REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #56: WILL
COUNTY

FINANCIAL AUDIT (IN ACCORDANCE WITH THE
SINGLE AUDIT ACT AND OMB CIRCULAR A-133)
FOR THE YEAR ENDED: JUNE 30, 2015

Release Date:  July 28, 2016

FINDINGS THIS AUDIT:  4

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

FINDINGS LAST AUDIT: 3

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

• (15-1)  The Regional Office of Education
#56 did not have sufficient internal
controls over the financial reporting
process.

• (15-2)  The Regional Office of Education
#56 had inadequate internal control
procedures over journal entries.

• (15-3)  The Regional Office of Education
#56 did not have sufficient internal
controls over the financial accounting
system.

• (15-4)  The Regional Office of Education
#56 was noncompliant with grant
requirements.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Will County Regional Office of
Education #56 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 of Education
#56’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 #56 did
not have sufficient internal controls over
the financial reporting process. The
Regional Office maintains its accounting
records on the cash basis of accounting
during the fiscal year and posts year-end
accrual entries for financial statement
purposes. While the Regional Office
maintains controls over the processing of
most accounting transactions, there are
not sufficient controls over the
preparation of 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.

During review of the Regional Office of
Education #56’s financial information
prepared by the Regional Office, auditors
noted the Regional Office’s financial
information required material adjusting
entries to accounts receivable, accounts
payable, accrued payroll, and unearned
revenue in order to present its financial
statements in accordance with GAAP. In
addition, the Regional Office did not have
adequate controls to record and report the
Regional Office’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.
Also, the complex requirements of GASB
Statements No. 68 and No. 71 were new for
fiscal year 2015 and will require
additional time and training before the
ROE can fully implement the requirements
on its own. (Finding 2015-001, pages
14a-14b) This finding was first reported
in 2010.

The auditors recommended that as part of
its internal control over the preparation
of financial statements, the Regional
Office of Education #56 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(s) possessing a thorough
understanding of applicable GAAP, GASB
pronouncements, and knowledge of the
Regional Office of Education #56’s
activities and operations.

The Regional Office of Education #56
responded that it accepts the degree of
risk associated with this condition
because the additional expense to seek
outside accounting expertise to prepare
and/or review financial statements would
take away from the funds available to
provide educational services for the
schools in the region.

Also, the Regional Office responded it
will continue to work with the other
Regional Offices of Education to determine
the most effective method of ensuring that
its employees possess the knowledge
required to compile the necessary GAAP
based financial statements. (For previous
Regional Office response, see Digest
Footnote #1 located at the end of the
digest.)

INADEQUATE INTERNAL CONTROL PROCEDURES
OVER JOURNAL ENTRIES

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

Of 19 journal entries examined, three
entries (16%) related to reversing prior
year accruals were posted incorrectly; two
entries (11%) were not supported by
adequate documentation and auditors could
not determine the validity of the entries;
and six entries (32%) examined had no
evidence of review by someone independent
of the general ledger process.

The Regional Office of Education #56 has
not established or documented sufficient
internal control procedures over journal
entries. (Finding 2015-002, page 14c)

The auditors recommended that all journal
entries should be appropriate and be
accompanied by supporting documentation
and have documented review and approval by
someone independent of the general ledger
processes.

The Regional Office of Education #56
responded that it will develop procedures
to ensure all journal entries are
accompanied by supporting documentation
and have documented review and approval by
someone independent of the general ledger
processes.

CONTROLS OVER FINANCIAL ACCOUNTING SYSTEM

The Will County Regional Office of
Education #56 is required by the Illinois
State Board of Education (ISBE) to
maintain its accounting system in
accordance with the Regional Office of
Education Accounting Manual (Manual). The
Manual requires the Regional Office to
maintain an accounting system on a fund
basis. A fund is defined as a fiscal and
accounting entity with a self-balancing
set of accounts. These funds are
segregated for the purpose of carrying on
specific activities or attaining certain
objectives in accordance with special
regulations, restrictions, or limitations.

The Regional Office’s current accounting
system for the Professional Development
Alliance (PDA) does not allow the Regional
Office to maintain accounting information
in accordance with the Manual. The
auditors were given various reports from
the PDA’s accounting system, as well as
spreadsheets maintained outside of its
accounting system to utilize in
determining the individual program and
fund trial balance information. In many
instances, the information between the
system and spreadsheets did not agree. The
Regional Office was also unable to provide
a report of an individual account’s
detailed transactions for the fiscal
period. The detail had to be reconstructed
from segments of information from multiple
reports.

