REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #24: GRUNDY
AND KENDALL COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2017

Release Date:  June 28, 2018

FINDINGS THIS AUDIT:  3

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

• (17-1) The Regional Office of Education
#24 did not have sufficient internal
controls over the financial reporting
process.

• (17-2) The Regional Office of Education
#24 had inadequate internal controls over
cash and bank reconciliations.

• (17-3) The Regional Office of Education
#24 had inadequate census data for Illinois
Municipal Retirement Fund employees.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS


CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #24 (ROE)
did not have sufficient internal controls
over the financial reporting process. The
Regional Office maintained its accounting
records on the cash basis of accounting
during the fiscal year and posted year-end
accrual entries for financial statement
purposes. While the ROE maintained controls
over the processing of most accounting
transactions, there were not sufficient
controls over the preparation of generally
accepted accounting principles (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.

The ROE is required to maintain a system of
controls over the preparation of financial
statements in accordance with GAAP. The
ROE’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).

During review of the ROE’s financial
information, auditors noted the ROE’s
financial information required material
adjusting entries to cash, accounts
receivable, accounts payable, operating
lease obligation, and capital assets in
order to present its financial statements
in accordance with GAAP. Through inquiries
and discussions with the ROE’s accounting
personnel and Regional Superintendent,
auditors noted that the ROE did not have
adequate controls to record and report the
ROE’s net accrued pension liabilities/
assets, deferred outflows of resources,
deferred inflows of resources, and pension
expenses in accordance with GAAP. Proposed
adjusting entries were approved and
accepted by Regional Office management.

According to Regional Office officials,
they did not have adequate funding to hire
and/or train their accounting personnel in
order to comply with these requirements.
Additionally, the complex requirements of
GASB Statements No. 68 and No. 71 were
implemented in fiscal year 2015 and will
require additional time and training before
the ROE can fully implement the
requirements on its own. (Finding 2017-001,
pages 10-11) This finding was first
reported in 2010.


The auditors recommended that as part of
internal control over the preparation of
financial statements, the ROE should
implement comprehensive preparation
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 ROE’s activities and operations.

ROE Response: The Regional Office will
continue to address this finding using the
limited resources that we have.

Prior Year ROE Response: The Regional
Office had taken the following steps to
address this finding:

1. Implemented a new software system – now
in its fourth year of use.
2. Provided professional development
opportunities to personnel.

The Regional Office will continue to
address this finding using the limited
resources it has.

INADEQUATE INTERNAL CONTROLS OVER CASH AND
BANK RECONCILIATIONS

The Regional Office had inadequate internal
controls over cash and bank
reconciliations.  The following
deficiencies related to its internal
control were noted:

• The ROE did not have accurate general
ledger cash balances for multiple bank
accounts as of June 30, 2017. Additionally,
monthly bank reconciliations performed for
these accounts did not agree to the related
general ledger cash balances.
• The Regional Superintendent’s signature
stamp was being stored in an unlocked
drawer.
• Payroll checks to be paid in July were
written on June 30, 2017, and held instead
of being accrued. This was recorded in the
ROE general ledger as a reduction of cash
and increase in an expenditure.
• During the year, the amount on deposit at
a financial institution exceeded both the
Federal Deposit Insurance Corporation limit
and the amount pledged as collateral by
$119,121.

The ROE is responsible for establishing and
maintaining an internal control system over
general ledger cash balances, bank
reconciliations, and expenditures.

Additionally, the Public Funds Deposit Act
(30 ILCS 225/1) gives the authorization for
deposits in excess of the federally insured
limit to be covered by pledged collateral
held by the financial institutions’ trust
departments in the ROE’s name.

According to Regional Office officials:

• A transfer was recorded improperly during
the year ended June 30, 2016, which caused
the general ledger cash balance to be
inaccurate for the full year ended June 30,
2017. Adjusting journal entries from the
June 30, 2016 audit were not recorded
properly so this error was not corrected.
Additionally, adequate internal controls
were not in place to ensure bank statements
are properly reconciled to the related
general ledger cash accounts.
• The administrative assistant was hired
late in the year and was unaware that it
was necessary to keep the signature stamp
in a locked enclosure.
• The Regional Office was unaware that it
was not good business practice to write and
hold checks.
• The Regional Office believed it was
adequately collateralized at the financial
institution; however, a coding error at the
bank caused the ROE to be under
collateralized. (Finding 2017-002, pages
12-13)

The auditors recommended that the ROE
should implement proper controls for the
safeguarding of assets and maintain an
adequate system of internal controls over
accounting transactions and bank
reconciliations to prevent error or fraud.

• The ROE should ensure all cash account
balances per the general ledger are
accurate and properly reconciled to the
related bank accounts. Bank reconciliations
should be prepared monthly and all
differences between the bank balance and
the general ledger balance should be
investigated and resolved.
• If a signature stamp is considered
necessary, it should be stored in a secure
enclosure.
• The ROE should only write checks when
payments are intended to be disbursed.
• The ROE should periodically monitor the
amount of collateral held on deposits to
ensure an adequate amount is maintained.
The ROE should also seek an agreement with
the bank to provide sufficient collateral
in the ROE’s name for all bank deposits.

ROE Response: The ROE will continue to
address this finding using an outside CPA
firm to assist.

INADEQUATE CENSUS DATA FOR ILLINOIS
MUNICIPAL RETIREMENT FUND (IMRF) EMPLOYEES

Census data contained in the actuarially
determined pension report for the ROE
Illinois Municipal Retirement Fund (IMRF)
could not be confirmed as reasonably
accurate.

Management is responsible for the design,
implementation, and maintenance of internal
control relevant to the preparation and
fair presentation of financial statements
that are free from material misstatement,
whether due to error or fraud. Management
of cost-sharing plans is also responsible
for the preparation and fair presentation
of the financial statements in accordance
with the applicable financial reporting
framework, including completeness and
accuracy of census data.

According to Regional Office officials, a
local special education cooperative
(cooperative) and the ROE previously paid
IMRF contributions using the same IMRF
employer number. This arrangement was
agreed upon several years ago by previous
governing bodies. Upon the cooperative
obtaining its own employer number in June
of 2016, IMRF, with cooperation from the
ROE, transferred the active employees of
the cooperative to the new employer number.
However, it cannot be determined at this
time if the inactive and retired employees
of the cooperative have been properly
transferred to the new IMRF employer.
(Finding 2017-003, page 14)

The auditors recommended that the Regional
Office should work with IMRF to determine
all employees associated with the ROE’s
IMRF account are actually employees of the
Regional Office.

ROE Response: The ROE has and continues to
work with IMRF regarding this finding.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #24’s financial statements are
fairly presented in all material respects
except for the effect of not recognizing or
disclosing Illinois Municipal Retirement
Fund pension activity in the governmental
activities as of June 30, 2017.

This financial audit was conducted by the
firm of West & Company, LLC.

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