REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #4: BOONE
AND WINNEBAGO COUNTIES

FINANCIAL AUDIT (IN ACCORDANCE WITH THE
UNIFORM GUIDANCE)
FOR THE YEAR ENDED JUNE 30, 2022

Release Date:  June 28, 2023

FINDINGS THIS AUDIT: 7

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 4 -- 4
Category 2:  1 -- 1 -- 2
Category 3:  0 -- 1 -- 1
TOTAL:  1 -- 6 -- 7

FINDINGS LAST AUDIT: 8

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

• (18-1)  The Regional Office of
Education #4 did not provide completed
financial statements in an auditable
form by the August 31 deadline.

• (18-2)  The Regional Office of
Education #4 lacked adequate internal
controls over fund accounting.

• (18-3)  The Regional Office of
Education #4 failed to fully insure and
collateralize cash balances.

• (18-4)  The Regional Office of
Education #4 had inadequate internal
controls over pay-rate authorizations.

• (18-5) The Regional Office of
Education #4 did not have sufficient
internal controls over the financial
statement reporting process.

• (18-6) The Regional Office of
Education #4 lacked adequate
subrecipient monitoring documentation.

• (18-7) The Regional Office of
Education #4 did not have adequate
supporting documentation of salaries
and benefits.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

DELAY OF AUDIT

The Regional Office of Education #4
(ROE) did not provide completed
financial statements in an auditable
form by the August 31, 2018 deadline.

The ROE 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
Regional Office of Education or
Educational Service Center may utilize
a cash basis, modified cash basis, or
generally accepted accounting
principles (GAAP) basis of accounting
to prepare financial statements for
audit.

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
internal personnel issues and software
program changes caused the office to
experience difficulty in providing
information by the required timeline.
(Finding 18-001, pages 14a – 14b) This
finding was first reported in 2016.

The auditors recommended 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, Regional Office
management should determine if changing
to the cash basis 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 ROE hired a Certified
Public Accounting firm to prepare all
financial statements for the audit.

CONTROLS OVER FUND ACCOUNTING

The Regional Office of Education #4
(ROE) lacked adequate controls and
monitoring over the maintenance of
complete and accurate records of
employee benefits. A Teachers’
Retirement System (TRS) audit for the
year of July 1, 2014 – June 30, 2015
disclosed TRS members had net excess
TRS withholdings of $8,972. The ROE
determined gross TRS withholdings due
to individual members as of June 30,
2016, was $13,190. The ROE received the
excess contributions from the State of
Illinois on November 3, 2015. Current
employees and non-current employees
were reimbursed by May 2021.
Additionally, costs incurred from
employee underpayments were absorbed by
the Regional Office.

The ROE 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 ROE 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. In addition, the Regional
Superintendent of Schools is
responsible for establishing and
maintaining an internal control system
to prevent errors and irregularities.

Regional Office management indicated
due to internal personnel issues and
software program changes, the office
experienced difficulty in performing
their required duties. (Finding 18-002,
page 14c) This finding was first
reported in 2016.

The auditors recommended the ROE should
assign a member of management with
suitable skills, knowledge and
experience to review the accuracy of
payroll calculations each pay period.
Additionally, supporting payroll
schedules and trial balance reports
need to be monitored for completeness
and accuracy at regular intervals
throughout the year.

ROE Response: The ROE hired a Certified
Public Accounting firm to prepare all
financial statements for the audit.

FAILURE TO FULLY INSURE AND
COLLATERALIZE CASH BALANCES

The Regional Office of Education #4
(ROE) failed to fully insure and
collateralize cash balances. As of June
30, 2018, the ROE had sixteen cash and
investment accounts with bank balances
totaling $4,805,634 at one financial
institution. The Federal Deposit
Insurance Corporation (FDIC) covers up
to a maximum of $250,000. The financial
institution pledged collateral with a
value of $4,175,994. The ROE did not
have depository insurance or collateral
for the remaining $129,640.

The Public Funds Deposit Act (30 ILCS
225/1) gives the ROE the authorization
to request financial institutions to
pledge collateral for deposits in
excess of the federally insured limit.
In addition, prudent business practice
requires that all cash and investments
held by financial institutions for the
ROE be adequately covered by depository
insurance or collateral.

Regional Office officials indicated
that it is unknown why the collateral
agreement that is in place was not
enough to cover the cash balances as of
June 30, 2018. Cash balances are
significantly higher than the previous
year and the monitoring of the
collateral balance was an inadvertent
oversight. (Finding 18-003, page 14d)

The auditors recommended the ROE should
monitor the bank balances on all
accounts and work with the financial
institution to either provide adequate
collateral or move to an insured cash
sweep account to ensure adequate
coverage.

