REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #38: LOGAN,
MASON, and MENARD COUNTIES

FINANCIAL AUDIT
For the Year Ended: June 30, 2014

Release Date:  February 26, 2015

FINDINGS THIS AUDIT:  5

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  4 -- 1 -- 5
Category 2:  0 -- 0 -- 0
Category 3:  0 -- 0 -- 0
TOTAL:  4 -- 1 -- 5

FINDINGS LAST AUDIT: 2

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
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 are also
available on the worldwide web at
www.auditor.illinois.gov

SYNOPSIS

• (14-1) The Regional Office of Education #38
did not have sufficient internal controls over
the financial reporting process.

• (14-2) The Regional Office of Education #38
did not have adequate internal control
procedures.

• (14-3) The Regional Office of Education #38
had improper accounting of grant funds.

• (14-4) The Regional Office of Education #38
had employee contracts that did not agree to
employee compensation.

• (14-5) The Regional Office of Education #38
did not have adequate controls over Institute
fund expenditures.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT PREPARATION

The Regional Office of Education #38 is
required to maintain a system of controls over
the preparation of financial statements in
accordance with generally accepted accounting
principles (GAAP).  The Regional Office’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 #38 did not
have sufficient internal controls over the
financial reporting process.  The Regional
Office maintains its 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 the
following:

• The Regional Office’s financial information
required numerous adjusting entries to present
the financial statements in accordance with
generally accepted accounting principles.

• The Regional Office did not have adequate
controls over the maintenance of complete
records of accounts receivable, accounts
payable, or unearned revenue.  While the
Regional Office did maintain records to
indicate the balances of accounts payable,
accounts receivable, and unearned revenue and
made entries to record them, not all accounts
payable, accounts receivable, and unearned
revenue were correctly recorded.

According to the Regional Office of Education
#38 officials, current funding levels were not
adequate to hire and/or train accounting
personnel in order to comply with these
requirements.  (Finding 2014-001, pages
11a-11b)  This finding was first reported in
2007.

The auditors recommended that, as part of its
internal control over the preparation of
financial statements, the Regional Office of
Education #38 should implement comprehensive
preparation procedures to ensure the financial
statements are complete and accurate.  These
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.

The Regional Office of Education #38 responded
that it understands the nature of this finding
and realizes that this circumstance is not
unusual in an organization of this size.
Management is currently confident with the
abilities of the accounting staff to prepare
cash basis financial information as needed for
reporting throughout the year.  The Regional
Office noted that management will review year-
end reporting controls annually and
investigate the cost of training staff to
reach an appropriate level of expertise to do
a comprehensive preparation and/or review of
financial statements.  Management will pursue
additional training when it is considered cost
beneficial, since training costs would take
away from the funds available to provide
educational services for the schools in the
region.  (For previous Regional Office
response, see Digest Footnote #1.)


INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Superintendent of Schools is
responsible for establishing and maintaining
an internal control system over receipts and
disbursements to prevent errors and fraud.

The auditors noted the following weaknesses in
the Regional Office of Education #38’s
internal control system:

• The individual who performs the capital
asset physical count is not independent of the
record keeping process.
• Two bank reconciliations did not reconcile
to the underlying accounting records.
• There was no documented review of the
Regional Office of Education #38’s general
journal entries prior to being posted to the
accounting system.  Also, journal entries
tested provided no description of the
adjustment and were not adequately supported.
• There was no documented review of the
Regional Office of Education #38’s payroll
reports for salaried employees prior to the
payroll being processed.
• In 6 of 40 (15%) disbursements tested,
auditors noted sales tax was paid on purchases
that were exempt from Illinois sales tax.

Lack of effective internal control procedures
could result in unintentional or intentional
errors or misappropriations of assets, in
which the errors or fraud could be material to
the financial statements and may not be
detected in a timely manner by employees in
the normal course of performing their assigned
duties.  The Regional Office of Education #38
has not established sufficient internal
control procedures.  (Finding 2014-002, pages
11c-11d)

The auditors recommended that the Regional
Office of Education #38 should do the
following:

• An individual independent of the record
keeping process should perform the capital
asset physical count.
• Although bank reconciliations were being
reviewed, the Regional Office should develop
policies that allow for the timely detection
of bank reconciliations that do not reconcile
to the underlying accounting records and
ensure reconciling items have cleared.
• All journal entries should be reviewed prior
to being posted to the accounting system by an
individual independent of the general ledger.
This review should be documented on the
journal entry’s supporting documentation.
• An individual independent of the payroll
process should review the Regional Office of
Education #38’s payroll reports for salaried
employees prior to the payroll being processed
to ensure the amounts to be paid agree with
the contractual amounts outlined in the
employee’s contract.  In addition, these
reviews should be documented.
• The Regional Office of Education #38 should
develop policies to ensure sales tax is not
paid on exempt purchases.

The Regional Office of Education #38 responded
that the Regional Superintendent of Schools is
now reviewing payroll and journal entries and
documenting the review at the time it is
undertaken.  In addition, bank reconciliations
are now being reviewed in a more timely
fashion. The Regional Office noted that
although the staff of the main office of the
Regional Office of Education is limited in
size, the Regional Superintendent and the
Executive Secretary will undertake the capital
asset physical count.  Finally, the ROE was
unaware of the sales tax issue, until it came
up with another ROE who shared the
information.  Since that time, the ROE has
developed a policy to ensure that sales tax is
not included with any exempt purchases.


