REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #33
HENDERSON, KNOX, MERCER AND WARREN
COUNTIES

FINANCIAL AUDIT (IN ACCORDANCE WITH THE
UNIFORM GUIDANCE)
FOR THE YEAR ENDED JUNE 30, 2019

Release Date:  July 30, 2020

FINDINGS THIS AUDIT:  4

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

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

• (19-1) The Regional Office of Education
#33 did not have adequate internal
control procedures.

• (19-2) The Regional Office of Education
#33 did not have adequate controls over
capital assets.

• (19-3) The Regional Office of Education
#33 did not provide completed financial
statements in an auditable form by the
August 31 deadline.

• (19-4) The Regional Office of Education
#33 improperly classified fund
activities.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

INADEQUATE INTERNAL CONTROL PROCEDURES

The Regional Office of Education #33
(ROE) did not have adequate internal
control procedures. Auditors noted the
following weaknesses in the ROE’s
internal control system for which there
were no mitigating controls:

• No documented evidence of independent
review of completed bank reconciliations.
• The first quarter expenditure reports
for the following grants were filed
between 11 and 89 days late:

Submitted October 31, 2018 (11 days late)
– Truants Alternative/Optional Education
– Title II – Teacher Quality – Leadership
Grant

Submitted November 2, 2018 (13 days late)
– Regional Safe Schools
– Early Childhood 2019-3705-00
– ROE/ISC Operations
– Other State Programs
– Title IV – 21st Century Community
Learning Centers 2019-4421-13,
2019-4421-15, and 2019-4421-19 (CFDA No.
84.287C)

Submitted January 17, 2019 (89 days late)
– Early Childhood 2019-3705-01 and
2019-3705-PE

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

Item 5 of Section A of the Illinois State
Board of Education’s State and Federal
Grant Administration Policy, Fiscal
Requirements, and Procedures requires
grantees with an approved State and/or
federal grant program to submit quarterly
expenditure reports, at minimum, on or
before 20 calendar days after the end of
the reporting quarter.

Regional Office officials indicated, with
the understanding that they were short-
staffed, an additional full-time
bookkeeper was hired in August 2019, to
take over the accounts payable
responsibilities. At that time, the
current bookkeeper was in the process of
training the new bookkeeper and working
to keep up with the other daily tasks and
reporting. These issues resulted in the
conditions noted above. (Finding 19-001,
pages 14 – 16) This finding was first
reported in 2016.

The auditors recommended the ROE should
have an individual, independent of the
general ledger processes, review the bank
reconciliation to ensure timely
completion and agreement to the general
ledger. This review should be documented.
In addition, the ROE should develop
internal controls to ensure expenditure
reports are submitted by the grantors due
date.

ROE Response:  The ROE hires an outside
consultant to reconcile bank accounts
each month. After the outside consultant
completes the reconciliations, the ROE
bookkeeper rechecks and submits all
documentation to the Regional
Superintendent for approval.

During the past few years, there has only
been one ROE bookkeeper/payroll person to
prepare and provide information needed
for reporting deadlines and auditing. The
ROE hired an additional full-time
bookkeeper on August 19, 2019 to take
over the accounts payable
responsibilities. Having two bookkeepers
and having processes put in place will
help ensure the ROE submit expenditure
reports by the due dates.

INADEQUATE CONTROLS OVER CAPITAL ASSETS

The Regional Office of Education #33
(ROE) did not have adequate controls over
fixed assets.

During the audit, the auditors noted the
following:

• The capital asset listings were
maintained in a spreadsheet and did not
have complete information as to
acquisition source document. A
spreadsheet had pertinent asset
information, but did not have the tag
numbers while the depreciation
spreadsheet had the tag numbers, but did
not have the other relevant asset
information.
• The ROE did not consistently tag all
assets with asset tags to ensure complete
accounting and monitoring of capital
assets.
• Capital outlay reported in the
financial statements totaled $163,542 and
wasn’t properly reconciled to the
additions on the capital asset listing
which totaled $162,214.

The ROE Accounting Manual requires each
ROE to maintain detailed fixed asset
records for both accounting purposes, as
well as insurance purposes, for fixed
assets costing $500 or more. Generally
accepted accounting principles (GAAP)
require that an inventory of all fixed
assets and depreciation schedules for
assets meeting the capitalization
threshold for reporting be maintained.

The ROE Accounting Manual also states
that the fixed asset inventory records
should include: the inventory control
number (tag number); major asset class;
function and activity; reference to the
acquisition source document; acquisition
date; vendor; a short description of the
asset; unit charged with custody;
location; fund and account from which
purchased; method of acquisition;
estimated useful life and method of
depreciation; estimated salvage value;
and date, method, and authorization of
disposition.

In addition, sound internal controls
require that policies and procedures on
fixed assets should cover acquisition and
tagging, recording and reporting,
depreciation (if applicable), transfers
and dispositions, and annual physical
inventory, and that they should be
formally documented and consistently
applied.

