REPORT DIGEST

INTERMEDIATE SERVICE CENTER #2: WEST COOK

FINANCIAL AUDIT (IN ACCORDANCE WITH THE
SINGLE AUDIT ACT AND OMB CIRCULAR A-133)
FOR THE YEAR ENDED JUNE 30, 2015

Release Date:  October 11, 2018

FINDINGS THIS AUDIT:  5

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  2-- 1 -- 3
Category 2:  0 -- 2 -- 2
Category 3:  0 -- 0 -- 0
TOTAL:  2 -- 3 -- 5

FINDINGS LAST AUDIT: 5

Category 1: Findings that are material
weaknesses in internal control and/or a
qualification on compliance with State laws
and regulations (material noncompliance).
Category 2: Findings that are significant
deficiencies in internal control and
noncompliance with State laws and
regulations.
Category 3: Findings that have no internal
control issues but are in noncompliance
with State laws and regulations.

State of Illinois, Office of the Auditor
General
FRANK J. MAUTINO, 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

• (15-1) The Intermediate Service Center #2
did not have adequate internal control
procedures.

 • (15-2) The Intermediate Service Center
 #2 did not have adequate controls over the
 use of designated grant balances.

• (15-3) The Intermediate Service Center #2
did not have adequate controls over
procurement card transactions.

• (15-4) The Intermediate Service Center #2
did not provide completed financial
statements in an auditable form by the
deadline.

• (15-5) The Intermediate Service Center #2
did not comply with federal grant
requirements.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE INTERNAL CONTROL PROCEDURES

The Intermediate Service Center #2 (ISC)
did not have adequate internal control
procedures. The ISC had internal control
procedures in place over its various
accounting functions; however, they were
not formally documented. Further, pay rate
approvals could not be provided for 1 of
the 22 (5%) payroll items tested for
current year major programs.

The ISC should ensure control procedures
over its accounting functions are formally
documented. Additionally, pay rate
approvals should be provided in writing by
a member of management independent of the
payroll process prior to each pay period in
order to prevent errors and/or fraud.

According to ISC management the ISC did not
document its control procedures in writing.
Additionally, the ISC did not adhere to
established internal control procedures to
ensure pay rates were approved prior to
running payroll. (Finding 15-001, pages 14
– 15) This finding was first reported in
2012.

The auditors recommended that the ISC
should ensure control procedures for its
accounting functions are documented in
writing. Additionally, the ISC should
comply with its established system of
internal controls to ensure pay rates are
properly approved before payroll is run and
posted to the general ledger.

ISC Response: The ISC will document, in
written form, established internal control
procedures. Although the Executive Director
approved all pay rates, the ISC did not
have written documentation of such approval
for 1 of the pay rates tested. All pay
rates are now approved by the Executive
Director/Designee (Assistant Executive
Director) prior to processing through
payroll. Each payroll is reviewed and
approved by the Executive director and/or
the Assistant Executive Director prior to
being processed and posted to the general
ledger.

Prior Year ISC Response: The ISC will
document, in written form, established
internal control procedures. Although the
Executive Director approved all pay rates,
the ISC did not have written documentation
of such approval for 4 of the pay rates
tested, 2 of those 4 were for salary rates
set by the Illinois State Board of
Education. The ISC has implemented revised
pay rate and payroll verification reports
which the Executive Director approves
before payroll is run and posted to the
general ledger.

USE OF DESIGNATED GRANT BALANCES

The Intermediate Service Center #2 (ISC)
improperly used grant funds to cover
expenses from other programs.  The ISC
pools program and local revenue into the
same bank account. Grant funds received by
the ISC, and designated for specific grant
purposes, were used to cover deficit cash
balances in programs other than those for
which the monies were granted.

The ISC runs several grant-funded programs.
Programs funded by State and federal grants
must be tracked and maintained separately.

According to ISC officials, because the ISC
is primarily funded on a reimbursement
basis, money must be spent before it is
received from the State. This caused
programs which the ISC was already in the
midst of operating, to have severe cash
deficits. The Service Center officials
stated that to continue operating as the
grant agreement stipulates, cash had to be
used from other sources in order to
temporarily fund expenditures that were to
be reimbursed by the State. (Finding
15-002, page 16)

The auditors recommended that the ISC
should not use cash designated for specific
grant purposes to cover deficit cash
balances in programs other than those for
which the cash was granted.

ISC Response: The ISC is primarily funded
on a reimbursement basis for most of its
programs. This along with the delay in
funding from the State of Illinois has
caused the Center to experience low cash
flow issues. The source of funds used to
address cash flow issues was available
local funds, to the extent they were
available, not grant funds.

INADEQUATE CONTROLS OVER PROCUREMENT CARD
TRANSACTIONS

Internal controls over disbursements were
not effectively designed and implemented.
During testing of procurement card (P-Card)
transactions, the auditors noted the
following:

• In 9 of 9 (100%) of transactions tested,
the Executive Director approved his own
purchases.

• Personal expenses of one board member and
two employees were charged by the Executive
Director on the Intermediate Service Center
#2’s (ISC) P-Card. These expenses were paid
back in full by the employees and board
member with personal checks written to the
credit card company. The ISC maintained
copies of the personal checks and the
related charge receipts with the credit
card statements. Personal expenses charged
within the transactions tested totaled
$941.

