REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #11: CLARK,
COLES, CUMBERLAND, DOUGLAS, EDGAR,
MOULTRIE AND
SHELBY COUNTIES

FINANCIAL AUDIT
For the Year Ended: June 30, 2015

Release Date:  April 14, 2016

FINDINGS THIS AUDIT:  3

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

FINDINGS LAST AUDIT: 1

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

• (15-2) The Regional Office of Education
#11 did not have adequate internal
controls over cash.

• (15-3) The Regional Office of Education
#11 did not have an accurate budget and
expenditure report.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #11 is
required to maintain a system of controls
over the preparation of financial
statements in accordance with generally
accepted accounting principles (GAAP).
Regional Office of Education #11's
internal controls over GAAP financial
reporting should include adequately
trained personnel with the knowledge,
skills, and experience to prepare GAAP
based financial statements and include all
disclosures as required by the
Governmental Accounting Standards Board
(GASB).

The Regional Office of Education #11 did
not have sufficient internal controls over
the financial reporting process in order
to present the financial statements in
accordance with these standards.  The
Regional Office of Education #11 maintains
its accounting records on cash basis
accounting during the fiscal year and
posts year-end accrual entries for
financial statement purposes. While the
Regional Office of Education #11 maintains
controls over the processing of accounting
transactions, and attempts to prepare the
basic financial statements, there were 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.

Through inquiries and discussion with the
Regional Office’s accounting personnel and
Regional Superintendent, the following was
noted:

• The Regional Office's financial
information required material adjusting
entries related to the conversion of its
financial statements from cash to accrual
basis of accounting, using documentation
provided by the Regional Office, in order
to present its financial statements in
accordance with generally accepted
accounting principles.  Proposed adjusting
entries were approved and accepted by
Regional Office management.
• In fiscal year 2015, the Regional Office
was able to prepare the fund financial
statements for the governmental funds in
the basic financial statements.  However,
the government-wide financial statements
and the remaining fund financial
statements, including proprietary funds,
fiduciary fund, and notes to financial
statements, were not properly prepared.
• The Regional Office did not have
adequate controls to record and report the
Regional Office’s net accrued pension
liabilities/assets, deferred outflows of
resources, deferred inflows of resources,
and pension expenses in accordance with
GAAP.

Some additional expertise is needed to
address all financial statement and
disclosure issues.  The complex
requirements of GASB Statements No. 68 and
71 were new for fiscal year 2015 and will
require additional time and training
before the Regional Office of Education
#11 can fully implement the requirements
on its own.  (Finding 2015-001, pages
9a-9b) This finding was first reported in
2007.

The auditors recommended that as part of
internal control over the preparation of
financial statements, including
disclosures, the Regional Office of
Education #11 should continue to implement
comprehensive preparation and/or review
procedures to ensure that the financial
statements are complete and accurate.
These procedures should be performed by a
properly trained individual possessing a
thorough understanding of the applicable
GAAP, GASB pronouncements, and knowledge
of the Regional Office of Education #11's
activities and operations.

The Regional Office of Education #11
responded that it understands the nature
of the deficiency. The Regional Office
believes that seeking additional
accounting expertise in the form of
another accounting firm or appropriately
trained individual to prepare and/or
review financial statements would reduce
the funds available to provide the
educational services for the schools in
the region.  Therefore, the Regional
Office will continue to prepare the
financial statements internally and
continue to seek additional knowledge and
training for staff members to ensure that
all financial statements, including
disclosures, are complete and accurate.
(For previous Regional Office response,
see Digest Footnote #1 shown at the end of
the digest.)

INTERNAL CONTROL OVER CASH

The Regional Office of Education #11 is
responsible for establishing and
maintaining a system of internal controls
over cash to prevent errors and fraud.

During review of the Regional Office’s
cash records, the following was noted:

• Although it appears that a review of the
monthly bank reconciliation was being
performed, insufficient detail of
outstanding deposits and checks was noted
in the June 2015 reconciliation.
• The ending cash balance on the fiscal
year 2015 bank reconciliations for the
Regional Office state aid distributive
fund did not reconcile to the general
ledger.

