ILLINOIS STATE BOARD
FINANCIAL AND COMPLIANCE AUDIT
Summary of Findings:
WILLIAM G. HOLLAND
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Improvements were noted from our prior compliance audit. However, this audit still contains a total of 23 findings, 10 of which are repeated. Some of the more significant findings are as follows:
Delays in preparing required reconciliations of accounting records, and preparing financial statements including:
Internal control weaknesses over employee attendance, time reporting and work performance, including:
Year 2000 Coordination Deficiencies. The Agency lacked efforts to promote awareness and provide guidance to regional offices of education and local school districts regarding impending computer problems due to the impact of the Year 2000.
Inadequate procedures for accounting for property and equipment, including:
STATE BOARD OF EDUCATION
FINANCIAL AND COMPLIANCE AUDIT
FOR THE TWO YEARS ENDED JUNE 30, 1998
|SELECTED SUPPLEMENTARY INFORMATION||
|Average Number of Employees
Property and Equipment, at cost
Total Accounts Receivable
Liability for accrued vested vacation and sick pay
State Operating Funds
Special State Funds
State Trust Funds
Federal Trust Funds
Total Cash Receipts
|STATE SUPERINTENDENT OF EDUCATION|
|During Audit Period: Joseph Spagnolo through August 31, 1998
Interim: (9/18/98 to 12/31/98) Robert Mandeville
Currently: Glenn W. "Max" McGee (Appointed effective January 1, 1999)
A federal program award of $13,792,826 was not entered on the Agency's system
In FY 98 USDE provided $649,993,155 or 56% of the federal funds expended
Reconciliations are critical to the preparation of Statewide financial statements
Agency did not devote adequate time and resources to ensure timely completion of its
Errors not corrected
Fund balances totaling $13,264 inactive at least 3 years
48% of receipts tested not deposited timely
Receipt for $8,158,335 posted over 3 months late
Administrators not reviewing and approving timesheets
33 percent of employees files tested did not have performance evaluations
State Board lacking in efforts to communicate Y2K issues with their regional offices of
education and school districts
Transfers of property not always reported
Responsibility for property not always assigned
Inadequate physical security over Alzina Building
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
FEDERAL PROGRAM RECORDS NOT RECONCILED TO U.S. DEPARTMENT OF EDUCATION RECORDS
The State Board of Education did not reconcile detailed records by program to the records maintained by the U.S. Department of Education ("USDE").
The State Board of Education received a request from the USDE on May 9, 1998, to reconcile its program records to USDE's new system that contained a listing of awards showing the net authorization (award), net draw and available balance by award number. This request was to ensure that all active accounts were in good standing and to confirm the various balances involved. At the conclusion of audit fieldwork, the Agency had not completed the reconciliation or responded to this request from USDE.
In the absence of this reconciliation, we noted the records did not agree. Agency records showed funds available for expenditure while USDE showed these awards as fully expended. In addition, the Special Education - Infants and Families with Disabilities (CFDA No. 84.181) program was shown as fully expended by USDE when the Agency had expended none of these funds. In fact, we noted this particular award ($13,792,826) was not even entered on the Agency's system.
The Agency expended $1,160,226,287 in federal funds during fiscal year 1998 of which $649,993,155 or 56% was provided through grant awards from the U.S. Department of Education. Failure to comply with USDE's request could result in the loss or delay of federal funding. (Finding No. 98-1, pages 24-25)
We recommended the Agency devote the necessary time and resources to complete the reconciliation of Agency program records to USDE records and resolve all differences immediately. Further, appropriate members of Agency management should be designated as liaison with USDE to ensure timely follow-up of all future information requests from USDE.
The Agency responded that it has been working in this area for the past year. It further stated a new system is ready and will ensure that all records are in balance.
NONSHARED FUNDS NOT RECONCILED TO RECORDS MAINTAINED BY THE STATE COMPTROLLER
The State Board of Education did not reconcile Agency records for nonshared funds to records maintained by the State Comptroller in a complete, accurate and timely manner.
