REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #44:
MCHENRY COUNTY

FINANCIAL AUDIT
FOR THE TWO YEARS ENDED JUNE 30, 2021

Release Date:  December 7, 2022

FINDINGS THIS AUDIT:  4

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

FINDINGS LAST AUDIT: 4

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

INTRODUCTION

SYNOPSIS

• (21-1)  The Regional Office of
Education #44 did not have sufficient
internal controls over the financial
reporting process.

• (21-2)  The Regional Office of
Education #44 did not comply with
grant requirements.

• (21-3)  The Regional Office of
Education #44 did not have adequate
internal control procedures over cash.

• (21-4)  The Regional Office of
Education #44 did not provide
completed financial statements in an
auditable form by the August 31
deadline.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #44
(ROE) did not have sufficient internal
controls over the financial reporting
process.

State statute (105 ILCS 5/2-3.17a)
allows a Regional Office of Education
or Educational Service Center to
utilize a cash basis, modified cash
basis, or generally accepted
accounting principles (GAAP) basis of
accounting to prepare the financial
statements for audit. The ROE chose to
utilize the GAAP basis of accounting
for financial statement reporting. The
ROE is required to maintain a system
of controls over the preparation of
financial statements. 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).

For the year ended June 30, 2021, the
General Education Development Fund,
Transportation Fund, and
Fingerprinting Fund met the criteria
as major funds; however, the General
Education Development Fund and
Transportation Fund were reported in
aggregate as nonmajor governmental
funds under the Governmental
Activities, and the Fingerprinting
Fund was reported as a nonmajor
enterprise fund under the Business-
Type Activities. The ROE subsequently
revised its financial statements and
updated the notes to the financial
statements.

The notes to the financial statements
in the summary of significant
accounting policies did not include
the implementation of GASB Statement
No. 84, Fiduciary Activities, GASB
Statement No. 90, Majority Equity
Interests, and applicable sections of
GASB Statement No. 93, Replacement of
Interbank Offered Rates. The ROE
subsequently revised its financial
statements and updated the notes to
the financial statements.

The draft financial statements
originally submitted did not implement
GASB Statement No. 84 and were missing
the Statement of Fiduciary Net
Position and Statement of Changes in
Fiduciary Net Position. There was also
no disclosure related to GASB
Statement No. 84 implementation. The
ROE subsequently revised its financial
statements implementing the
requirements of GASB Statement No. 84.

The draft financial statements
originally submitted did not include
Due from Other Governments of $34,490
and Due to Other Governments of
$34,490 in the Education Fund in the
Balance Sheet – Governmental Funds and
in the Governmental Activities in the
Statement of Net Position; and Due
from Other Governments of $54,973 and
Due to Other Governments of $54,973 in
the Custodial Funds in the Statement
of Fiduciary Net Position. The ROE
subsequently revised its financial
statements to include these amounts.

The draft financial statements
originally submitted did not
accurately report the original budget
in the Supplemental Information,
Education Fund Accounts, and Budgetary
Comparison Schedule for the Regional
Safe Schools Program. The ROE
subsequently revised its financial
statements to accurately report the
original budget.

Regional Office management indicated
the weaknesses noted in the internal
controls were due to not having a
bookkeeper on a full-time basis.
(Finding 2021-001, pages 10 – 12) This
finding was first reported in 2014.

The auditors recommended the ROE
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 GAAP, GASB
pronouncements, and knowledge of the
ROE’s activities and operations.
Additionally, ROE management should
consider Public Act 102-0025 to
determine if changing to the cash or
modified cash basis would be allowable
or beneficial to the ROE and users of
the ROE financial statements.

ROE Response: The Regional Office of
Education No. 44 agrees with the
finding and has an agreement with
McHenry County’s Finance Division to
take over the financial reporting and
accounting responsibilities of the ROE
effective December 1, 2021. ROE-
related journal entries will now
follow the County’s Journal Entries
Policy. Additionally, statement
preparation and audit work will fall
under the Finance Division’s
responsibilities as well. The ROE will
contract a firm to complete financial
reporting and accounting
responsibilities for Fiscal Year 2023.

NONCOMPLIANCE WITH GRANT REQUIREMENTS

The Regional Office of Education #44
(ROE) did not comply with grant
requirements. The ROE submitted 8 of
21 expenditure reports untimely,
ranging from 1 to 112 days late.

Item 5 of Section A of the Illinois
State Board of Education’s State and
Federal Grant Administration Policy,
Fiscal Requirements, and Procedures
requires grantees with an approved
State and/or federal grant program to
submit quarterly expenditure reports,
at minimum, on or before 20 calendar
days after the end of the reporting
quarter.

Regional Office management indicated
the weaknesses noted in the internal
controls were due to not having a
bookkeeper on a full-time basis.
(Finding 2021-002, page 13) This
finding was first reported in 2016.

The auditors recommended the ROE
should develop internal controls to
ensure expenditure reports are
submitted by the grantors due date.

