REPORT DIGEST

INTERMEDIATE SERVICE CENTER #4: SOUTH COOK

FINANCIAL AUDIT (IN ACCORDANCE WITH THE
UNIFORM GUIDANCE)
FOR THE YEAR ENDED JUNE 30, 2017

Release Date:  August 15, 2018

FINDINGS THIS AUDIT:  5

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  3 -- 1 -- 4
Category 2:  0 -- 1 -- 1
Category 3:  0 -- 0 -- 0
TOTAL:  3 -- 2 -- 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
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 South Cook Intermediate
Service Center #4 did not have sufficient
internal controls over the financial
reporting process.

• (17-2)  The South Cook Intermediate
Service Center #4 did not have sufficient
internal controls over timely expenditure
report submission.

• (17-3)  The South Cook Intermediate
Service Center #4 did not have sufficient
internal controls over manual journal
entries and reconciliation of deposit
totals to the general ledger.

• (17-4)  The South Cook Intermediate
Service Center #4 did not have sufficient
internal controls over accurate preparation
of grant expenditure reporting and
budgeting.

• (17-5)  The South Cook Intermediate
Service Center #4 did not have proper time
and effort documentation to support
salaries and benefits.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The South Cook Intermediate Service Center
#4 (ISC) did not have sufficient internal
controls over the financial reporting
process. The ISC maintained its accounting
records on the cash basis of accounting
during the fiscal year. While the ISC
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 ISC is required to maintain a system of
controls over the preparation of financial
statements in accordance with GAAP. The
ISC’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 financial information
prepared by the ISC, the following were
noted:

• The ISC did not have adequate controls
over the maintenance of complete records of
accounts receivable/due from other
governments, accounts payable/due to other
governments, unearned revenue, and
unavailable revenue and therefore did not
maintain accurate records of these
balances.
• The ISC did not provide entries to
allocate cash and fund balances to the
individual funds as presented in the
financial statements. The ISC also did not
provide entries to create interfund
receivables and payables to eliminate
negative cash balances within certain
funds.
• The ISC’s chart of accounts does not
track fund activity at the detailed level
necessary for presentation in the financial
statements and supplemental information of
this report. For example, the Workshops
proprietary fund and the General Operations
fund within the general fund are combined
in the same group of accounts within the
general ledger.
• The ISC did not record or track prior
year audit entries and the associated
reversing entries necessary to reflect
accurate fund balances in the GAAP based
financial statements.
• Contract labor purchased service expenses
were recorded in error as salary expense.
• Payroll checks for 10-month employees who
choose to be paid over 12 months were pre-
written and held at June 30, 2017 instead
of being recorded as accrued salaries and
written in the month in which they were
available for disbursement to employees.
• The ISC did not provide entries to
eliminate interfund charges and
reimbursements.
• Fixed asset additions under the ISC’s
capitalization threshold were noted and one
fixed asset purchase over the threshold was
not tracked as a fixed asset by the ISC.

Audit adjustments were recorded as
necessary to recognize and/or correct all
of the above listed items.

Through inquiries and discussions with the
ISC’s accounting personnel and Executive
Director, auditors noted that the ISC also
did not have adequate controls to record
and report the ISC’s net accrued pension
liabilities/assets, deferred outflows of
resources, deferred inflows of resources,
and pension expenses in accordance with
GAAP.

According to ISC officials, they did not
have adequate funding to hire and/or train
their accounting personnel in order to
comply with these requirements. (Finding
17-001, pages 14a – 14c) This finding was
first reported in 2008.

The auditors recommended that as part of
internal control over the preparation of
financial statements, the ISC 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 the applicable
GAAP, GASB pronouncements, and knowledge of
the ISC’s activities and operations.

ISC Response: Due to budget constraints,
South Cook ISC does not have a CPA on
staff. Preparation of financial statements
is completed through the Bloom Township
Treasurer’s Office. South Cook ISC will
hire an accounting firm with experience in
complying with financial statement
preparation for the FY19 school year.

Prior Year ISC Response: Preparation of
financial statements is overseen by the
Bloom Township Treasurer’s Office. In order
to prepare financial statements, a CPA
would need to be employed. At this time,
funding for South Cook ISC is tenuous and
incurring an additional salary for a CPA
would not be cost effective and would take
away from vital services provided to the 66
public school districts in South Cook
County. We are confident in the abilities
of the accounting/bookkeeping staff and the
Bloom Township Treasurer’s Office. We will
pursue additional training opportunities
for our staff and if funds become
available, we will work to employ a CPA for
preparation of financial statements.

