REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #39: MACON/
PIATT COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED: JUNE 30, 2016

Release Date:  August 22, 2017

FINDINGS THIS AUDIT:  1

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

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

• (16-1) The Regional Office of Education
#39 did not properly apply the appropriate
accounting principles to capital lease
transactions.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FAILURE TO APPLY APPROPRIATE ACCOUNTING
PRINCIPLES

Generally accepted accounting principles
(GAAP) require that a lease be capitalized
if any one of the following four criteria
is a characteristic of the lease
transaction: (1) the lease transfers
ownership of the property to the lessee by
the end of the lease term, (2) the lease
contains bargain purchase options, (3) the
lease term is equal to 75% or more of the
estimated economic life of the leased
property, or (4) the present value of the
minimum lease payments at the inception of
the lease, excluding executory costs,
equals at least 90% of the fair value of
the leased property. Capital leases are
treated as an acquisition of assets and
the incurrence of obligations by the
lessee.

The Macon and Piatt Counties Regional
Office of Education #39 (ROE) did not
properly record certain lease transactions
and capital asset acquisitions, and as a
result, did not properly apply the
appropriate generally accepted accounting
principles. Payments on capital leases
were accounted for as operating leases and
recorded as purchased services. The leases
met the criteria requiring them to be
capitalized due to the bargain purchase
options. Auditors proposed adjusting
entries to record the lease transactions
in accordance with GAAP.

According to the ROE’s management, the ROE
generally does not keep the equipment
after the lease term and, therefore,
considered the recording of the lease
transactions as operating expenses proper.
(Finding 2016-001, pages 10-11)

The auditors recommended the ROE establish
procedures to ensure lease transactions
and capital asset acquisitions are
properly accounted for and reported in
accordance with generally accepted
accounting principles. If necessary,
accounting and reporting guidance should
be obtained from technical resources to be
in conformity with GAAP.

The ROE responded that they acknowledge
that the financial statements did not
include the lease liability and capital
asset as in accordance with US GAAP. The
ROE will include this information in its
financial statements and will be alert for
the issue going forward.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #39’s financial statements as of
June 30, 2016 are fairly presented in all
material respects.

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

AMEEN DADA
Division Director

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

FJM:JRB