The Agency was authorized to use 31 funds during fiscal year 1998; nineteen of these funds required the Agency to prepare monthly fund reconciliations. Of the 247 (19 funds over 13 months) fund balance reconciliations reviewed, we noted 87 irregularities as follows:
The reconciliations are critical to the preparation of Statewide financial statements. In addition, the Federal Cash Management Improvement Act (CMIA) requires the Agency to calculate an interest liability due to the federal government for specified federal program funds while in the warrant issuance and clearing processes. Without adequate reconciliations, the Agency is unable to monitor cash balances, which could result in an interest liability payable to the federal government. (Finding 98-14, pages 40-41)
We recommended the Agency prepare all required fund reconciliations of Agency records for nonshared funds to records maintained by the State Comptroller in a complete, accurate, and timely manner. Further, the Agency should establish policies and procedures to ensure a review of all internally prepared reconciliations by an appropriate member of Agency management.
In their response, Agency officials attributed this circumstance to the Comptroller's Office converting to the SAMS Accounting System. Although, the Comptroller continued to report the necessary information in printed reports, the quantity of funds and transactions made manual reconciliation extremely difficult and time consuming. All but one fund is now current. Also, the Division Administrator will review all reconciliations in the future.
AGENCY-WIDE FINANCIAL STATEMENTS NOT PREPARED TIMELY
The State Board of Education did not prepare its fiscal year 1998 Agency-wide financial statements in a timely manner to facilitate reporting to the Offices of the Auditor General and the State Comptroller.
The Agency did not devote adequate time and resources to ensure timely completion of its departmental GAAP financial statements. This process was adversely affected by delays in preparing the required reconciliations of Agency accounting records to those of the State Comptroller as noted in Findings No. 98-14, 98-16 and 98-19.
The Agency has the responsibility to prepare agency-wide financial statements in accordance with the Federal Single Audit Act Amendments of 1996 and to facilitate the preparation of statewide GAAP financial statements by the State Comptroller. (Finding 98-15, page 42)
We recommended the Agency devote adequate time and resources to ensure future financial statements are prepared in a timely manner.
Agency officials stated financial statements are completed after the Comptroller's review, however, they did say they will work with the Comptroller's Office to improve the situation.
AGENCY APPROPRIATION AND EXPENDITURE RECORDS NOT IN AGREEMENT WITH STATE COMPTROLLER RECORDS
The State Board of Education did not notify the State Comptroller of four adjustments necessary to agree final Statewide fiscal year 1998 appropriation and expenditure records with Agency balances in a timely manner.
During the course of comparing Agency appropriation and expenditure account balances to State Comptroller records, we noted four variances that could not be corrected because the Comptroller's Office had already "closed out" its fiscal year 1998 accounting records. These variances included the incorrect posting of a $15,000 appropriation transfer, the incorrect posting of $1,510 refund, and the cancellation of two warrants totaling $2,814 and $86.
Statewide Accounting Management System (SAMS) procedure 11.40.20 states, "The Monthly Appropriation Status Report should be reconciled on a timely basis to ensure the early detection and correction of errors." SAMS procedures 11.40.20 and 11.40.40 provide a form and guidance to notify the State Comptroller of errors to be corrected.
We recommended the Agency prepare complete, accurate and timely reconciliations of appropriation and expenditure records to records maintained by the State Comptroller in accordance with SAMS guidance. Further, the Agency should establish procedures to ensure a review of all internally prepared reconciliations by the appropriate supervisory personnel. (Finding 98-16, pages 43-44)
Agency officials responded, in part, that the Division Administrator will review all reconciliations.
FAILURE TO CLOSE OUT INACTIVE FUNDS
The State Board of Education has not closed out inactive funds in a timely manner.
During our testing of the Agency's GAAP reporting, we noted two State Trust Funds that have been inactive for at least three fiscal years. The Chief State School Officers Fund - 0241 and the MacArthur Foundation Fund - 0120 have been inactive since fiscal years 1994 and 1995, respectively. These two funds have cash balances of $5,205 and $8,059 at June 30, 1998, respectively.