An oversight occurred when completing the
June 2015 bank reconciliation. Not all
reports were provided to document cleared/
outstanding items to match the cover
sheet. The monthly State aid electronic
funds transfer bank charges were not being
recorded in the general ledger for the
State aid distributive fund.  (Finding
2015-002, page 9c)

The auditors recommended that as part of
the internal control over cash, the
Regional Office of Education #11 should
ensure the supporting documentation for
the bank reconciliation includes an
outstanding check and deposit listing that
agrees to the bank reconciliation and that
the ending cash balances on the monthly
bank reconciliation agree to the general
ledger.

The Regional Office of Education #11
responded that it will implement changes
to the internal controls over cash.  The
Regional Office will implement a checklist
that must be completed by the Bookkeeper
with each bank statement to ensure that
all necessary documentation is included to
match the bank reconciliation sheet to the
cash balance and accounting software
balance.  This documentation will include
listings and balances after reconciliation
of outstanding payroll checks,
disbursement checks, EFT’s, and receipts.
This checklist will be reviewed and signed
off on along with the bank reconciliation
cover sheet each month by the Regional
Superintendent of Schools or the Assistant
Regional Superintendent of Schools.

INACCURATE BUDGET AND EXPENDITURE REPORT

The Regional Office of Education #11 is
required by the Illinois State Board of
Education (ISBE) to prepare grant budgets
and report grant expenditures in
accordance with State and Federal Grant
Administration Policy and Fiscal
Requirements and Procedures and the
Illinois Program Accounting Manual.

According to these manuals, the breakdown
in the grant budgets should be an
itemization and description of the
requested grant costs provided in enough
detail to identify what costs are to be
charged to the grants.  In addition,
regulations state that any amount reported
in an expenditure report that is not for a
budgeted item or not within the acceptable
variance approved by the program, cannot
be accepted.

Grant expenditure reports should reflect
program costs in the appropriate function
and object codes regardless of where the
costs were budgeted.

The Regional Office of Education #11 did
not properly prepare grant budgets and,
therefore, did not report grant
expenditures in accordance with ISBE State
and Federal Grant Administration Policy
and Fiscal Requirements and Procedures or
the Illinois Program Accounting Manual for
the Illinois McKinney-Vento Homeless
Education Grant.  The Regional Office
amended the original budget for the
Homeless Education Grant to include
budgeted funds for purchases of capital
outlay in the amount of $5,350.

A review of the supporting documentation
showed the Regional Office spent funds for
allowable grant related program costs.
These program costs were reported as
capital outlay (object 500) in Instruction
(function 1000) on the Expenditure Report
Worksheet submitted to ISBE when object
code 400 for supplies and materials should
have been utilized since all equipment
purchased was under the individual
threshold of $500 for capital outlay.  In
addition, code 400 for supplies and
materials was utilized on the general
ledger.

An equipment purchase was planned to be
recorded as a capital outlay which would
result in purchases over $500 and
inclusion in the capital outlay category;
however, after purchase it was identified
that each component was actually under
$500 (computer, monitor, etc.).  This
change was not identified and reported to
ISBE as a change in line item from capital
outlay to supplies and materials.
(Finding 2015-003, pages 9d-9e)

The auditors recommended the Regional
Office should budget and report
expenditures of the Illinois McKinney-
Vento Homeless Education Grant in
accordance with the State and Federal
Grant Administration Policy and Fiscal
Requirements and Procedures and the
Illinois Program Accounting Manual.  In
addition, the Regional Office should
contact ISBE and amend budgets for its
programs if necessary.

The Regional Office of Education #11
responded that it will review all
equipment purchases going forward and
ensure that they are properly categorized
as supplies and material or as capital
outlay.  If the initially budgeted priced
per item is less than $500, a budget
amendment will be made to move the funds
to supplies and materials.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #11’s financial statements as of
June 30, 2015 are fairly presented in all
material respects.

FRANK J. MAUTINO
Auditor General

FJM:KJM

AUDITORS ASSIGNED:  Doehring, Winders &
Co. LLP were our special assistant
auditors.

DIGEST FOOTNOTE

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

In its prior response in 2014, the
Regional Office responded that it
understands the nature of the deficiency.
The Regional Office noted that it believes
that seeking additional accounting
expertise in the form of another
accounting firm or appropriately trained
individual to prepare and/or review
financial statements would reduce the
funds available to provide the educational
services for the schools in the region.
The Regional Office also noted that it
will continue to prepare the financial
statements internally and continue to seek
additional knowledge and training for
staff members to ensure that all financial
statements, including disclosures, are
complete and accurate. The Regional Office
responded that it accepts the degree of
risk associated with this condition.