REPORT DIGEST

 

REGIONAL OFFICE OF EDUCATION #17 –

DEWITT, LIVINGSTON, AND MCLEAN COUNTIES

 

FINANCIAL AUDIT

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

 

For the Year Ended:

June 30, 2004

 

Summary of Findings:

 

Total this audit                        10

Total last audit                          7

Repeated from last audit           4

 

Release Date:

October 27, 2005

 

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 is also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

 

 

SYNOPSIS

 

·        Cash in the general ledger was $78,710 more than cash in the June 30, 2004 bank reconciliation. This discrepancy caused a scope limitation for auditors and resulted in a disclaimer of opinion on the financial statements.

 

·        The Regional Office of Education #17 does not have a proper segregation of duties for accounting functions pertaining to the Livingston Alternative School.

 

·        The Regional Office of Education #17 does not have adequate internal controls over its disbursement process.

 

·        The Regional Office of Education #17 did not comply with certain statutory administrative requirements.

 

·        The Regional Office of Education #17’s June 30, 2004 expenditure report did not agree to the related general ledger accounts and the Regional Office exceeded the maximum allowable amount for planning and administration in the Title I – Reading First Part B SEA funds grant.

 

·        When grant expenditures exceed grant revenue, the Regional Office transfers the excess grant expenditures into other funds. As a result, Regional Office of Education #17 is unable to determine the true operational cost of the grant program.

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 


                                                                                   

REGIONAL OFFICE OF EDUCATION #17

DEWITT, LIVINGSTON, AND MCLEAN COUNTIES

 

FINANCIAL AUDIT

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

For The Year Ended June 30, 2004

 

 

 

FY 2004

FY 2003

TOTAL REVENUES

$5,635,949

$5,853,154

Local Sources

$2,904,980

$3,392,889

% of Total Revenues

51.54%

57.97%

State Sources

$1,645,478

$1,948,816

% of Total Revenues

29.20%

33.30%

Federal Sources

$1,085,491

$511,449

% of Total Revenues

19.26%

8.74%

 

TOTAL EXPENDITURES

$5,265,216

$5,858,875

Salaries and Benefits

$2,496,029

$4,247,860

% of Total Expenditures

47.41%

72.50%

Purchased Services

$900,952

$592,510

% of Total Expenditures

17.11%

10.11%

All Other Expenditures

$1,868,235

$1,018,505

% of Total Expenditures

35.48%

17.38%

 

 

 

TOTAL NET ASSETS1

$1,433,157

$924,066

 

 

 

INVESTMENT IN CAPITAL ASSETS1

 

$438,490

 

$312,332

 

1         In fiscal year 2004, Regional Offices of Education implemented Government Accounting Standards Board (GASB) Statement No. 34 which established a new financial reporting model for state and local governments.  Government-wide financial statements are prepared using full accrual accounting that reports Total Net Assets.    The fiscal year 2003 ending general fixed assets have been restated to reflect the changes required as part of the implementation of GASB Statement No. 34. 

        Percentages may not add due to rounding.

 

REGIONAL SUPERINTENDENT 

During Audit Period:  Honorable G. Lawrence Daghe

Currently:  Honorable G. Lawrence Daghe


 

 

 

 

 

 

 

 


Cash in the general ledger was $78,710 more than cash in the June 30, 2004 bank reconciliation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Regional Office of Education #17 does not have proper segregation of duties for accounting functions pertaining to the Livingston Alternative School.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Regional Office of Education #17 does not have adequate internal controls over its disbursement process.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Regional Office of Education #17 did not comply with certain statutory administrative requirements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Regional Office of Education #17’s June 30, 2004 expenditure report did not agree to the related general ledger accounts and the Regional Office exceeded the maximum allowable amount for  planning and administration in the Title I – Reading First Part B SEA grant.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

When grant expenditures exceed grant revenue, the Regional Office transfers the excess grant expenditures into other funds; consequently the Regional Office of Education is unable to determine the true operational cost of the grant program.

 

 

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

 

 

INADEQUATE INTERNAL CONTROLS OVER CASH

 

         Auditors noted several issues relating to inadequate controls over the accounting and reporting of cash at Regional Office of Education #17.  The Regional Office of Education #17’s beginning unadjusted general ledger balance for their operating account was $2,434 less than the balance per the June 2004 bank reconciliation. 

 

        In May 2004, the Regional Office posted a prior year adjusting audit entry backwards, which resulted in the Adult Education program’s cash being understated and its fund balance being overstated by $81,001. 

