REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #53: TAZEWELL COUNTY

FINANCIAL AUDIT
For the Year Ended: June 30, 2011

Release Date:  July 19, 2012

Summary of Findings:
Total this audit: 7
Total last audit:  4
Repeated from last audit: 3

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

SYNOPSIS

The Regional Office of Education #53:

• did not have sufficient internal controls over the
financial reporting process;

• used restricted funds from the RESPRO Fund for
purposes not included in the grant agreement;

• did not record revenues and expenditures in the proper
accounts;

• was not in compliance with the Grant Funds Recovery
Act;

• did not have adequate internal control procedures;

• did not have adequate internal controls over cash; and

• did not file expenditure reports timely.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #53 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 #53 did not have
sufficient internal controls over the financial
reporting process.  The Regional Office maintains their
accounting records on the cash basis of accounting.
While the Regional Office maintains controls over the
processing of most accounting transactions, there were
not sufficient controls over the preparation/review 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 the
following:

• The Regional Office did not have adequate controls
over the maintenance of complete records of receivables,
payables, capital assets, or deferred revenue.

• 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 11-01, pages 11-12) 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 #53 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 Regional Office of Education #53 responded that it
understands the nature of this finding and realizes that
this circumstance is not unusual in an organization of
this size.  The Regional Office management is not
currently confident with the abilities of the accounting
staff to prepare cash basis financial information as
needed for reporting throughout the year.  Management
will review year end reporting controls annually and
investigate securing the services of a Certified Public
Accounting firm to reach an appropriate level of
expertise to do a comprehensive preparation and/or
review of financial statements.  Management will
continue to pursue additional training for the
individual(s) responsible for financial statement
preparation. (For previous Regional Office response, see
Digest Footnote #1.)

RESTRICTED FUNDS USED FOR UNAUTHORIZED PURPOSE

The Regional Office of Education #53 used restricted
funds from the RESPRO Fund for purposes not included in
the grant agreement.  Grant monies can only be used for
allowable expenditures as outlined in grant agreements.

Due to late grant reimbursements, some funds lacked cash
to pay for their expenditures, resulting in interfund
loans. A review of the amounts due between funds showed
a $16,269 loan from the Regional System Provider/Federal
System of Support (RESPRO) Fund to the ARRA-Title I-
School Improvement and Accountability Fund.  Loans are
not one of the allowed uses of the RESPRO Fund.

According to Regional Office officials, various funds
share a pooled bank account.  When expenditures for the
ARRA –Title I-School Improvement and Accountability Fund
came due, they were paid out of the pooled bank account.
While the bank account had enough cash to cover the
expenditures, it did not have enough of the ARRA –Title
I-School Improvement and Accountability Fund’s money for
the payments.  This created a loan from other funds that
had cash in that account.  The only funds with
sufficient cash in the pooled bank account to pay such
expenditures were grants, one of which was the RESPRO
Fund.  (Finding 11-02, page 13) This finding was first
reported in 2009.

Auditors recommended that the Regional Office of
Education #53 should monitor payments from pooled cash
accounts to be sure that the particular fund paying
expenditures has sufficient funds to cover the payments
and should use the RESPRO Fund only for purposes allowed
by the grant agreement.

The Regional Office of Education #53 responded that it
will  monitor payments from pooled cash accounts to be
sure that the particular fund paying expenditures has
sufficient funds to cover the payments and use the
RESPRO Fund only for purposes as allowed by the grant
agreement.  (For previous Regional Office response, see
Digest Footnote #2.)

MISCODING OF REVENUES AND EXPENDITURES

The Regional Office of Education #53 did not record
revenues and expenditures in the proper accounts.
Revenues and expenditures should be carefully monitored
to make sure that they are recorded to the proper
accounts.

During audit testing, auditors identified several
instances where revenues and expenditures were miscoded.
They were as follows:

• Expenditures of $1,697 for the Teacher and
Administrators Mentoring Program were reimbursed by
funding from another Regional Office of Education.  $885
of the same expenditures were included on the
expenditure report for the Regional Office of Education
#53’s Teacher and Administrators Mentoring Program grant
through the Illinois State Board of Education, resulting
in expenditures of $885 being reimbursed twice.

• A receipt of $10,000 from the Illinois State Board of
Education was incorrectly posted to State revenue in the
ROE/ISC Operations grant instead of federal revenue in
the Title II-Teacher Quality-Leadership Grant.

• The Teacher and Administrators Mentoring Program State
revenue of $23,449 and local revenue of $1,697 were
incorrectly coded as federal revenue.

• Gifted Education Fund expenditures were overstated by
$200 due to $200 of expenditures reimbursed by another
Regional Office of Education being recorded in the wrong
fund.

