expenditures changed from the original budget.
C. Review all compliance requirements related to information
required to be communicated to subrecipients prior to sending any federal
funding to the subrecipients.
D. Have procedures in place to ensure all required reports
are submitted to grantors prior to the due dates.
E. Record cost reimbursements for joint functions as
revenues from other local governments.
F. Properly record payments to local government
subrecipients.
The Peoria County Regional Office of Education #48 responded that:
A. For most grants the Regional Office already requires
someone other than the preparer to review grant reports prior to
submission. The Regional Office has
implemented additional procedures to ensure that these grant reports are
reviewed prior to submission. The
Regional Office also filed an amended grant report with the Illinois State
Board of Education to correct the inaccurate expenditures reported.
B. The Regional Office noted that
many of the grants that the ROE receives have differing budgetary requirements
and controls are in place to ensure budgetary compliance. However, in this case a
misunderstanding about the specific budgetary requirements for this grant
occurred. The Regional Office is
currently investigating what procedures can be implemented to improve the
Regional Office’s controls to ensure that the budgetary requirements of each
unique grant are met.
C. The Regional Office noted that
it is in the process of revising sub-recipient agreements to include the
omitted information and going forward the Regional Office will regularly review
the agreements to ensure that required information is included.
D. The Regional Office noted that
it has controls in place to ensure that reports are filed timely; however, the
Regional Office will increase monitoring of this control to ensure that it is
operating effectively. Further control
changes will be considered if it is determined the controls are not operating
effectively.
E. The Regional Office noted that
it will change its method of accounting so that cost reimbursements are
properly recorded.
F. The Regional Office noted that
it will change its method of accounting for recording payments to
subrecipients.
CONTROLS OVER FINANCIAL STATEMENT PREPARATION
The Regional Office of Education #48 is required to maintain
a system of controls over the preparation of financial statements in accordance
with generally accepted accounting principles (GAAP). Regional Office 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 and include all disclosures as required by the
Governmental Accounting Standards Board (GASB).
The Regional Office of Education #48 did not have sufficient
internal controls over the financial reporting process. While the Regional Office maintains controls
over the processing of some accounting transactions, there are not sufficient
controls over the preparation of the 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 accounting records, noted that material adjusting entries
were required to present the financial statements in accordance with generally
accepted accounting principles.
According to Regional Office officials, although they have
hired an outside Certified Public Accountant (CPA) to help review financials,
there was not adequate funding to employ a full-time CPA to review the
financials on a continuous basis.
(Finding 11-2, pages 12 f-g) This
finding was first reported in 2007.
The auditors recommended that, as part of its internal
control over the preparation of its financial statements, including
disclosures, the Regional Office of Education #48 should implement a comprehensive
preparation and/or review procedure to ensure that the financial statements,
including disclosures, are complete and accurate. Such procedures should be performed by a
properly trained individual(s) possessing a thorough understanding of applicable
generally accepted accounting principles, GASB
pronouncements, and knowledge of the Regional Office of Education’s activities
and operations.
The Peoria Regional Office of Education #48 responded that
it is working to implement controls and procedures to improve the accounting
records that underlie the financial statements in order to reduce and eliminate
the material adjustments required, as noted by the auditors, to present the
financial statements in accordance with generally accepted accounting principles. The Regional Office also noted that while it
has from time to time hired a CPA to work on special projects, the Regional
Office will consider whether resources are available to provide for hiring
experienced help in reviewing the financial statements, including
disclosures.(For previous Regional Office response, see Digest Footnote #1.)
DEPARTURE FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLE
The Regional Office of Education #48 did not properly
recognize and disclose expenses and liabilities related to postemployment
benefits other than pensions as required by Governmental Accounting Standards
Board (GASB) Statement No. 45. GASB Statement No.
45, Accounting and Financial Reporting by Employers for Postemployment Benefits
Other Than Pensions, requires that employers recognize and disclose Other
Postemployment Benefits (OPEB) expense. Net OPEB
obligations, if any, should be reported as liabilities (or assets, if
overfunded) in the financial statements.
For financial reporting purposes, an actuarial valuation is required to
measure and disclose the annual OPEB cost. In certain circumstances, an alternative
measurement method can be applied instead of obtaining an actuarial valuation.
The Peoria County Regional Office of Education #48
participates in a defined benefit OPEB plan that
provides postemployment benefits other than pensions to its employees in
exchange for employee services rendered.
Under accrual accounting, the cost of OPEB,
and any related OPEB liability, should generally be
recorded in the period when the exchange for employees’ services occurs, rather
than when the benefits are paid. During
the audit period, the Peoria County Regional Office of Education #48 had 14
active employees and contributions to the OPEB plan
totaled $12,440. The Regional Office did
not obtain an actuarial valuation of its OPEB
liability, or apply the alternative measurement method in order to be in
compliance with GASB Statement No. 45.
In the absence of the actuarial valuation, or the
alternative measurement method, the auditors could not reasonably determine the
amount by which this departure would affect the liabilities, fund balances, and
expenditures of the Regional Office of Education #48 as of June 30, 2011.
Failure to apply the accounting and reporting requirements
of GASB Statement No. 45 could result in
misstatements of the Peoria County Regional Office of Education #48’s financial statements.
This could also result in inaccurate and incomplete disclosure of the OPEB plan description, the funding policy, and the annual OPEB and net OPEB obligation.
(Finding 11-3, pages 12 h-i)
According to Regional Office #48 management, noncompliance
with GASB No. 45 was due to budget restraints and the
overall complexity of the pronouncement.
The auditors recommended that the Regional Office of
Education #48 obtain or perform an actuarial valuation of its other
postemployment benefit liability to be in compliance with GASB
Statement No. 45 and include all disclosures required by the Statement in its
financial statements.
The Regional Office of Education #48 responded that it is
aware of the requirements of GASB Statement No. 45,
but has not obtained an actuarial valuation or pursued alternative methods due
to the cost of doing so. The Regional
Office also noted that it is exploring more cost effective options of
implementing this requirement and is considering implementing it in 2012.
AUDITORS’ OPINION
Our auditors state the Regional Office of Education #48’s financial statements as of June 30, 2011 are fairly
stated in all material respects except for the effects of not recognizing a
liability for postemployment benefits other than pensions in the Statement of
Net Assets and the Statement of Activities.
Disclosure of that information is required to conform with
accounting principles generally accepted in the United States of America.
WILLIAM G. HOLLAND
Auditor General
WGH:KJM
AUDITORS ASSIGNED:
Kemper CPA Group LLP were our special assistant auditors.
DIGEST FOOTNOTES
#1: CONTROLS OVER FINANCIAL STATEMENT PREPARATION —Previous
Regional Office Response
In its prior response in 2010, the Peoria Regional Office of
Education #48 responded that it is in the process of refining its plan to
identify and correct the issues that resulted in the need for numerous
adjusting entries to present the financial statements in accordance with
generally accepted accounting principles.
Further, the ROE noted that they are exploring options to strengthen
their ability to review the financial statements to ensure that the financial
statements, including disclosures, are complete and accurate.