Maintaining these unspent funds increases accounting time and exposes these funds to loss or misappropriation due to the general lack of attention directed toward these funds by Agency personnel. (Finding 98-17, page 45)
We recommended the Agency determine the availability of these funds for expenditure or return them after proper consultation with the respective grantor.
Agency officials stated the funds will be refunded or transferred appropriately by the end of FY 1999.
CASH RECEIPTS NOT PAID INTO THE STATE TREASURY TIMELY
The State Board of Education did not pay into the State treasury the gross amount of money received on a timely basis as required by State law.
We tested a sample of 56 refund receipt accumulations and noted that 27 receipts (48%) totaling $1,233,859 were deposited one or more business days after the date they were required to be remitted to the State Treasurer's Office. Three refund receipt accumulations exceeding $500 but less than $10,000 were deposited one to four business days after the required 48-hour deadline. In addition, 25 refund receipt accumulations in excess of $10,000 were deposited two to three business days after receipt instead of within the 24 hours required by State statute. An existing deposit extension approved for these receipts had expired in April of 1997 and had not been renewed.
We recommended the Agency take immediate action to obtain a new deposit extension from the Offices of the Comptroller and Treasurer and establish policies and procedures to ensure a proper level of diligence in obtaining the review and approval of future deposit extensions. (Finding 98-18, page 46)
Agency officials stated the extension was renewed on January 19, 1999.
CASH RECEIPTS NOT PROPERLY RECONCILED TO STATE COMPTROLLER RECORDS
The State Board of Education did not properly reconcile Agency cash receipts records to records maintained by the State Comptroller in a complete, accurate and timely manner.
During our testing, we noted a Special Education Medicaid Matching Fund receipt in the amount of $8,158,335 posted by the State Comptroller on May 1, 1997 that was not posted by the Agency until August 22, 1997. We also noted other transactions posted by the State Comptroller and not by the Agency at June 30, 1997 and 1998 totaling $2,023,289 and $3,643,483, respectively. In addition, the Agency failed to consider $324,441 and $176,926 of receipts in the clearing process for GAAP reporting purposes at June 30, 1997 and 1998, respectively.
The Statewide SAMS Accounting System Procedure 25.40.20 requires the Agency to perform monthly receipt reconciliations of fiscal year-to-date Comptroller amounts. Agency personnel reconciled only the current monthly activity rather than fiscal year-to-date cash receipts to records maintained by the State Comptroller. This practice could allow prior month reconciling items to "fall through the cracks" if not corrected in a timely manner. In addition, we noted no indication of supervisory review to ensure the completeness, accuracy or timeliness of cash receipts reconciliations. (Finding 98-19, page 47)
We recommended the Agency prepare complete, accurate, and timely reconciliations of year-to-date Agency receipt records to year-to-date records maintained by the State Comptroller in accordance with SAMS guidance. Further, the Agency should establish procedures to ensure a review of all internally prepared reconciliations by the appropriate supervisory personnel.
Agency officials agreed to implement a year-to-date reconciliation with management's review.
INTERNAL CONTROL WEAKNESSES OVER EMPLOYEE ATTENDANCE
The State Board of Education does not use a positive attendance verification timekeeping system to track employee attendance.
The Human Resources Management System (HRMS) used by the Agency to track the attendance of employees follows an exception attendance rule. This means that unless otherwise directed, the system will mark all employees present on their on-line timesheets. A timekeeper must access the system and enter all exceptions to this rule.
Good internal control procedures dictate it is better to have a positive verification that employees are present rather than assuming they are at work. With an exception system, no positive effort needs to be made to verify and record attendance. It is assumed.
Without a positive effort to verify employee work attendance, there is increased risk of the State compensating employees for time not actually spent at work. This is significant since employees are afforded a great deal of flexibility in their use of time off and the number of days they have available. The prevalence of errors in properly reporting time for employees noted in finding 98-9 indicates the need for strong internal control over timekeeping and a positive time reporting system. (Finding 98-8, page 33)
We recommended the Agency modify the Human Resources Management System to implement additional controls to ensure employee attendance is verified on a daily basis.
Agency officials state they believe the current system provides adequate internal controls.