 

         The Regional Office’s ending adjusted general ledger balance for their operating account was $78,710 more than the balance per the June 2004 bank reconciliation after the incorrect posting of the prior year adjusting audit entry. This discrepancy caused a scope limitation for auditors and resulted in a disclaimer of opinion on the financial statements.

 

         The Regional Office did not have the reconciled balance of their Illinois Funds account recorded in the general ledger, which understated the Regional Office’s total cash in the general ledger by $22,318.  In addition, bank reconciliations of the Illinois Funds account were not being performed.

 

         Generally accepted accounting principles require that all cash in the custody of the Regional Office of Education be recorded in the general ledger and that each month’s bank statement be reconciled to the related general ledger account balance.  (Finding 04-8, pages 9j-9k).

 

         The Regional Office of Education #17 accepted the recommendation and stated it will work to ensure that all bank statements are reconciled to the related general ledger cash account.  The Regional Office also stated they hired a public accounting firm to review the balances and final reconciliations.  Procedures for monthly bank reconciliations are in place.  Software irregularities were addressed by an outside consultant to bring all database problems back into balance.  Accounting software has been changed.  All reconciling items will be reviewed with the appropriate follow-up.  Finally, the Regional Office stated they would provide         internal controls to ensure that bank statements and the Illinois Funds account are reconciled accurately to the general ledger on a monthly basis.

 

 

INADEQUATE SEGREGATION OF DUTIES

 

       The Regional Office of Education #17 does not have a proper segregation of duties for accounting functions pertaining to the Livingston Alternative School.  While the program director and Regional Superintendent review and approve bills and payroll for payment, the bookkeeper prepares checks, mails the payments, maintains the general ledger, and reconciles the bank statements.

 

       A proper segregation of duties is required over all programs in the accounting function to reduce the risk that errors or fraud in the financial statements won’t be detected by employees in the normal course of performing their assigned functions (Finding 04-2, page 9b).  This finding is repeated from our 2003 audit.

 

         The Regional Office of Education #17 accepted the recommendation stating that the Livingston Alternative School shall have all accounting and payroll procedures performed by Regional Office of Education #17’s main accounting office personnel beginning October 1, 2005.  (For previous Regional Office response, see Digest Footnote #1.)

 

 

INADEQUATE INTERNAL CONTROLS OVER DISBURSEMENT PROCESS

 

        The Regional Office of Education #17 does not have adequate internal controls over its disbursement process.  In testing of 175 disbursements, auditors noted that:

 

§         Invoices were not canceled after payment in 19 instances.

§         Payment was made based on a copy of an invoice and not an original invoice in 5 instances.

§         Authorization forms were not signed by the program director or Superintendent in 10 instances.

§         There was no receipt, invoice, or other documentation supporting the disbursement amount present in 12 instances.

§         There was no authorization form present in 2 instances.

§         The supporting documentation did not agree to the check amount in 1 instance. 

 

         Duplicate payments of expenditures are possible if invoices are not canceled after payment or if copies of invoices are used for payment rather than their originals.  (Finding 04-3, pages 9c-9d)  This finding is repeated from our 2003 audit.

 

         The Regional Office of Education #17 accepted the recommendation and stated it will implement internal controls to ensure expenditures are paid based upon the original invoice amount with proper cancellation of the invoice to prevent duplicate payments.  (For previous Regional Office response, see Digest Footnotes #2 and #3.)

 

 

CONTROLS OVER COMPLIANCE WITH LAWS AND REGULATIONS

 

         The Regional Office of Education #17 did not comply with certain statutory requirements.  For example, the Illinois School Code (105 ILCS 5/3-12) requires that on or before January 1 of each year, the Regional Superintendent shall publish in a newspaper of general circulation published in the region or post in each school building under his/her jurisdiction, certain information regarding the Office’s Institute Fund.  The Regional Office of Education #17’s published Institute Fund balances did not reconcile to the corresponding general ledger balance due to insufficient review and internal controls. 

 

         The School Code (105 ILCS 5/3-12) also requires that fees deposited into the Institute Fund shall be used by the Regional Superintendent to defray expenses associated with the work of the regional professional development review committees to advise the Regional Superintendent, upon his or her request, and to hear appeals relating to the renewal of teaching certificates; defray expenses connected with improving the technology necessary for the efficient processing of certificates; to defray expenses incidental to teachers’ institutes, workshops or meetings of a professional nature that are designed to promote the professional growth of teachers; or for the purpose of defraying the expense of any general or special meeting of teachers or school personnel of the region which has been approved by the Regional Superintendent. 