The ISC is required to maintain a system of
controls over disbursements to prevent
errors, omissions, and fraud. Additionally,
expenses incurred should be for a business
purpose and represent economical and
effective use of the ISC’s resources.

According to ISC officials internal
controls over the Executive Director’s P-
Card transactions were not effectively
designed and/or implemented. (Finding
15-003, pages 17 – 18)

The auditors recommended that the ISC
implement internal control procedures to
ensure an appropriate review and approval
process is in place. All P-Card
transactions should be reviewed by an
employee other than the person incurring
the expenditure and the ISC should adhere
to its policy prohibiting the use of ISC P-
Cards for personal use.

ISC Response: The ISC has instituted a
policy of the Executive Director reviewing
all P-Card transactions, except his/her
own, which are subsequently reviewed by the
Assistant Director. P-Cards will only be
used for staff travel/expenses; spouse
travel/expenses, will not be allowed to be
charged to any ISC P-Card, and this will be
included in the policy.

DELAY OF AUDIT

The Intermediate Service Center #2 (ISC)
did not provide completed financial
statements in an auditable form by the
August 31, 2015 deadline. The completed
financial statements were received on
August 16, 2017.

The ISC is subject to 105 ILCS 5/2-3.17a,
which requires the Auditor General’s office
to cause an audit to be made, as of June
30th of each year, of the financial
statements of all accounts, funds and other
moneys in the care, custody or control of
the executive director of each educational
service region in the State and of each
educational service center established in
the School Code. The audit is to be
conducted in accordance with Generally
Accepted Governmental Auditing Standards.

In accordance with 105 ILCS 5/2-3.17a, the
Auditor General has promulgated
administrative rules and regulations to
govern this process. Those rules, 74 Ill.
Adm. Code 420.320 (c) (2), state that for
audit purposes, each regional office of
education and educational service center
shall make available to the Auditor General
or his designee all books and records
deemed necessary to make and complete the
required audits. The records shall be in
auditable form by August 15 of the
succeeding fiscal year. Financial reports
are to be available no later than August 31
in order for the annual audit to be
completed by an independent auditor
selected by the Auditor General. Annual
financial statements are to be prepared on
an accrual basis of accounting in
accordance with generally accepted
accounting principles (GAAP).

In addition, prudent business practices and
transparency require timely preparation and
completion of financial statements.

According to ISC officials, they incurred
key employee turnover. (Finding 15-004,
pages 19 – 20)

The auditors recommended that the ISC
should implement procedures to ensure
compliance with 105 ILCS 5/2-3.17a and 74
Ill. Adm. Code 420.320 (c) (2). Annual
financial statements should be compiled on
an accrual basis of accounting in
accordance with GAAP. These financial
statements need to be presented to the
Auditor General’s Independent auditors for
audit by the August 31 deadline.

ISC Response: The ISC has contracted with a
CPA firm to prepare complete and accurate,
timely financial statements for the ISC to
prepare for the 2016 audit. It is the
intention of the ISC Executive Director to
hire the CPA firm to prepare the statements
for 2017 and 2018 when the 2016 preparation
is complete.

NONCOMPLIANCE WITH GRANT REQUIREMENTS

The Intermediate Service Center #2 (ISC)
incorrectly reported expenditures to a
grant outside the grant funding period and
not in accordance with 2 CFR Part 200.309.
Expenditures were also reported outside the
ISC’s appropriate fiscal year.

According to 2 CFR Part 200.309, Uniform
Administrative Requirements for Grants and
Cooperative Agreements to State and Local
Governments, the ISC may only charge costs
to the grant resulting from obligations of
the funding period unless carryover of
unobligated balances is permitted, in which
case the carryover balances may be charged
for costs resulting from obligations of the
subsequent funding period.

It is the ISC’s responsibility to obtain
proper supporting documentation for its
grant expenditures. The ISC claimed
expenditures in the amount of $4,097 for
the funding period 10/01/2014 – 09/30/2015.
These expenditures were allowable costs but
should have been claimed in the earlier
funding period 10/01/2013 – 09/30/2014. In
addition to the $4,097 charged to the
grant, $12,292 claimed expenditures for the
06/30/2015 fiscal year were allowable
costs, but should have been claimed in the
prior fiscal year ended 06/30/2014.


According to ISC officials, grant
expenditures were incorrectly reported
outside the proper grant funding period and
fiscal year due to late receipt of an
invoice. (Finding 17-005, pages 22 – 23)

The auditors recommended that the ISC
implement procedures to track anticipated
grant expenditures in order to properly
record and pay them in the correct grant
funding period and fiscal year. This
includes obtaining billing invoices for
services received in a timely manner.

ISC Response: The Township Treasurer
provides financial services to the ISC and
other districts in the region. The Township
Treasurer invoiced for the services they
provided on a pro-rated basis. The invoices
were for services provided during the
previous fiscal year and were based on the
actual Township Treasurer’s operating
expenditures for that year. In order to
report grant expenditures for services
provided during the proper year, the ISC
has asked for the Township Treasurer to
invoice the ISC in a more timely manner.
This will allow the ISC to properly record
and pay the invoice in the correct grant
funding period.

AUDITORS’ OPINION

Our auditors state the Intermediate Service
Center #2’s financial statements as of June
30, 2015 are fairly presented in all
material respects.

This financial report was conducted by the
firm of Wipfli, LLP.

KELLY MITTELSTAEDT
Audit Manager

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

FJM:JMM