CONTROLS OVER TIMELY EXPENDITURE REPORT
SUBMISSION

The South Cook Intermediate Service Center
#4’s (ISC) internal controls over
expenditure report submission were not
effective. Several expenditure reports for
Illinois State Board of Education grants
were not submitted timely:

Program Name – Quarter – Days Late

System of Support Title I – 4th – 2
Title II - Teacher Quality Leadership Grant
– 4th – 2
Regional Safe Schools – 4th – 2
ROE/ISC Operations (17-3730-00) – 4th – 2
ROE/ISC Operations (17-3730-01) – 4th – 2
New Teacher Induction and Mentoring – 4th –
5

The Illinois Grant Funds Recovery Act (30
ILCS 705/4) requires State grant recipients
with awards in excess of $25,000 to submit
quarterly expenditure reports to reflect
the progress of the grant program. The
Illinois State Board of Education (ISBE)
requires all grant recipients, regardless
of the amount awarded, to submit quarterly
expenditure reports. The State and Federal
Grant Administration Policy, Fiscal
Requirements, and Procedures  of the ISBE
Division of Funding and Disbursement
Services requires expenditure reports to be
filed within 20 calendar days of the end of
each reporting quarter.

According to ISC management, these
expenditure reports were not submitted
timely due to accidental oversight by ISC
personnel. (Finding 17-002, pages 14d –
14e)

The auditors recommended the ISC should
take appropriate steps to ensure all
expenditure reports are filed within the
prescribed guidelines set forth by the
ISBE.

ISC Response: The June 2017 expenditure
reports were submitted past the deadline.
Oftentimes, closing a grant within the
prescribed time limit is not feasible; in
particular when dealing with outside
vendors, as they do not always have a
pressing need to submit final invoices and
bills which are needed to finalize the
grant expenditures. In addition, grant
activities run up until the last day of the
grant end date and does not always allow
enough time for processing of payments/
expenditures. As the grant ends on June 30,
South Cook ISC will stop all grant
activities at an earlier date to assure
that all processing and billing can be
completed before the expenditure reports
are due. South Cook will work with outside
vendors on getting their expenditures
submitted in a timely fashion.

INTERNAL CONTROL DEFICIENCIES

During the audit, auditors noted the
following weaknesses in the design of the
South Cook Intermediate Service Center #4’s
(ISC) system of internal controls over
financial reporting:

• No supporting documentation was
maintained for manual journal entries.
Additionally, there was no formal review
and approval over the manual journal entry
process by an individual independent of the
general ledger process.
• No documentation was maintained of the
reconciliation of deposit totals by account
to the general ledger by the bookkeeper
after the Bloom Township Trustees of
Schools had deposited and recorded the cash
receipts.

The ISC is responsible for establishing and
maintaining a system of internal controls
over the accounting function sufficient to
prevent errors and fraud.

According to ISC management, the ISC had
not established sufficient internal control
procedures. (Finding 17-003, page 14f)

The auditors recommended that supporting
documentation should be maintained for all
manual journal entries.  A formal review
and approval process over manual journal
entries by an individual independent of the
general ledger process should be
implemented. Additionally, documentation
should be maintained of the reconciliation
of deposit totals by account to the general
ledger after the Bloom Township Trustees of
Schools has deposited and recorded the cash
receipts.

ISC Response: Procedures through the Bloom
Township Treasurer’s Office are strictly
adhered to. The bookkeeper does confirm
that deposits sent through the Treasurer’s
Office are deposited into the ISC accounts
each month. However, documentation has not
been maintained. South Cook ISC will work
with Bloom Township and request copies of
reconciliation statements to confirm/verify
that ISC accounts were properly reconciled.
The Bookkeeper will maintain documentation
of reconciliation of deposit totals. To
strengthen the internal control, all
journal entries will be approved by the
Executive Director after the Bookkeeper has
completed them. Monthly journal entry
reports will be submitted by the Bookkeeper
to the Executive Director.

CONTROLS OVER ACCURATE PREPARATION OF GRANT
EXPENDITURE REPORTING AND BUDGETING

The South Cook Intermediate Service Center
#4 (ISC) did not have adequate internal
controls over the preparation of grant
expenditure reports and budgets. The
following was noted:

• Purchased service costs for 3 contract
laborers, totaling $77,088, were recorded
and reported as salary expense in the ISC’s
expenditure reports. These contract
laborers were not employees of the ISC and
were not paid through payroll, although
they were budgeted as such.
• Purchased service costs totaling $1,143
for an additional 3 contract laborers were
budgeted in a salary account (2210-100),
although they were correctly recorded and
reported as purchased service costs. The
budget was not revised as of June 30, 2017
to reflect the correct expense
classification.
• A payment of $3,825 to a Title I
presenter was inadvertently recorded to a
Principal Mentoring grant expense account
and was not included on the Title I
expenditure report, resulting in incomplete
expenses on the June 30, 2017 expenditure
report.