In addition, when the initial reports
provided to the auditors were aggregated
into individual program and fund trial
balances, the current year fund balances
did not roll forward correctly from the
prior year’s closing fund balance and one
fund was out of balance by $776.

According to the PDA Bookkeeper, the
accounting software is an older and
outdated version that often times produces
corrupt reports that cannot be relied
upon; therefore, the PDA has been tracking
and reporting activity manually in
spreadsheets. (Finding 2015-003, pages
14d-14e)

Auditors recommended that the Regional
Office should acquire fund accounting
software sufficient for the PDA to account
for its accounting activity in accordance
with the Regional Office of Education
Accounting Manual.

The Regional Office responded that it will
acquire fund accounting software
sufficient for the PDA to account for its
accounting activity in accordance with the
Regional Office of Education Accounting
Manual.

NONCOMPLIANCE WITH GRANT REQUIREMENTS

The Will County Regional Office of
Education #56 must comply with grant
accounting and reporting requirements
established by grant agreements with the
Illinois State Board of Education (ISBE)
and other grantors in addition to the
requirements established by ISBE’s fiscal
policies and procedures for grantees.
Specifically, quarterly expenditure
reports are due by the 20th of the month
following the end of each quarterly
reporting period. Also, among these
requirements are accurate, current, and
complete disclosure of grant financial
activity and an amended program budget if
an expenditure line item exceeds the
budgeted amount by the greater of $1,000
or 20%.

Auditors noted:

A.   The Title I – School Improvement and
Accountability grant expenditure report
for the 6/30/2015 quarterly reporting
period, which was due 7/20/2015, was not
filed until 7/27/2015.

B. An expenditure report submitted for the
Truants Alternative Optional Education
Program (TAOEP) did not agree to the
expenditures recorded in the Regional
Office’s accounting records. Salaries and
benefits were understated $355, purchased
services were overstated $4,693, and
supplies and materials were understated
$4,315.

C. Expenditures for supplies and materials
in the Truants Alternative and Optional
Education Program exceeded the budgeted
amount by more than ISBE’s permitted
threshold; however, an amended program
budget was not submitted to ISBE.

According to Regional Office officials:

A. There was a lack of oversight of the
reporting process for the Title I – School
Improvement and Accountability grant.

B. The TAOEP expenditure report and
budgetary comparison were prepared based
on budgeted amounts and not prepared
using information obtained from the
Regional Office’s accounting system.

C. The TAOEP expenditure report and
budgetary comparison were prepared based
on budgeted amounts and not prepared using
information obtained from the Regional
Office’s accounting system.  (Finding
2015-004, pages 15a-15c)

Auditors recommended that:

A. The Regional Office of Education #56
should implement internal control
procedures to ensure quarterly expenditure
reports are filed in a timely manner.

B. Grant reports that disclose financial
information should be prepared using
current and accurate financial data based
on reports obtained from the Regional
Office’s accounting system.

C. Budgets should be amended and submitted
to the granting agency whenever
expenditures of a line item exceed
thresholds established by the grantor.

The Regional Office of Education #56
responded that it will develop procedures
to ensure:

A. The Regional Office will implement
internal control procedures to ensure
quarterly expenditure reports are filed in
a timely manner.

B. Grant reports that disclose financial
information are prepared using current and
accurate financial data based on reports
obtained from the Regional Office’s
accounting system.

C. Budgets are amended and submitted to
the granting agency whenever expenditures
of a line item exceed thresholds
established by the grantor.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #56’s financial statements as of
June 30, 2015 are fairly stated in all
material respects.

FRANK J. MAUTINO
Auditor General

FJM:KJM

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 2014, the
Regional Office of Education #56 responded
that it accepts the degree of risk
associated with this condition because the
additional expense to seek outside
accounting expertise to prepare and/or
review financial statements would take
away from the funds available to provide
educational services for the schools in
the region.  The Regional Office noted
that it will continue to work with the
other Regional Offices of Education to
determine the most effective method of
ensuring that its employees possess the
knowledge required to compile the
necessary GAAP based financial statements.