 

         The Regional Office of Education #17 transferred $50,000 from the Institute Fund to establish and fund a Staff Development Intersection program in FY 2002 and an additional $25,000 in FY 2003. The Regional Office bought a printer, additional memory, and ink cartridges for $1,672.98 with these funds.  The printer was utilized primarily in the accounting department to print checks, ledgers, general correspondence and various reports, which were not purposes delineated in the statutes for the use of Institute Funds.  (Finding 04-4, pages 9e-9f).

 

        The Regional Office of Education #17 accepted the recommendation and stated that inaccurate financial reporting of the Institute Fund balances will cease.  It also stated the Institute Fund will be expended for the purposes set forth in Illinois School Code 105 ILCS 5/3-12.

 

 

INACCURATE REPORTING OF EXPENDITURES

 

         The Regional Office of Education #17’s June 30, 2004 expenditure report did not agree to the related general ledger accounts.  The report included prior year accounts payable amounts as current year expenditures.  Also, the grant agreement for the Title-I Reading First Part B SEA Funds program restricted the amount of the grant funding that could be spent on planning and administration to 3.5% of the total grant award.  The maximum amount allowed was $1,665.  The June 30, 2004 expenditure report reported $2,703, 5.7% of the grant award, was expended for planning and administration.

 

         The Illinois State Board of Education and the U.S. Department of Education require that expenditure reports reconcile to the related general ledger accounts.  In addition, the requirements and restrictions set forth in grant agreements must be followed.  (Finding 04-10, pages 9m-9n)

 

         The Regional Office of Education #17 accepted the recommendation stating that the grant directors would be given a general ledger for each of the grants that they are reporting.  Each report shall show the expenditures for the grants.  The Regional Office also noted that the Title I- Reading First Part B SEA Funds grant had an outstanding receivable that was not paid until after June 30, 2004.  The grant was to be reimbursed for planning activities from professional development finds.

 

 

ACCOUNTING FOR GRANT EXPENDITURES IN EXCESS OF GRANT REVENUES

 

         The Regional Office of Education #17 does not transfer non-grant revenue into grant funds to cover grant expenses.  Rather, when grant expenditures exceed grant revenue, the Regional Office transfers the excess grant expenditures into other funds.  Consequently the Regional Office is unable to

determine the true operational cost of the grant program.  (Finding 04-1, page 9a).  This finding is repeated from our 2003 audit.

 

         The Regional Office of Education #17 accepted the recommendation to begin tracking funds by program expenditures rather than by revenue source. (For previous Regional Office response, see Digest Footnote #4.)

 

 

OTHER FINDINGS

 

         The remaining findings were less significant and are reportedly being given attention by the Regional Office of Education #17.  We will review progress toward the implementation of our recommendations during the next audit.

 

 

AUDITORS’ OPINION

 

        Our auditors state they were unable to express an opinion on the Regional Office of Education #17’s financial statements as of June 30, 2004 due to a scope limitation created because the ROE’s accounting records were insufficient to determine the balance of the cash account at June 30, 2004.   

 

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:KJM:ro

 

 

SPECIAL ASSISTANT AUDITORS

 

          Our special assistant auditors were Kemper CPA Group, LLP

 

 

 

 

DIGEST FOOTNOTES

 

 

#1: INADEQUATE SEGREGATION OF DUTIES – Previous Regional Office Response

 

In its prior response in 2003, the Regional Office accepted the finding and agreed to implement the recommendation in the current fiscal year.

 

 

#2: LACK OF SUPPORTING DOCUMENTATION- Previous Regional Office Response

 

In its prior response in 2003, the Regional Office accepted the finding and agreed to implement the recommendation to have supporting receipts attached to every purchase order before payment.  Purchase receipts should be reconciled and attached to the credit card receipt, along with any other supporting documentation for the expenditures on the account.

 

#3: LACK OF CANCELLATION OF ORIGINAL INVOICE AFTER PAYMENT – Previous Regional Office Response

 

In its prior response in 2003, the Regional Office accepted the finding and agreed to implement the recommendation to implement controls to ensure expenditures are paid based upon the original invoice amount with proper cancellation of the invoice to prevent duplicate payments.

 

#4: ACCOUNTING FOR GRANT EXPENDITURES IN EXCESS OF GRANT REVENUES – Previous Regional Office Response

 

In its prior response in 2003, the Regional Office accepted the finding and stated they would begin tracking funds by program expenditures in the current fiscal year.

 

Complete Regional Office responses to prior findings are available upon request from the Auditor General’s Office.