EMPLOYEE TIME SHEETS NOT PROPERLY REVIEWED AND APPROVED
Employees of the State Board of Education are not properly reviewing and approving timesheets.
During our review, we noted that 20 of 60 employee timesheets tested were not reviewed and approved on a monthly basis by the responsible administrator. In addition, we noted three time sheets which indicated the review and approval took place prior to the end of the reporting period.
The Agency's updated personnel policy and procedures manual instructs administrators to review and approve employee timesheets on a monthly basis for those individuals under their supervision. Timesheets are forwarded through the Human Resources Management System (HRMS) to the responsible administrator for their review and approval.
These weaknesses are a result of administrators disregarding stated Agency timekeeping procedures.
Monthly review of employee timesheets by administrators leads to a greater level of accountability over Agency employees. It also serves as a control mechanism to minimize errors in employee time reporting. Failure to properly review and approve timesheets in a timely manner could result in employees being compensated for time not spent at work. (Finding 98-9, page 34)
We recommended that Agency management enforce established personnel policies and procedures with respect to the review and approval of employee timesheets. In addition, Human Resources personnel should perform periodic audits of employee timesheets to ensure the adherence to Agency personnel policies and procedures.
Agency officials agreed to increase their efforts in monitoring administration.
PERFORMANCE EVALUATIONS NOT COMPLETED TIMELY
During the two year period ended June 30, 1998, there were approximately 756 persons (on average) employed by the State Board of Education. We selected 60 of these employees for testing (eight percent). In 20 out of the 60 personnel files (33 percent) current performance evaluations were not on file or were not performed on a timely basis.
Agency management indicated that union contracts do not contain a provision that employees need to receive current evaluations prior to receiving their step increases and/or cost-of-living increases. Therefore, some Agency administrators do not complete timely evaluations for their employees prior to the compensation adjustment.
The State Board of Education Personnel Policy/Procedure Manual, Policy numbers 5-C and 15-C state that all permanent employees (operation, professional, and administrators) are to be evaluated by their immediate supervisor on an annual basis.
Performance evaluations should be completed and used to provide feedback to employees regarding their work and to provide an incentive for maintaining or improving employees' quality of performance. (Finding 98-10, page 35)
We recommended the Agency review the annual evaluation process and ensure timely completion of performance evaluations for all employees. Further, immediate supervisors should be held responsible for completing these on a timely basis.
Agency officials agreed to continue to emphasize the importance of evaluations to the administrators.
YEAR 2000 COORDINATION DEFICIENCIES
The Agency lacked efforts to promote awareness and provide guidance to regional offices of education and local school districts regarding impending computer problems due to the impact of the Year 2000.
Since the Agency, the regional offices of education, and local school districts use computer systems to process information to meet mandates and objectives, addressing the technical issues surrounding the upcoming millennium is important. Technical areas outside of primary computer applications, such as telecommunications, facility infrastructure, and heating and maintenance systems, need to be addressed.
As disclosed in the Agency's Year 2000 Status Report, the Agency has concluded that: "The Regional Offices of Education and Local Educational Agencies are responsible for their own Year 2000 compliance." As a result, the Agency has not provided guidance, or apprised regional offices of education or local school districts about the potential impact of Year 2000 problems.
The State's Year 2000 Technology Task Force (Public Act 90-666 signed into law in July 1998) also found the Agency's effort lacking in this area. The Task Force's Preliminary Report released on November 30, 1998, included the following assertions:
The impact of Y2K on Illinois school districts is not known. It is one area where further research is warranted. Computer systems in schools may require being upgraded or replaced. Any software that processes information based on future dates (i.e., budgeting, accounting, and payroll) could be impacted before January 1, 2000.
The State Board of Education should be directed to establish a method for Illinois K-12 schools to report the status of their Y2K remediation efforts for the purpose of analyzing and summarizing K-12 status to the Governor and General Assembly on a frequent basis. (Finding 98-20, page 48)
We recommended the Agency develop a comprehensive approach to assist Regional Offices of Education and local school districts to address Year 2000 issues. The Agency should also continue to work to achieve Year 2000 compliance on internal systems and ensure that adequate resources are allocated to the project.