• Refunds of $1,500, $468, and $468 in the Teacher and
Administrators Mentoring Program, Title II-Teacher
Quality-Leadership Grant Fund and the ARRA-Title I-
School Improvement and Accountability Fund,
respectively, were recorded as other income rather than
offsetting the expenditure that created the refunds,
resulting in overstated expenditure reports.

Since many of the funds with the miscodings were grants,
inaccurate expenditure reports were submitted, which
could lead to the granting agency requesting
reimbursements or adjusting the fiscal year 2012 grant
amounts.  In addition, there were instances where the
same expenditures were improperly reimbursed twice.  The
Regional Office of Education #53’s various miscodings
appear to be a combination of oversights as well as
personnel being unaware of accounting requirements.
(Finding 11-03, pages 14-15)

Auditors recommended that the Regional Office of
Education #53 personnel responsible for coding
expenditures and revenues should be made aware of all
accounting requirements that pertain to recording and
reporting the Regional Office’s revenues, reimbursements
and expenditures.  The Regional Superintendent and/or
Assistant Regional Superintendent should review cash
receipt and disbursement reports to determine that all
transactions are recorded to the proper funds and
accounts.

The Regional Office of Education #53 responded that
personnel responsible for coding expenditures and
revenues have been made aware of all accounting
requirements that pertain to recording and reporting the
Regional Office’s revenues, reimbursements and
expenditures.  The Regional Superintendent and/or
Assistant Regional Superintendent will review cash
receipt and disbursement reports to determine that all
transactions are recorded to the proper funds and
accounts

NONCOMPLIANCE WITH THE GRANT FUNDS RECOVERY ACT

The Illinois Grant Funds Recovery Act (30 ILCS 705/5)
requires that all grant funds that have not been
expended or obligated by the end of the grant period be
returned to the granting agency within 45 days after the
end of the period.

Mid-Illini Educational Cooperative (MIEC), a component
unit of the Regional Office of Education #53, had
unspent grant funds in the following programs at the end
of the August 31, 2010 grant period:  Reading First
$1,695 and Gifted Education $28,021.  These balances
were not reflected on expenditure reports or returned to
the granting agencies.  MIEC was a grant subrecipient
for both of these grants.

The Regional Office of Education #53 personnel did not
realize that expenditure reports for grant funds not
spent by a grant subrecipient by the end of the grant
period are required to be adjusted.  Additionally, the
Regional Office of Education #53’s personnel were
unaware that unspent funds of the grant subrecipient are
to be returned to the granting agencies within 45 days
after the end of the period.  (Finding 11-04, page 16)
The auditors recommended that the Regional Office of
Education #53 personnel responsible for monitoring
grants passed through to MIEC should be made aware of
all grant compliance requirements that pertain to grants
they are awarded.  In addition, the Regional Office of
Education #53 should return all unspent grant funds of
subrecipients to the appropriate granting agencies.

The Regional Office of Education #53 responded that it
will contact granting agencies to determine the proper
way to return or use unspent grant funds.

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Superintendent of Schools is responsible
for establishing and maintaining an internal control
system over disbursements and payroll to prevent errors
and fraud.  Auditors noted the following weaknesses in
the Regional Office’s internal control system:

• Ten (10) out of 62 transactions tested showed no
approval on the invoice by the Regional Superintendent
or Assistant Regional Superintendent.  While the checks
were subsequently signed by the Assistant Regional
Superintendent, there was no documentation that the
invoices had been reviewed.

• Three employees were overpaid by one payroll totaling
$6,221, including benefits.

• Medicare payroll taxes were calculated incorrectly.
Neither the Regional Superintendent nor the Assistant
Regional Superintendent reviewed payroll taxes or
payroll withholdings and benefits prior to payment.

According to Regional Office officials, there were
sporadic instances when management’s signatures were not
on the documents required for authorizing payments.
However, there was a signature on the check disbursed so
the Assistant Regional Superintendent was aware of what
transaction took place.  With respect to payroll
miscalculations, bi-weekly payroll amounts were not
adjusted to account for 27 pay periods during the fiscal
year ending June 30, 2011.  Inconsistencies in the
payroll program were not discovered by Regional Office
management.  (Finding 11-05, pages 17-18)

The auditors recommended that the Regional Office of
Education #53’s management should ensure that the
Regional Office follows the established system of
internal controls over disbursements and payroll to
prevent errors and fraud.  Regional Office management
should ensure the Regional Superintendent or Assistant
Regional Superintendent approves, by initialing, all
check disbursement documentation, including invoices and
reports showing the recording of the payment.  This
verifies the check was written from the proper account
for the correct amount.  As part of the internal control
over the payroll process, the Regional Superintendent
should review payroll tax documents and other payroll
related expenditures prior to payment to detect any
possible problems or miscalculations.