IMPROPER ACCOUNTING OF GRANT FUNDS

The Regional Office of Education #38 is
required by the Illinois State Board of
Education (ISBE) to maintain its accounting
system consistent with the ISBE Regional
Office of Education Accounting Manual.  That
manual requires the Regional Office of
Education #38 to track grant funding activity
separately.

The Regional Office of Education #38
commingled all Title II-Teacher Quality and
Title I-System of Support activity with other
funds in its general ledger system.  Also, two
Education Fund grants, which belong to the
Regional Office of Education #38, were
accounted for solely in the Distributive Fund.

The Regional Office of Education #38 stated
they were unaware that these grants should be
tracked separately in their accounting system.
(Finding 2014-003, page 11e)

The auditors recommended that the Regional
Office of Education #38 should identify and
record grant funds in accordance with
requirements set forth in the ISBE Regional
Office of Education Accounting Manual.

The Regional Office of Education #38 responded
that it has taken steps to identify and record
all grant funding in accordance with the ISBE
ROE Accounting Manual requirements.

EMPLOYEE CONTRACTS

The Regional Office of Education #38 is
required under the Illinois Wage Payment and
Collection Act (820 ILCS 115/10) to notify
employees, in writing, of the rate of pay to
be acknowledged by both parties.

During testing of payroll transactions,
auditors noted four Regional Office of
Education #38 employees whose total
compensation did not agree to amounts stated
in their respective employment contract.  The
Regional Office of Education #38 employees’
total compensation was $25,417 higher than
amounts stated and agreed to in the employees’
contracts.

According to Regional Office of Education #38
officials, employment contracts were based
only on the amounts covered in the budgets of
Logan, Mason, and Menard Counties to maximize
county support.  (Finding 2014-004, page 11f)

The auditors recommended that the Regional
Office of Education #38 should develop
policies and procedures to ensure employees’
contracts agree to the actual amount paid to
the employees.

The Regional Office of Education #38 responded
that employee contracts for the three full-
time ROE staff are based, primarily, on county
support.  However, certain funding is also
provided from grant funding.  The Regional
Office stated that because grant awards are
never guaranteed, amounts requested are
subject to change, and grant funding is, quite
often, late in being paid, it is difficult to
estimate additional salary at the time the
contract language is prepared.  However, the
ROE has developed a policy to record more
accurately the employees’ total salary in the
actual contract language this year.

CONTROLS OVER INSTITUTE EXPENDITURES

The Illinois School Code 105 ILCS 5/3-12
states that all certificate registration fees
and a portion of renewal and duplicate fees
shall be used by the Regional Superintendent
to defray expenses connected with improving
technology necessary for the efficient
processing of certificates, to defray all
costs associated with the administration of
teaching certificates, and to defray expenses
incidental to teachers’ institutes, workshops
or meeting 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 #38 loaned
restricted funds to the Title I-System of
Support program to cover grant expenditures.
Loaning of Institute funds to pay for other
programs is not a statutorily approved use of
Institute funds.

The Regional Office of Education #38 was
unaware that the loans violated the Illinois
School Code 105 ILCS 5/3-12. (Finding
2014-005, page 11g)

The auditors recommended that the Regional
Office of Education #38 should ensure that
funds generated from certification, renewal,
and duplicate fees are expended in accordance
with the Illinois School Code 105 ILCS 5/3-12.

The Regional Office of Education #38 responded
that the Title I-System of Support grant is
specifically for providing professional
development in the five foundational services
to teachers in our region.  No funds are
received up front for this grant – it is
totally on a reimbursement basis, whenever the
grant administrator (ROE #51, Sangamon County)
gets the reimbursement sent.  The Regional
Superintendent noted that since she has been
unsure since the inception of the grant as to
whether the ROE’s expenses for the
consultant/trainer and ancillary expenses
directly related to the training would be
reimbursed, or, if so, how much, the ROE
utilized Institute Funds to meet timely
payment, and then reimbursed the fund when it
received the money.  The Regional
Superintendent stated that although she knew
the allowable uses for the Institute Fund, she
had really not thought that this process could
be perceived as an inter-fund loan.  The ROE
is now attempting to pay foundational services
bills from the general fund instead, when
money is available, and reimburse that.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #38’s financial statements as of
June 30, 2014 are fairly presented in all
material respects.

WILLIAM G. HOLLAND
Auditor General

WGH:JRB

AUDITORS ASSIGNED:  Kemper CPA Group LLP were
our special assistant auditors.

DIGEST FOOTNOTE

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

In its prior response in 2013, the Regional
Office of Education #38 responded that it
understands the nature of this finding and
realizes that this circumstance is not unusual
in an organization of this size.  Management
is currently confident with the abilities of
the accounting staff to prepare cash basis
financial information as needed for reporting
throughout the year.  The Regional Office
noted that management will review year-end
reporting controls annually and investigate
the cost of training staff to reach an
appropriate level of expertise to do a
comprehensive preparation and/or review of
financial statements.  Even though the three
counties constituting this office are slated
to consolidate with three different regions,
as of June 30, 2015, management will still
consider additional training when it seems
cost beneficial, although training costs would
take away from the funds available to provide
educational services for the schools in the
region.