ROE Response: The ROE plans to keep in
contact with the financial institution
regarding the amount of
collateralization and pledged
securities. Management has contacted
the financial institution and the
current balances are fully insured and
collateralized.

INADEQUATE INTERNAL CONTROLS OVER PAY-
RATE AUTHORIZATIONS

The Regional Office of Education #4
(ROE) had inadequate internal controls
over pay-rate authorizations. The ROE
Accounting Manual general policies
concerning payroll procedures state
that a master record should be
maintained on each employee or
contractor for federal and State
reporting purposes. The master payroll
record should contain at least the
following: employee name, social
security number, address, date of hire,
and rate and terms of contract/
agreement. Any employee compensation
adjustments should be documented and
maintained in employee personnel files.
In addition, sound business practices
dictate the Regional Office is
responsible for establishing and
maintaining an internal control system
over the payroll process in order to
prevent errors and/or fraud. This
internal control system should also be
completely documented within the ROE’s
financial reporting system policy
manual.

During the course of the audit,
auditors noted the following control
issues:
• Two of the 13 (15%) employment
agreements tested were not retained in
Regional Office personnel files.
• In 2 of 25 (8%) timesheets tested,
the timesheet was not retained and able
to be provided to support the hours
paid to the respective employees.
• Payroll processes documented in the
ROE’s financial reporting system policy
manual did not include processes for
obtaining and retaining employment
agreements and timesheets.

Regional Office management indicated an
Administrative Assistant maintained
separate files, records, and storage
and did not maintain two personnel
files with this pertinent information
and did not retain two timesheets. No
written policy existed outlining the
process to obtain employment agreements
and timesheets. (Finding 18-004, pages
14e – 14f)

The auditors recommended the ROE
complete and maintain employment
agreements and timesheets. Auditors
also recommended the ROE update the
written payroll policy procedures to
include obtaining and maintaining the
employment agreement documentation and
employee timesheets.

ROE Response: All employee agreements
will be kept in one location within
employee file in the Human Resources
department. Policies will be updated to
include procedures to obtain and retain
employment agreements. Payroll
documents including the signed
timesheets will be retained in a
central location.

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #4
(ROE) did not have sufficient internal
controls over the financial statement
reporting process. The ROE maintained
its accounting records on the cash
basis of accounting during the fiscal
year and posted year-end accrual
entries for financial statement
purposes. While the ROE maintained
controls over the processing of most
accounting transactions, there were not
sufficient controls over the
preparation of the 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 School Code (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 GAAP basis of accounting to
prepare the financial statements for
audit. The ROE has chosen 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 ROE’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 the review of the financial
information prepared by the Regional
Office, the following were noted:
• The ROE did not have adequate
controls over the financial statement
presentation among program revenue and
expense categories. The initial
financial statement provided required
reclassification of $960,083 from local
source revenue to State source revenue.
The expense clarification also required
adjustment. Program expenses of
$261,010 of salaries and benefits and
$1,641 of miscellaneous were
reallocated to $131,084 of purchased
services, $128,961 of supplies and
materials, and $2,606 of capital
expenditures.
• The ROE did not have adequate
controls over the recognition of
capital assets. The ROE did maintain a
list of capital assets; however, the
ROE did not initially provide all
entries to accurately recognize these
items within the financial statements.

Regional Office management indicated
this was an oversight. (Finding 18-005,
pages 14g – 14h)

The auditors recommended as part of
internal control over the preparation
of financial statements, 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
possessing a thorough understanding of
the applicable GAAP, GASB
pronouncements, and knowledge of the
ROE’s activities and operations.

Additionally, ROE management should
determine if changing from the GAAP
basis to the cash basis or modified
cash basis of accounting would be
allowable or beneficial to the ROE and
users of the ROE’s statements.

ROE Response: The ROE will establish
procedures to ensure that financial
statements be carefully reviewed for
proper accounting and reporting in
accordance with GAAP.

SUBRECIPIENT MONTIORING DOCUMENTATION

During the audit, the Regional Office
of Education #4 (ROE) was providing the
required certification to the Illinois
State Board of Education (ISBE), the
funding agency for the Title I School
Improvement and Accountability Grant.
However, the certifications were not
obtained by the ROE from its
subrecipients of this program.

Also, during the audit, the ROE was not
providing all grant information
required to the subrecipient. The
required communication letter informing
the subrecipients of their grant awards
did not include the Catalog of Federal
Domestic Assistance (CFDA) number.

Auditors also noted that although a ROE
employee maintained an informal
checklist for monitoring subrecipients
of its Title I School Improvement and
Accountability program, there were no
formal documented procedures for
monitoring subrecipients, including
formal documentation of an assessed
level of risk of noncompliance for each
subrecipient as required by the Uniform
Guidance.

