REPORT DIGEST
REGIONAL OFFICE OF EDUCATION #49:
ROCK ISLAND COUNTY
FINANCIAL AUDIT (In Accordance with the Single Audit Act and
OMB Circular A-133)
For the Year Ended June 30, 2010
Release Date: September 22, 2011
Summary of Findings:
Total this audit: 2
Total last audit: 1
Repeated from last audit: 1
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
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(217) 782-6046 or TTY (888) 261-2887
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____________________________
SYNOPSIS
• The Regional Office of Education #49 did not have
sufficient internal controls over the financial reporting process.
• The Regional Office of Education #49 did not obtain an
actuarial valuation of its postemployment benefits other than pensions
liability (OPEB), or apply the alternative measurement method in order to be in
compliance with GASB Statement No. 45.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
CONTROLS OVER FINANCIAL STATEMENT PREPARATION
The Regional Office of Education #49 is required to maintain
a system of controls over the preparation of financial statements in accordance
with generally accepted accounting principles (GAAP). Regional Office 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 #49 did not have sufficient
internal controls over the financial reporting process. The Regional Office maintains their
accounting records on the accrual basis for disbursements and the cash basis
for receipts. While the Regional
Office maintains controls over the processing of most 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:
• The Regional Office did not have adequate controls over
the maintenance of complete records of accounts receivable, accounts payable,
and deferred revenue; and
• Numerous adjustments were required to present financial
statements in accordance with generally accepted accounting principles.
According to Regional Office officials, they did not have
adequate funding to hire and/or train their accounting personnel in order to
comply with these requirements. (Finding 10-1, pages 15-16) 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 #49 should implement a
comprehensive preparation and/or review procedure to ensure that the financial
statements, including note 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 Regional Office of Education #49 responded that it now
has seven positions that have some direct review, contact and oversight of its
financial statements. These individuals
have and will continue to attend training opportunities to enhance their
knowledge of the applicable accounting principles and other areas needed to
have a sufficient set of internal controls over financial statement preparation. Continued oversight and opportunities to
crosscheck will be investigated. (For previous Regional Office response, see
Digest Footnote #1.)
DEPARTURE FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Governmental Accounting Standards Board (GASB) Statement No.
45, Accounting and Financial Reporting by Employers for Postemployment Benefits
Other Than Pensions (OPEB), requires that employers recognize and disclose 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 Regional Office of Education #49 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. Currently, ROE #49’s OPEB plan is
financed on a pay-as-you-go basis, and as such, the financial statements do not
report the financial effects of OPEB until the promised benefits are paid. The ROE #49 did not obtain an actuarial
valuation of its postemployment benefits other than pensions 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
application of 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 ROE #49 as of June 30,
2010. According to Regional Office
officials, inadequate funding and the overall complexity of the pronouncement
led to the failure to implement GASB Statement No. 45. (Finding 10-2, pages 17-18)
The auditors recommended that the Regional Office of
Education #49 should 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 responded that it is not adequately
funded by the State of Illinois to perform a check of retirement cost and will
continue to look into this as funding becomes available.
AUDITORS’ OPINION
Our auditors state the Regional Office of Education #49’s
financial statements as of June 30, 2010 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:JRB
AUDITORS ASSIGNED:
Ginoli & Company Ltd. were our special assistant auditors.
DIGEST FOOTNOTES
#1: Controls Over Financial Statement Preparation - Previous
Regional Office Response
In its prior response in 2009, the Regional Office of
Education #49 responded that it now has seven positions that have some direct
review, contact and oversight of its financial statements. These individuals have and will continue to
attend training opportunities to enhance their knowledge of the applicable accounting
principles and other areas needed to have a sufficient set of internal controls
over financial statement preparation.
Continued oversight and opportunities to crosscheck will be
investigated.