The Regional Office of Education #53 responded that its
management will follow the established system of
internal controls over disbursements and payroll to
prevent errors and fraud.  Regional Office management
will ensure that the Regional Superintendent or
Assistant Regional Superintendent approves, by
initialing, all check disbursement documentation,
including invoices and reports showing the recording of
the payment.  This will verify the check was written
from the proper account for the correct amount.  As part
of the internal control over the payroll process, the
Regional Superintendent or Assistant Regional
Superintendent will review payroll tax documents and
other payroll related expenditures to detect any
possible problems or miscalculations.

INADEQUATE INTERNAL CONTROLS OVER CASH

Adequate internal controls over cash require that all
cash in the custody of the Regional Office of Education
be properly reported in the general ledger and that such
general ledger accounts be reconciled to each month’s
bank statement.

The general ledger cash accounts for Mid-Illini
Educational Cooperative (MIEC), a component unit of
Regional Office of Education #53, were not properly
reconciled to the bank statements.  Throughout the year,
adjustments necessary to reconcile cash were compiled on
the bank reconciliations rather than entered into the
general ledger.  At year-end, total adjustments required
to tie out cash as listed on the reconciliation netted
to $334,796.  Additionally, the reconciliation
incorrectly listed a negative deposit in transit of
$48,387.  Backdated checks totaling $44,361 also
contributed to improper general ledger cash balances.

The Regional Office relied on an outside CPA firm to
prepare the bank reconciliations but did not review the
reconciliations or record adjustments to properly
reconcile cash accounts to the general ledger.  (Finding
11-06, page 19)

The auditors recommended that the Regional Office of
Education #53’s management should review all original
bank reconciliations and compare them to their related
general ledger account balances monthly to ensure the
reconciliations are completed in a timely manner and
that all reconciling items are recorded to the general
ledger as needed.
The Regional Office of Education #53 responded that its
management will review all original bank reconciliations
and compare them to their related general ledger account
balances monthly to ensure the reconciliations are
completed in a timely manner and that all reconciling
items are recorded to the general ledger as needed.

EXPENDITURE REPORTS WERE NOT FILED TIMELY

Expenditure reports for various Illinois State Board of
Education (ISBE) grants have specific due dates.  For
the fiscal year ended June 30, 2011, quarterly
expenditure reports were due within twenty days
following the end of the reporting quarter.  Completion
expenditure reports were due twenty days following the
project end date.  If a completion report is submitted
with outstanding obligations, a final
expenditure/liquidation report must be submitted no
later than ninety days after the project ending date.

All three fiscal year 2010 expenditure reports for ISBE
grants with reporting periods ending during the year
ended June 30, 2011 were submitted late.  In addition,
over half of the quarterly expenditure reports for
fiscal year 2011 ISBE grants were submitted late.
(Finding 11-07, pages 20-21)

The auditors recommended that the Regional Office of
Education #53 personnel should monitor expenditure
report deadlines and review report submission
information as shown on the ISBE’s FRIS system.

The Regional Office of Education #53 responded that its
personnel will monitor expenditure report deadlines and
review report submission information as shown on the
ISBE’s FRIS system.

AUDITORS’ OPINION

Our auditors state the Regional Office of Education
#53’s financial statements as of June 30, 2011 are
fairly presented in all material respects.

WILLIAM G. HOLLAND
Auditor General

WGH:JRB

AUDITORS ASSIGNED:  West & Company, LLC were our special
assistant auditors.

DIGEST FOOTNOTES

#1: Controls Over Financial Statement Preparation -
Previous Regional Office Response

In its prior response in 2010, the Regional Office of
Education #53 responded that it understands the nature
of this finding and realizes that this circumstance is
not unusual in an organization of this size.  The
Regional Office management is currently confident with
the abilities of the accounting staff to prepare cash
basis financial information as needed for reporting
throughout the year.  Management will review year end
reporting controls annually and investigate securing the
services of a Certified Public Accounting Firm to reach
an appropriate level of expertise to do a comprehensive
preparation and/or review of financial statements.
Management will continue to pursue additional training
for the individual(s) responsible for financial
statement preparation.

#2: Restricted Funds Used for Unauthorized Purpose-
Previous Regional Office Response

In its prior response in 2010, the Regional Office of
Education #53 responded that it will closely monitor
payments from pooled cash accounts to be sure that the
particular fund paying expenditures has sufficient funds
to cover the payments and should use the RESPRO Fund
only for purposes as allowed by the grant agreement.
The Regional Office noted that it has taken steps to
ensure that Institute Fund expenditures are appropriate
for the specific purposes as listed in 105 ILCS 5/3-12.