For fiscal year 2016, the Uniform
Administrative Requirements, Cost
Principles, and Audit Requirements for
Federal Awards (Uniform Guidance),
contained in 2 CFR Part 200, became
effective for all federal award
programs administered by the ROE that
were issued on or after December 26,
2014. The Uniform Guidance (2 CFR
200.415(a)) requires the ROE to provide
a specific certification to funding
agencies on all annual and final fiscal
reports or vouchers requesting payment,
and conversely, requires the ROE to
obtain such certification from its
subrecipients.

Additionally, the Uniform Guidance (2
CFR 200.332(a)) requires certain
information be communicated to the
recipients of the subaward, including
the CFDA number and name.

The Uniform Guidance (2 CFR 200.332(b))
requires the ROE to evaluate each
subrecipient’s risk of noncompliance
with federal statutes, regulations, and
the terms and conditions of the
subaward for purposes of determining
the appropriate subrecipient
monitoring.

Regional Office management indicated
they were not aware of the Uniform
Guidance (2 CFR 200.415(a)) requiring
the ROE to provide a specific
certification to funding agencies on
all annual and final fiscal reports or
vouchers requesting payments, and
conversely, requiring the ROE to obtain
such certification from its
subrecipients.

Regional Office management also
indicated they were not aware of the
Uniform Guidance (2 CFR 200.332(a))
requiring certain information be
communicated to the recipients of the
subaward, including the CFDA number and
name. The Director of the program
verbally communicated the information
at a joint meeting and failed to send
appropriate documentation to the
subrecipients.

Regional Office management additionally
indicated they were not aware of the
Uniform Guidance (2 CFR 200.332(b))
requiring the ROE to evaluate each
subrecipient’s risk of noncompliance
with Federal statutes, regulations, and
the terms and conditions of the
subaward for purposes of determining
the appropriate subrecipient
monitoring. (Finding 18-006, pages 15b
– 15d) This finding was first reported
in 2016.

The auditors recommended the ROE create
a standard form of communication
ensuring that all required elements to
be addressed with each individual
subrecipient are included. Auditors
also recommended the ROE develop
policies and procedures to ensure all
annual and final fiscal reports or
vouchers requesting payment received
from subrecipients of federal awards
include the certification required by 2
CFR 200.415(a). In addition, auditors
also recommended the ROE formalize, in
writing, its subrecipient monitoring
procedures, which would include a
formal risk assessment of each
subrecipient, as required and described
in 2 CFR 200.332(b).

ROE Response: If the ROE becomes fiscal
agent for programs with subrecipients
we will create a standard form of
communication to ensure all required
elements are addressed. Furthermore, we
will obtain, in writing, confirmation
of said communication as required.
Internal policies and procedures will
be developed for reporting and voucher
requests. Current staff will receive
training and guidance in compliance
with items 2 CFR Part 200, 2 CFR
200.415(a), 2 CFR 200.332(a), and 2 CFR
200.332(b) for future grants. The ROE
will formalize, in writing, our
subrecipient monitoring procedures,
which would include a formal risk
assessment of each subrecipient, as
required and described in 2 CFR
200.332(b). The auditor’s
recommendations will be followed.

SALARIES AND BENEFITS NOT SUPPORTED BY
PROPER DOCUMENTATION

The Regional Office of Education #4
(ROE) assigned a total of $34,022 in
salary and benefits costs for four
employees to the Title I School
Improvement and Accountability Grant
based on a one-month time study.
Personnel activity reports or other
comparisons of actual payroll costs,
based on time and effort records to the
initial time study, were not performed
and adjustments for actual time spent
on the grants, if differences were
present, were not made. These four
employees did submit bi-weekly
timesheets based on the one-month
salary schedule but actual time
tracking did not occur to support the
amount of salaries and benefits charged
to Title I expense accounts.

Employees of the ROE 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 be supported by a
system of internal controls 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.

Regional Office management indicated
the only time study done was to get an
average time spent on the grant for the
first month and then an allocation was
given for the year, but the grant
manager did not require employees to
record their actual time spent on the
grants on a daily basis so that it
could be used to compare on a quarterly
basis to make any necessary
adjustments. (Finding 18-007, pages 15e
– 15f)

The auditors recommended the ROE should
implement a system of internal controls
over time and effort reporting for all
employees paid with restricted grant
funds. The ROE should track actual time
charged to restricted grant revenue and
perform periodic comparisons to time
studies to determine if adjustments are
necessary.

ROE Response: The ROE will implement a
system of internal controls over time
and effort to ensure accurate
allocations are charged to restricted
grant funds.

AUDITORS’ OPINION

Our auditors state the Regional Office
of Education #4’s financial statements
as of June 30, 2018 are fairly
presented in all material respects.

This financial audit was conducted by
the firm of Wipfli LLP.

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:JMM