Title 2 of the U.S. Code of Federal
Regulations Part 200, Uniform
Administrative Requirements, Cost
Principles, and Audit Requirements for
Federal Awards (Uniform Guidance) requires
that a non-federal entity’s financial
management system, including records
documenting compliance with federal
statutes, regulations, and the terms and
conditions of the federal award, must be
sufficient to permit the preparation of
reports required by general and program-
specific terms and conditions; and the
tracing of funds to a level of expenditures
adequate to establish that such funds have
been used according to the federal
statutes, regulations, and the terms and
conditions of the federal award.
Furthermore, the non-federal entity must
establish and maintain effective internal
control over the federal award that
provides reasonable assurance that the non-
federal entity is managing the federal
award in compliance with federal statutes,
regulations, and the terms and conditions
of the federal award. These internal
controls should be in compliance with
guidance in “Standards for Internal
Controls in the Federal Government” issued
by the Comptroller General of the United
States or the “Internal Controls Integrated
Framework” issued by the Committee of
Sponsoring Organizations of the Treadway
Commission (COSO). Uniform Guidance
requires accurate, current, and complete
disclosure of the financial results of each
federal award or program by the direct
grant recipient in accordance with the
reporting requirements as set form in
section 200.327 Financial Reporting. A
pass-through entity may impose on a
subrecipient additional requirements in
order to meet its own responsibility to the
federal awarding agency, including
identification of any required financial
and performance reports.

According to ISC management, the ISC does
not always know if a position will be
filled with a contract laborer or an
employee when preparing the budget. Instead
of filing an amended budget when the
classification of these individuals was
known, the ISC reclassified the expenses
associated with these contract laborers to
match the budget. The ISC was unaware the
budget should have been amended instead of
adjusting the classification of the
expenses. Other items noted were a result
of accidental employee oversight. (Finding
17-004, pages 15a – 15b)

The auditors recommended that ISC
management create a system of internal
controls to ensure all expenditure reports
are submitted accurately and budget
amendments are requested when necessary.

ISC Response: At the onset of any grant,
ISC #4 staff estimates the number of staff
that will be necessary to run the grant.
Oftentimes, staff do not have time to
participate in a grant and we may need to
employ additional staff members or
consultants. We did not fill all of the
positions that were budgeted for at the
same time, and we didn’t finalize all
staffing needs until well into the school
year. It was an oversight that we did not
go back and amend the grant for a few of
the staff. South Cook ISC will ensure that
as staffing positions are filled, grants
will be amended as necessary and staff will
be paid either through the payroll process
if they are employees or through the
payable process if they are consultants.

SALARIES AND BENEFITS NOT SUPPORTED BY
PROPER TIME AND EFFORT DOCUMENTATION

The South Cook Intermediate Service Center
#4 (ISC) assigned a total of $125,580 in
salary and benefit costs for 9 employees to
the Title I grant based on budgeted
amounts. Personnel activity reports or
other comparisons of actual payroll costs,
based on time and effort records, to
budgeted distributions were not performed
and adjustments for actual time spent on
the grants, if different from budgeted
amounts, were not made. These 9 employees
did not submit time sheets, time studies,
or other adequate time and effort
documentation to support the amount of
salaries and benefits charged to Title I
expense accounts. A signed certification
was later obtained by the ISC during the
audit for 1 employee, for salary and
benefits totaling $21,704, asserting he
worked 100% of his time on Title I.

Employees of the ISC are required to
document their time and effort working on
federal programs. Title 2 of the U.S. Code
of Federal Regulations Part 200, Uniform
Administrative Requirements, Cost
Principles, and Audit Requirements for
Federal Awards (Uniform Guidance) requires
charges for salaries and benefits to be
supported by a system of internal control
which provides reasonable assurance that
charges are accurate, allowable, and
properly allocated. Documentation records
should reasonably reflect the total
activity for which the employee is
compensated, not exceeding 100% of
compensated activities, and should
encompass both federally assisted and non-
federally assisted activities. It further
states that budget estimates alone do not
qualify as support for salary and benefit
charges to a federal award. Significant
changes in the corresponding work activity
should be identified and entered into the
accounting records in a timely manner. All
necessary adjustments must be made such
that the final amount charged to the
federal award is accurate, allowable, and
properly allocated.

According to ISC officials, in previous
years, all consultants completed time and
effort logs in order to be paid. However,
they did not realize salaried staff members
had to complete them also. (Finding 17-005,
pages 15c – 15d)

The auditors recommended that the ISC
should implement a system of internal
controls over time and effort reporting for
all employees paid with restricted grant
funds. The ISC should use time and effort
documentation to distribute salary and
benefit costs for employees who work in
whole or in part on grant program activity
in accordance with the Uniform Guidance.

ISC Response: ISC #4 staff paid through
grants spend above and beyond the allocated
percentage of time written into the grant;
however, ISC #4 did not have that
documented in writing. Beginning with
FY2018, ISC #4 has created a time and
effort tracking system for all employees
paid via grants.

AUDITORS’ OPINION

Our auditors state the South Cook
Intermediate Service Center #4’s financial
statements as of June 30, 2017 are fairly
presented in all material respects.

This financial report was conducted by the
firm of Kemper CPA Group LLP.

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:JRB