REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #3

BOND, FAYETTE AND EFFINGHAM COUNTIES

FINANCIAL AUDIT

(In Accordance with the
Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2007

Summary of Findings:

Total this audit                  4

Total last audit                  2

Repeated from last audit   1

Release Date:

April 3, 2008

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 is also available on

the worldwide web at

http://www.auditor.illinois.gov

SYNOPSIS

·         The Regional Office of Education #3 did not have sufficient internal controls over the financial reporting process.

·        The Regional Office of Education #3 did not have adequate internal controls over certain disbursements.

·        The Regional Office of Education #3 uses an accounting software package which was not designed for governmental entities.

·        The Regional Office of Education #3 did not capitalize a $4,240 leasehold improvement and misclassified certain capital purchases as supplies and purchased services.

              {Expenditures and Revenues are summarized on the reverse page.}

FY 2007

FY 2006

TOTAL REVENUES

$2,123,663

$1,883,514

Local Sources

$612,114

$506,456

% of Total Revenues

28.82%

26.89%

State Sources

$1,033,845

$1,012,193

% of Total Revenues

48.68%

53.74%

Federal Sources

$477,704

$364,865

% of Total Revenues

22.49%

19.37%

TOTAL EXPENDITURES

$2,063,178

$1,872,645

Salaries and Benefits

$1,259,461

$1,219,221

% of Total Expenditures

61.04%

65.11%

Purchased Services

$549,940

$518,375

% of Total Expenditures

26.65%

27.68%

All Other Expenditures

$253,777

$135,049

% of Total Expenditures

12.30%

7.21%

TOTAL NET ASSETS

$655,050

$594,565

INVESTMENT IN CAPITAL ASSETS

$66,462

$34,103

Percentages may not add due to rounding.

REGIONAL SUPERINTENDENT 

During Audit Period:  Honorable Mark A. Drone

Currently:  Honorable Mark A. Drone

The Regional Office of Education #3 did not have sufficient internal controls over the financial reporting process.

The Regional Office of Education #3 did not have adequate internal controls over certain disbursements.

The Regional Office of Education #3 uses an accounting software package which was not designed for governmental entities.

The Regional Office of Education #3 did not capitalize a $4,240 leasehold improvement and misclassified certain capital purchases as supplies and purchased services.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

Controls Over Financial Statement Preparation

         The Regional Office of Education #3 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 #3 does 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 did not have adequate controls over the maintenance of complete records of accounts receivable, accounts payable, or deferred revenues.  While the Regional Office did maintain records to indicate the balances of accounts payable, accounts receivable, and deferred revenues, there were no entries made by the ROE to reconcile their grant activity, such as posting grant receivables and deferred revenues.  The Regional Office’s financial information required numerous adjusting entries to present the financial statements in accordance with generally accepted accounting principles.

         The auditors recommended that, as part of its internal control over the preparation of its financial statements, including disclosures, the Regional Office of Education #3 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. (Finding 07-1, pages 12a-12b)

         The Regional Office of Education #3 responded that it agrees with the finding.  The Regional Superintendent noted that they employ two individuals who hold accounting degrees.  They will seek funding to properly train the staff members in the preparation and review of financial statements.  The Regional Superintendent will also seek funding to solicit the services of a qualified CPA to provide guidance in the preparation and review procedures necessary to prepare and review financial statements.

INTERNAL CONTROL OVER DISBURSEMENTS

         The Regional Office #3 did not have adequate internal controls over certain disbursements and purchases.  In two instances, the Regional Office did not have proper documentation to show prior approval for credit card charges totaling $113, as is required by Regional Office policy.   

         The Regional Office of Education #3’s established internal control policy requires all credit card purchases to be approved prior to actual purchase.

         The auditors recommended that ROE #3 follow its established internal control procedures to ensure that all credit card purchases have documented approval before the credit card is charged. (Finding 07-2, page 12c)

         The Regional Office of Education #3 accepted the recommendation and noted that internal control procedures will be followed uniformly for all purchases made by the ROE and its programs. 

INADEQUATE ACCOUNTING SOFTWARE AND INTERNAL CONTROLS

         The Regional Office #3 uses an accounting software package which was not designed for governmental entities.  With the system, transactions can be misclassified and changed after the original entry without record of the change.  In our testing, we identified changes like this for six different checks totaling $5,686.

         In addition, the ROE maintains three different general ledger systems to account for operations of the programs it administers.  With three systems, ROE management cannot easily obtain entity-wide financial information necessary to make informed management decisions.  Without proper controls, errors or misappropriations may occur and not be detected by management.

         The auditors recommended that Regional Office of Education #3 implement an accounting software application that provides the necessary controls and reporting features required for proper fund accounting and have the capabilities necessary for the ROE to comply with the ROE Accounting Manual.  Entries to the accounting system should be reviewed to ensure that misclassification or changes have not occurred after approval. (Finding 07-3, page 12d-12e)

         The Regional Superintendent agrees with this finding.  The ROE noted that they are seeking bids from vendors for an accounting software application that provides the necessary controls and reporting features required for proper fund accounting and the preparation of financial statements in accordance with the Regional Office of Education Accounting Manual.  The Office will purchase accounting software and will consolidate the three different general ledger systems in order to reduce errors or misappropriations and to improve access to entity-wide financial information necessary to make informed management decisions. 

CAPITALIZATION POLICY

         The Regional Office of Education #3 did not capitalize a $4,240 leasehold improvement.  The $4,240 leasehold improvement was for the Alternative Education program.  ROE #3’s policy is to capitalize all capital asset purchases that exceed $500.

         Also, the Regional Office misclassified certain capital purchases as supplies and purchased services. Conversely, the Alternative Education general ledger included several entries to capital outlay that were actually expenses for purchased services and supplies.

         The auditors recommended that Regional Office of Education #3 should review the account coding of the capital asset purchases with the original supporting documentation to ensure that the ROE capitalization policy is followed. (Finding 07-4, page 12f)

         The Regional Superintendent agreed with the finding.  The Superintendent responded that he was unaware that leasehold improvements were considered capital assets until this was pointed out by auditors.  The Regional Superintendent reported that he has reviewed the account coding of capital asset purchases and will ensure that leasehold improvements will be capitalized in the future.

AUDITORS’ OPINION

         Our auditors state the Regional Office of Education       #3’s financial statements as of June 30, 2007 are fairly presented in all material respects.        

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KJM

SPECIAL ASSISTANT AUDITORS

        Our special assistant auditors were Kemper CPA Group, LLP.