ROE Response:  The Regional Office of
Education No. 44 agrees with the
finding and has an agreement with the
McHenry County’s Finance Division to
address all expenditure reporting
effective December 1, 2021. The ROE
will contract a firm to complete
financial reporting and accounting
responsibilities for Fiscal Year 2023.

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education #44
(ROE) did not have adequate internal
control procedures over cash. Auditors
noted the following weaknesses in the
ROE’s internal control system for
which there were no mitigating
controls:

• The individual responsible for
reconciling cash accounts can accept
over-the-counter cash receipts;
• Missing supporting documentation for
receipt transactions for 5 of 40 (13%)
receipts selected for testing;
• Receipts were not deposited timely
in 6 of 40 (15%) samples, ranging from
3 to 57 days late;
• No documented evidence of
independent review of completed bank
reconciliations; and
• Untimely performance of 57 of 60
(95%) monthly bank reconciliations for
all bank accounts, ranging from 8 to
254 days late. In addition, for 3
months, a bank reconciliation was not
performed.

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

Regional Office management indicated
the weaknesses noted in the internal
controls were due to not having a
bookkeeper on a full-time basis.
(Finding 2021-003, pages 14 – 15) This
finding was first reported in 2016.

The auditors recommended that the ROE
should ensure the individual
responsible for reconciling cash
accounts does not accept over-the-
counter cash receipts. In addition,
the ROE should ensure supporting
documentation for receipt transactions
are maintained and deposited timely;
perform monthly bank reconciliations
for all bank accounts accurately and
timely; and document evidence of
independent review.

ROE Response: The McHenry County
Regional Office of Education No. 44
agrees with the finding and will have
the cash accounts brought into a
centralized account structure within
the County Treasurer. ROE staff will
no longer reconcile bank statements;
ROE staff will prepare deposits.
Deposits will be managed by staff at
the County Treasurer. The County
Treasurer (separate staff member
within the office) will then reconcile
bank statements. Receipt documentation
for transactions will follow the
County’s procedure in the County’s
financial ERP system, where we
maintain all documentation including
scanned documents. The ROE will
contract a firm to complete financial
reporting and accounting
responsibilities for Fiscal Year 2023.

DELAY OF AUDIT

The Regional Office of Education #44
(ROE) did not provide completed
financial statements in an auditable
form by the August 31 deadline. The
completed financial statements were
provided on March 16, 2022.

The Regional Office is subject to 105
ILCS 5/2-3.17a which requires the
Auditor General’s office to cause an
audit to be made, as of June 30th of
each year, of the financial statements
of all accounts, funds, and other
moneys in the care, custody or control
of the regional superintendent of
schools of each educational service
region in the State and of each
educational service center established
in the School Code. The audit is to be
conducted in accordance with Generally
Accepted Government Auditing
Standards. The ROE may utilize a cash
basis, modified cash basis, or
generally accepted accounting
principles (GAAP) basis of accounting
to prepare the financial statements
for audit. The ROE has chosen the GAAP
basis of accounting for financial
reporting.

In accordance with 105 ILCS 5/2-3.17a,
the Auditor General has promulgated
administrative rules and regulations
to govern this process. Those rules,
74 Ill. Adm. Code 420.320 (c) (2),
state that for audit purposes, each
regional office of education and
educational service center shall make
available to the Auditor General or
his designee all books and records
deemed necessary to make and complete
the required audits. The records shall
be in auditable form by August 15 of
the succeeding fiscal year. Financial
reports are to be available no later
than August 31 in order for the annual
audit to be completed by an
independent auditor selected by the
Auditor General.

In addition, prudent business
practices and transparency require
timely preparation and completion of
financial statements.

Regional Office management indicated
the delay was due to not having a
bookkeeper on a full-time basis.
(Finding 2021-004, pages 16 – 17) This
finding was first reported in 2018.

The auditors recommended that the ROE
should implement procedures to ensure
compliance with 105 ILCS 5/2-3.17a and
74 Ill. Adm. Code 420.320 (c) (2).
Additionally, ROE management should
determine if changing to the cash or
modified cash basis would be allowable
and beneficial to the ROE and users of
its financial statements. These
financial statements need to be
presented to the Auditor General’s
independent auditors for audit by the
August 31 deadline.

ROE Response: The McHenry County
Regional Office of Education No. 44
agrees with the finding and has asked
the County’s Finance Division to
assume financial and accounting
responsibilities of the ROE. Completed
financial statements will be provided
by the deadline effective August 31,
2022 in accordance with 105 ILCS
5/2-3.17a and 74 Ill. Admin Code
420.320 (c). The Regional Office of
Education will contract a firm to
complete financial reporting and
accounting responsibilities for Fiscal
Year 2023.

AUDITORS’ OPINION

Our auditors state the Regional Office
of Education #44’s financial
statements as of June 30, 2021 are
fairly stated in all material
respects.

This financial audit was conducted by
the firm of Adelfia LLC.

JOE BUTCHER
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