REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #13
CLINTON/JEFFERSON/MARION/WASHINGTON
COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2018

Release Date:  December 15, 2021

FINDINGS THIS AUDIT:  6

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

FINDINGS LAST AUDIT: 5

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 #13 did not have adequate
controls over the bank reconciliation
process.

• (18-2) The Regional Office of
Education #13 did not have adequate
internal controls over property and
equipment.

• (18-3) The Regional Office of
Education #13 did not have sufficient
internal controls over payroll and
grant compliance.

• (18-4) The Regional Office of
Education #13 did not provide
completed financial statements in an
auditable form by the August 31
deadline.

• (18-5) The Regional Office of
Education #13 did not have adequate
controls over compliance with laws and
regulations.

• (18-6) The Regional Office of
Education #13 did not have adequate
internal controls over cash receipts.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

CONTROLS OVER BANK RECONCILIATIONS

The Regional Office of Education #13
(ROE) did not have adequate controls
over the preparation and review of
bank reconciliations.

The ROE is responsible for
establishing and maintaining a system
of internal controls over cash to
prevent errors and fraud. This
includes timely preparation and review
of bank reconciliations. Bank
reconciliations should be performed
within a month of the closing date on
the bank statement and evidence of
review should be documented.

During the auditor’s review of the
ROE’s monthly bank reconciliations for
its two (2) bank accounts, auditors
noted bank reconciliations were not
prepared or reviewed in a timely
manner. Specifically, auditors noted
the following:

• One (4%) monthly reconciliation was
prepared 40 days after month end.
• For 10 (42%) monthly
reconciliations, auditors were unable
to determine if the reconciliations
were timely reviewed as the ROE did
not document the date the review was
done.
• For six (25%) monthly
reconciliations, the previous ending
cash balances differed but were still
approved and initialed.
• For 12 (50%) monthly
reconciliations, the bank
reconciliation balance and balance
sheet balance differed but were still
approved and initialed.

The ROE management indicated in the
transition phase of the combination of
ROE #25 and ROE #13, duties to perform
the bank reconciliation were not
clearly assigned. This item is
repeated because of the lateness of
the FY17 audit and replacement of the
employee. (Finding 18-001, pages 10 –
11)

The auditors recommended that as part
of internal control over cash, the ROE
should prepare and review the monthly
bank reconciliations within a month of
the closing date on the bank
statement. The review should ensure
the reconciliation is completed
accurately, and is indicated in
writing, including the individual
performing the review and the date.

ROE Response: As of July of 2018, Bank
Statements are currently and will
continue to be properly prepared by a
newly employed staff member and then
reviewed and dated by the Regional
Superintendent.

CONTROLS OVER PROPERTY AND EQUIPMENT

The Regional Office of Education #13
(ROE) did not have adequate controls
over its capital assets.

The ROE Accounting Manual requires
each ROE to maintain detailed capital
asset records for both accounting
purposes as well as insurance
purposes, for capital assets costing
$500 or more. Generally accepted
accounting principles (GAAP) require
records of all capital assets and
depreciation schedules for assets
meeting the capitalization threshold
for reporting to be maintained so that
this information can be reported
within the financial statements. The
ROE capitalizes assets with an
individual cost of more than $500 and
an estimated useful life in excess of
one year.

In addition, sound internal controls
require that policies and procedures
on capital assets should cover
acquisition and tagging, recording and
reporting, depreciation (if
applicable), transfers and
dispositions, and annual physical
inventory, and they should be formally
documented and consistently applied.
Further, good internal controls
require capital assets that are
obsolete, damaged or no longer used in
operations be removed from the ROE’s
capital asset listing.

During the auditor’s physical
observation and review of the ROE’s
capital assets, the following was
noted:

• 8 of 25 (32%) of the items tested
remained on the capital asset listing
when the asset was no longer in use.
Three 3 of the 8 items were disposed
of in the Carlyle location, 4 items
were no longer in use and were either
being used as parts or ceased
functionality, and 1 item was not in
the location as designated on the
fixed asset listing.
• A physical inventory of capital
assets was not taken at year-end.

The ROE management indicated during
the transition of combining the
documents and records of the two
offices, staff did not possess the
expertise to properly combine the
assets of the regional offices. New
files of the Regional Office’s asset
list had not removed the items no
longer in use. (Finding 18-002, pages
12 – 13)

The auditors recommended the Regional
Office should adhere to the ROE
Accounting Manual capital asset policy
and procedures to effectively and
efficiently monitor property
acquisitions, transfers and disposals
and provide for the accurate reporting
of capital asset balances.

