REPORT DIGEST
REGIONAL OFFICE OF EDUCATION #56
WILL COUNTY
FINANCIAL AUDIT (In
Accordance with the Single Audit Act and OMB Circular A-133)
For the Year Ended: June 30, 2010
Summary of Findings:
Total this audit: 2
Total last audit: 0
Repeated from last audit: 0
Release Date: May 19, 2011
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
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Office of the Auditor General, Iles Park Plaza, 740 E. Ash Street, Springfield, IL 62703
(217) 782-6046 or TTY (888) 261-2887
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SYNOPSIS
• The Regional Office of Education #56 did not have
sufficient internal controls over the financial reporting process.
• The Regional Office of Education #56 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
CONTROLS OVER FINANCIAL STATEMENT PREPARATION
The Regional Office of Education #56 is required to maintain
a system of controls over the preparation of financial statements in accordance
with generally accepted accounting principles (GAAP). The Regional Office’s 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 #56 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 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. In their review of
the Regional Office’s accounting records, auditors noted that:
• The Regional Office’s financial information required
numerous adjusting entries to present financial statements in accordance with
generally accepted accounting principles.
• The Regional Office did not have adequate controls over
the maintenance of complete records of accounts receivable, accounts payable,
or deferred revenue. While the Regional
Office did maintain records to indicate the balances of accounts payable,
accounts receivable, and deferred revenue, no entries were provided to
reconcile the Regional Office’s grant activity, such as posting grant receivables
and deferred revenue. (Finding 10-01,
pages 12a-12b)
The auditors recommended that, as part of its internal
control over the preparation of its financial statements, including
disclosures, the Regional Office of Education #56 should implement a comprehensive
preparation and/or review procedure to ensure that the financial statements,
including disclosures, are complete and accurate. Such review 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 #56 responded that it
accepts the degree of risk associated with this condition because the
additional expense to seek outside accounting expertise to prepare and/or
review financial statements would take away from the funds available to provide
educational services for the schools in the region. The Regional Office noted that it will
review, approve, and accept responsibility for the audit adjustments, financial
statements and related notes provided by the auditors.
The Regional Office noted that it will continue to work with
the other Regional Offices of Education to determine the most effective method
of ensuring that their employees possess the knowledge required to compile the
necessary GAAP-based financial statements.
DEPARTURE FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLE
The Regional Office of Education #56 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.
The Illinois Administrative Code (74 Ill. Adm. Code 420.320
(c) (1) and (2)) requires that each Regional Office of Education maintain the
accounting records necessary to prepare financial statements in accordance with
generally accepted accounting principles (GAAP).
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 #56 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, the Regional Office
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.
During fiscal year 2010, the Regional Office of Education
#56 had an average of 13 active employees and contributions to the OPEB plan
totaled $121,522. The Regional Office
did not obtain an actuarial valuation of its postemployment benefits other than
pension 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 the Regional Office of
Education #56 as of June 30, 2010.
Failure to apply the accounting and reporting requirements
of GASB Statement No. 45 could result in misstatements of the Regional Office
of Education #56 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.
According to Regional Office management, noncompliance with
GASB No. 45 was due to budget constraints and the overall complexity of the
pronouncement. (Finding 10-02, pages 12c-12d)
The auditors recommended that the Regional Office of
Education #56 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 #56 responded that it will
obtain an actuarial valuation of its other postemployment benefit liability to
be in compliance with GASB Statement No. 45, and will include the disclosures
required by the Statement where applicable in its financial statements.
AUDITORS’ OPINION
Our auditors state the Regional Office of Education #56’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:KJM
AUDITORS ASSIGNED:
Kemper CPA Group LLP were our special assistant auditors.