REPORT DIGEST
REGIONAL OFFICE OF EDUCATION #17:
DEWITT, LIVINGSTON, AND MCLEAN COUNTIES
FINANCIAL AUDIT
For the Year Ended: June 30, 2010
Summary of Findings:
Total this audit: 3
Total last audit: 1
Repeated from last audit: 1
Release Date: May 5, 2011
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
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SYNOPSIS
• The Regional Office of Education #17 did not have
sufficient internal controls over the financial reporting process.
• The Regional Office of Education #17 had inadequate
controls in place to ensure that bank statements were reconciled to the related
general ledger cash accounts.
• The Regional Office of Education # 17 did not properly
account for ARRA expenditures separately from non-ARRA expenditures.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
CONTROLS OVER FINANCIAL STATEMENT PREPARATION
The Regional Office of Education #17 is required to maintain
a system of controls over the preparation of financial statements in accordance
with generally accepted accounting principles (GAAP). Regional Office internal controls over GAAP
financial reporting should include adequately trained personnel with the
knowledge and expertise to prepare and/or thoroughly review GAAP based
financial statements to ensure that they are free of material misstatements and
include all disclosures as required by the Governmental Accounting Standards
Board (GASB).
The Regional Office of Education #17 did not have sufficient
internal controls over the financial reporting process. The Regional Office maintains their
accounting records on the cash basis of accounting. While the Regional Office maintains controls
over the processing of most accounting transactions, there are not sufficient
controls over the preparation of the 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 their review of the Regional Office’s accounting
records, auditors noted that numerous adjustments were required to present
financial statements in accordance with generally accepted accounting
principles. (Finding 10-1, pages 12-13) This finding was first reported in
2007.
The auditors recommended that, as part of its internal
control over the preparation of its financial statements, including
disclosures, the Regional Office of Education #17 should implement a
comprehensive preparation and/or review procedure to ensure that the financial
statements, including disclosures, are complete and accurate. Such procedures should be performed by a
properly trained individual(s) possessing a thorough understanding of
applicable generally accepted accounting principles, GASB pronouncements, and
knowledge of the Regional Office of Education’s activities and operations.
The Regional Office of Education #17 responded that it
understands the nature of this finding and realizes that this circumstance is
not unusual in an organization this size.
The Regional Office will continue to seek qualified professional
accounting expertise in developing procedures that will satisfy the pronouncements
in financial statement preparation.
The Regional Office noted that it will continue to provide
training for staff in utilizing the full range of financial technology that
currently exists. The Office will
continue to utilize expert consultants to provide training in the preparation
of financial statements. (For previous
Regional Office response, see Digest Footnote #1.)
INADEQUATE CONTROLS OVER CASH
The Regional Office of Education #17 had inadequate controls
in place to ensure that bank statements were reconciled to the related general
ledger cash accounts. Generally accepted
accounting principles require that all cash in the custody of the Regional
Office be recorded in the general ledger and that each month’s bank statements
be reconciled to the related general ledger account balance.
The Regional Office’s ending adjusted general ledger balance
for their operating cash account was not properly reconciled to the bank
account. When balances are not
reconciled, there is a risk of errors in the expenditures reported in the
general ledger, and a risk of misuse or theft of funding. (Finding 10-2, page
14)
The auditors recommended that the Regional Office of
Education #17’s management should review each original bank reconciliation to
the related general ledger account balances monthly to ensure the
reconciliations are completed in a timely manner and that all reconciling items
are reviewed with appropriate follow up.
The bookkeeper should reconcile all activity that takes place in the
account and track reconciling items to ensure proper treatment.
The Regional Office of Education #17 responded that it has
implemented protocols to ensure that the cash is recorded in the general ledger
on a daily basis and that monthly reconciliation will be completed in a timely
manner.
INADEQUATE RECORDING OF AMERICAN RECOVERY AND REINVESTMENT
ACT AWARDS
The Regional Office of Education # 17 did not properly
account for American Recovery and Reinvestment Act (ARRA) expenditures
separately from non-ARRA expenditures.
The Regional Office is required to maintain records that
adequately identify the source and application of ARRA awards. The OMB Circular A-102 Common Rule and OMB
Circular A-110 require non-federal entities receiving federal awards to
establish and maintain internal controls designed to reasonably ensure
compliance with federal laws, regulations, and program compliance
requirements. The objectives of internal
control pertaining to the compliance requirements for federal programs are
found in OMB Circular A-133.
At year end, it was noted that the ARRA fund accounts had
expenditures recorded in excess of the grant award. According to the Regional Office of
Education, the excess expenditures were to be transferred to a local fund and
were not intended to be repaid by federal funds. Additionally, the Regional Office posted an
adjusting entry near year end that moved some of the expenditures initially
reported under ARRA, out of the fund.
The Regional Office should have initially recorded ARRA expenditures up
to the award amount in the ARRA fund accounts and charged the excess
expenditures directly into local funds.
By posting both ARRA and non-ARRA expenditures to the ARRA
fund, the actual expenditures incurred for the grant program are not easily
identifiable and available for review.
Additionally, there is a possibility that expenditures would be
inaccurately reported to the granting agencies.
The Regional Office did not have proper procedures in place
to ensure that only ARRA expenditures were recorded in the funds set up to
track ARRA expenditures. (Finding 10-2, pages 15-16)
Auditors recommended that the Regional Office of Education
#17 should ensure that only expenditures expected to be paid from ARRA monies
are posted to ARRA funds. Additionally,
auditors recommended that the Regional Office frequently review and reconcile
the funds to ensure that all expenditures are properly posted.
The Regional Office of Education #17 responded that it has
implemented procedures to ensure that all transactions are posted to the ledger
and reconciled prior to reporting.
AUDITORS’ OPINION
Our auditors state the Regional Office of Education #17’s
financial statements as of June 30, 2010 are fairly presented in all material
respects.
WILLIAM G. HOLLAND
Auditor General
WGH:KJM
AUDITORS ASSIGNED:
Winkel, Parker & Foster, CPA PC were our special assistant
auditors.
DIGEST FOOTNOTES
#1: Controls Over Financial Statement Preparation - Previous
Regional Office Response
In its prior response in 2009, the Regional Office of
Education #17 responded that it understands the nature of this finding and
realizes that this circumstance is not unusual in an organization of this
size. The Regional Office will continue
to seek professional accounting expertise.
The Regional Office also noted that it will insure that
staff with financial oversight is adequately trained to use the full range of
current financial technology.
Bookkeepers shall attend training conducted by expert consultant(s) in
the preparation of financial statements as well as training conducted by IARSS
consultants.