In addition, the capital asset listing
should be completed to include all
details required by the ROE Accounting
Manual and should be checked for
accuracy and existence through an
annual physical inventory by an
individual independent of the
accounting process. A reconciliation
should be performed between the
capital asset listing and the recorded
capital outlay expenditures for the
year. All reconciling items should be
cleared in a timely manner.

ROE Response: A new employee has taken
over the responsibility to correct the
assets of the Regional Office and the
list is currently updated.

CONTROLS OVER PAYROLL AND GRANT
COMPLIANCE

The Regional Office of Education #13
(ROE) was unable to provide adequate
time and effort documentation used to
distribute the salary and benefit
costs when ROE staff worked on
multiple grant programs.

Title 2 U.S. Code of Federal
Regulations Part 200.430 (i), 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 the charges
are accurate, allowable and properly
allocated. It also requires that
records are used to support the
distribution of employees’ salary and
benefits among specific activities if
the employee only works part of the
time on a federal award program. It
further states that budget estimates
alone do not qualify as support for
salary and benefit charges to a
federal award.

The Illinois State Board of Education
(ISBE) State and Federal Grant
Administration Policy, Fiscal
Requirements and Procedures, requires
that auditable time and effort reports
should be written, after the fact
documentation of how the time was
spent. Budget estimates can be used
for charging purposes, but a
confirmation process or reconciliation
must take place at some point after
the charges are incurred to record the
true effort and not merely use an
estimate. Time and effort reports
should be prepared by any staff with
salary charged (1) directly to a
federal award, (2) directly to
multiple federal awards, or (3)
directly to any combination of a
federal award or other federal, State
or local funds. Additionally, all time
and effort sheets and other supporting
documentation must be retained at the
local level and be available for
review or audit any time within three
years after termination of the project
or until the local entity is notified
in writing from ISBE that the records
are no longer needed for review or
audit.

During the auditor’s review of the
ROE’s payroll expenditures of 25
employees, the following was noted:

• Five employees (20%) who worked on
multiple programs completed time and
effort documentation but did not
indicate the actual time worked on
each program.
• Two employees (8%), who worked on
multiple programs, did not have time
and effort documentation on file.

Upon further review and discussion,
these employees completed inadequate
time sheets; thus salary and benefits
costs reported were based on estimated
time rather than actual time.
Furthermore, there was no review of
the amounts charged to federal awards
based on budget estimates in order to
make necessary adjustments ensuring
that the final amounts charged to the
federal awards are accurate,
allowable, and properly allocated.

The ROE management indicated the
Regional Office agrees with this
finding. New time and effort sheets
were not created to match the
reassignment and division of
responsibilities of staff during the
transition. (Finding 18-003, pages 14
– 15)

The auditors recommended the ROE
should develop and implement written
policies and procedures over payroll
to ensure that proper controls are in
place over the use and maintenance of
adequate time and effort documentation
as required by the Uniform Guidance
and the ISBE State and Federal Grant
Administration Policy, Fiscal
Requirements and Procedures.

ROE Response: New electronic forms
have been created and are used to
specifically calculate time and effort
on each grant for staff with divided
responsibilities.

DELAY OF AUDIT

The Regional Office of Education #13
(ROE) did not provide completed
financial statements in an auditable
form within the required timeframe. An
outside accounting firm was hired by
the ROE to assist in the preparation
of financial statements and related
disclosures.

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 (GAGAS).

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. Annual financial
statements are to be prepared on an
accrual basis of accounting in
accordance with generally accepted
accounting principles (GAAP).

Additionally, effective June 25, 2021,
Public Act 102-0025 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.

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

The ROE management indicated the
financial statements for the FY18
audit could not be made available by
August 31, 2018 since the FY17 audit
had not been completed to provide
account balance for the FY 18 year
(Finding 18-004, pages 16 – 17)

The auditors recommended the Regional
Office should implement procedures to
ensure compliance with 105 ILCS
5/2-3.17a and 74 Ill. Adm. Code
420.320 (c) (2). Annual financial
statements should be compiled on an
accrual basis of accounting in
accordance with GAAP. 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. These financial statements
need to be presented to the Auditor
General’s independent auditors for
audit by the August 31 deadline.