Agency officials responded that their Y2K coordinator will develop a plan to communicate information to the school districts and regional offices about this potentially serious issue. Part of the communication will include recommendations for reviews and contingency plans.
INADEQUATE CONTROL OVER PROPERTY AND EQUIPMENT
The Agency was unable to locate $124,237 of property during the June 1998 annual equipment inventory. Thirty-six unlocated items were computers.
The Agency has established procedures in place to track the movement of property and equipment throughout the Agency, but these procedures were not always followed or enforced. Agency personnel indicated employees have been moved throughout the Agency to new areas or floors, and these moves are not always reported to the Property Control unit. In addition, the Agency does not have a stated policy addressing the accountability of employees for the furniture and equipment specifically assigned to them. This is especially problematic regarding equipment on long-term sign-out.
Failure to follow established procedures in accounting for property and equipment greatly increases the risk of loss or misappropriation of the State's assets and the risk that such loss or misappropriation may go undetected for an unacceptable length of time. (Finding 98-12, page 37)
We recommended that Agency management enforce established procedures for controlling property and equipment to decrease the risk of loss or misappropriation and to maintain accountability over the State's resources. The effectiveness of such procedures would be greatly enhanced by making employees accountable for State property assigned to them specifically.
Agency officials said a new bar code inventory system will be fully operational very soon. They also stated that 14 of 61 items with an inventory valuation of approximately $36,400 have been located. They also noted that property is accounted for at original cost, but the actual value of aging equipment is substantially less.
INADEQUATE PHYSICAL SECURITY OVER STATE ASSETS
The State Board of Education has inadequate physical security at its Springfield offices located in the Alzina Building to safeguard State assets against loss or misappropriation.
Eleven laptop computers were reported as stolen during the audit period; ten in fiscal year 1998 alone. The total cost of the ten computers stolen in 1998 was $36,352. Nine computers were stolen from the building without detection. Two of these computers with a total purchase cost of $6,109 were recovered by the City of Springfield Police Department during a routine sweep of area pawn shops. A janitorial service employee was charged in the theft of these two computers.
The Fiscal Control and Internal Auditing Act (30 ILCS 10/3001) states, "All State agencies shall establish and maintain a system, or systems, of internal fiscal and administrative controls, which shall provide assurance that: ...(3) funds, property, and other assets and resources are safeguarded against waste, loss, unauthorized use, and misappropriation;...".
The Alzina Building is occupied by the Community and Residential Services Authority, the Illinois Department of Human Services (Bureau of Disability Determination Services) and the Illinois State Board of Education. A contract security service is utilized at the building. Security personnel conduct foot patrols in and around the building during the day but are not posted at exits. All other exits are locked and one guard is posted at the south first floor exit from 4:00 p.m. until the building closes at 11:00 p.m. Persons entering and exiting the building during this time frame are required to sign in and out. However, we have not observed any occasions where anyone entering or exiting the building was questioned, asked to produce identification, or had their bags checked by security personnel.
This creates an environment where Agency employees or outside individuals are allowed virtually unrestricted access to the building thereby exposing State property to an unacceptable level of risk of loss or misappropriation. (Finding 98-13, page 39)
We recommended the Agency implement appropriate building security policies and procedures to protect State property from loss or misappropriation. Further, the Agency should caution employees about securing property most susceptible to loss or misappropriation when not in use.
Agency officials stated that they believe they have appropriate security policies and procedures in place. However, they stated they will continue to evaluate the situation to see if improvements are appropriate.
The remaining findings and recommendations are less significant and have been given attention by the Agency. We will review progress towards the implementation of our recommendations during the Agency's next audit.
The responses to our findings and recommendations were provided by Tammy J. Rust, Chief Internal Auditor.
Our auditors state the June 30, 1998 financial statements of the Agency are fairly presented, except for the effects of such adjustments, if any, as might have been determined to be necessary had they been able to examine evidence regarding Year 2000 disclosures.
SPECIAL ASSISTANT AUDITORS
Sikich, Gardner & Co, LLP were our special assistant auditors for this audit.