ROE Response: When audits are back to
the appropriate timeline, then
statements could be prepared in the
required timeframe. Documents were
provided to complete the 2018 audit
when requested by the auditor in the
fall of 2020.

CONTROLS OVER COMPLIANCE WITH LAWS AND
REGULATIONS

The Regional Office of Education #13
(ROE) did not have adequate controls
over compliance with laws and
regulations.

The Illinois School Code (105 ILCS
5/17-19) allows a Regional
Superintendent to take out a line of
credit in anticipation of revenues.
However, the Regional Superintendent
is only allowed to take out 85 percent
of current year anticipated grant
revenue or 50 percent of the next
fiscal year’s anticipated grant
revenue, as certified by the State
Superintendent. The Regional
Superintendent shall authorize this
line of credit by executive order or
resolution. The executive order or
resolution shall set forth facts
demonstrating the need for the line of
credit, the amount to be borrowed, the
maximum interest rate allowed, and the
date by which the funds will be
repaid. Funds borrowed under this
section are to be repaid within 60
days after the revenues have been
received.

As of July 1, 2017, the ROE had
outstanding borrowings of $300,000 on
a line of credit. An additional
$100,000 was drawn on the line of
credit in FY18.

The Regional Office established a line
of credit with a resolution in FY17,
but it did not contain all the
requirements. The Regional Office
could not produce documentation of
certification by the State
Superintendent regarding the
anticipated revenue that was being
borrowed upon.

The resolution to establish a line of
credit authorized the Regional
Superintendent to borrow monies at an
interest rate not to exceed 2.4% per
annum. The Regional Office’s loan
agreement was for 3.50% per annum.

The ROE management indicated that
because the State of Illinois was
behind in making payments to the
Regional Office, it was necessary to
establish a line of credit to borrow
funds to continue to operate the
office. Since funds were not paid in a
timely manner, it was difficult to
determine if repaying the line of
credit in a timely manner would cause
the need to turn around and borrow
more funds and thus pay more bank
fees, the regional superintendent did
not use the funds to make repayments
in a timely manner. Uncertainty with
State funding impacted the interest
rate that funds could be borrowed,
since many banking institutions would
not carry a line of credit for the
Regional Office. (Finding 18-005,
pages 18 – 19)

The auditors recommended the ROE
should comply with the requirements of
105 ILCS 5/17-19, as able, when
borrowing against anticipated
revenues. The Regional Office should
comply with the resolution authorizing
the line of credit.

ROE Response: The regional
superintendent now understands the
specific criteria of the statutory
requirements for operating a line of
credit and will follow the proper
procedures.

CONTROLS OVER CASH RECEIPTS

The Regional Office of Education #13
(ROE) did not have adequate internal
controls over cash receipts.

The ROE is responsible for
establishing and maintaining an
accurate system of internal controls
over cash to prevent errors and fraud.
This includes timely preparation and
review of cash receipts and deposits.
Deposit authorization forms and cash
deposits should be performed timely,
and evidence of review should be
documented.

The ROE did not always prepare
receipts in a timely manner. There is
no documentation of when checks are
received, and auditors were not able
to determine if cash was deposited in
a timely manner. During the auditor’s
review of 40 cash receipts, auditors
noted ten (25%) deposit authorization
forms were prepared more than seven
days after the dates on the cash
receipts.

The ROE management indicated the ROE
receives mail in two locations. There
are some times that mail from one
office is not taken to the bookkeeping
office for at least a week. It depends
on the schedule of the assistant and
regional superintendent of schools.
Also, many checks are written several
days or weeks prior to the office
receiving the check in the mail.
(Finding 18-006, page 20)

The auditors recommended the ROE
should document when all cash receipts
are received, prepare and review the
deposit authorization form timely, and
compare it to the deposit slip and
deposit cash receipts in a timely
manner. The review should be indicated
in writing, including the individual
performing the review and the date.

ROE Response: The date in which a
check is written (dated) is out of the
control of the Regional Office of
Education #13. Moving forward,
payments received will be stamped the
day they arrive at the bookkeeping
office.

AUDITORS’ OPINION

Our auditors state the Regional Office
of Education #13’s financial
statements as of June 30, 2018 are
fairly presented in all material
respects.

This financial audit was conducted by
the firm of Campbell, 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:BAO