Regional Office officials indicated
maintenance of the capital asset schedule
is decentralized by departments. The
schedules are updated by multiple
personnel, which makes it difficult to
ensure the schedules are complete and
updated timely. (Finding 19-002, pages 17
– 18)

The auditors recommended the ROE should
assign responsibility to one individual
to ensure that the capital assets are
tagged, schedules are regularly
maintained, and current year activity is
periodically reconciled to the capital
asset listing. An inventory count should
be taken periodically and compared to the
items on the capital asset list, and
significant differences investigated. The
fixed asset listing should be completed
to include all the details required by
the ROE Accounting Manual.

ROE Response: The ROE has assigned
responsibility to one of the bookkeepers
to ensure that the capital assets are
tagged, schedules are regularly
maintained, and current year activity is
periodically reconciled to the capital
asset listing. An inventory count will be
taken periodically as well and compared
to the items on the capital asset list,
and any differences investigated. The
capital asset list will be completed to
include all the details required by the
ROE Accounting Manual.

The following steps are being added to
the ROE’s asset acquisition purchasing
process:
• PO will have the following language
added: “Does this purchase include
Capital Assets over $500? If yes, please
complete and attach the Capital Equipment
Asset Form.”
• If an asset is being shipped to a
separate location, an email is to be sent
to the person receiving the asset and the
Bookkeeper must be included on that
email. The email will notify the person
that the order has been placed and that
the Bookkeeper is to be contacted upon
receipt of that product in order for the
asset to be tagged and additional
information collected.
• Upon notification that the asset has
been delivered, the Bookkeeper will
schedule a time to go tag the asset and
complete the Capital Equipment Asset
Receipt Form.
• Bookkeeper will then record the asset
information in the Asset Additions/
Disposals Master Spreadsheet.

DELAY OF AUDIT

The Regional Office of Education #33
(ROE) did not provide completed financial
statements in an auditable form by the
August 31 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 Governmental 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).

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

Regional Office officials indicated it
had limited staff to work on year-end
closing activities with the contracted
accounting firm and an additional staff
was not hired until August 19, 2019. In
addition, the actuarial valuation reports
were not completed until September 24,
2019. (Finding 19-003, pages 19 – 20)

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). Annual financial
statements should be compiled on an
accrual basis of accounting in accordance
with GAAP. These financial statements
need to be presented to the Auditor
General’s independent auditors for audit
by the August 31 deadline.

ROE Response: During the past few years,
there has only been one ROE bookkeeper/
payroll person to prepare and provide
information needed for reporting
deadlines and auditing. The ROE hired an
additional full-time bookkeeper on August
19, 2019 to take over the accounts
payable responsibilities. Having two
bookkeepers and having processes put in
place will help ensure the ROE get
information submitted to the contracted
accounting firm by the required deadline
in the future.

The ROE has retained the accounting firm
who prepared the Fiscal Year 2019
financial statements for Fiscal Year
2020.

IMPROPER CLASSIFICATION OF FUND
ACTIVITIES

The Regional Office of Education #33
(ROE) improperly classified the Criminal
Background Investigation Fund (Fund)
activities under the General Fund
reported as governmental activities
instead of a nonmajor proprietary fund
that should be reported as business-type
activities. Accordingly, no statement of
cash flows was reported for this nonmajor
proprietary fund. Revenues and expenses
for Fiscal Year 2019 totaled $22,807 and
$15,064, respectively. Total assets,
liabilities, and net position as of June
30, 2019 were $39,774, $1,243, and
$38,531, respectively.

Governmental Accounting Standards Board
(GASB) Statement No. 34, Basic Financial
Statements – Management’s Discussion and
Analysis – for State and Local
Governments (Statement), requires
activities to be reported as enterprise
funds if the pricing policies of the
activity establish fees and charges
designed to recover its costs.

The Statement further states that
proprietary fund reporting focuses on the
determination of operating income,
changes in net assets (or cost recovery),
financial position, and cash flows. The
proprietary fund category includes
enterprise and internal service funds.
Proprietary fund statements of net
position and revenues, expenses, and
changes in fund net position should be
presented using the economic resources
measurement focus and the accrual basis
of accounting. Proprietary fund
statements should present the financial
information for each major enterprise
fund in a separate column. Nonmajor
enterprise funds should be aggregated and
displayed in a single column, and a
combined total column should be presented
for all enterprise funds.

Required financial statements for
proprietary funds are:
• Statement of net position or balance
sheet;
• Statement of revenues, expenses, and
changes in fund net position or fund
equity; and
• Statement of cash flows.

Regional Office officials indicated it
had been reporting this Fund under the
General Fund and did not realize that the
activities of this Fund are enterprise
activities that should be reported as
business-type activities. (Finding
19-004, pages 21 – 22)

The auditors recommended the ROE should
implement procedures to ensure proper
analysis of Fund activities are made when
new funds are set up or when transactions
are recorded in an existing fund for
proper classification and reporting in
accordance with GASB Statement No. 34.

ROE Response: The ROE will implement
procedures to ensure proper analysis and
reporting of fund activities.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #33’s financial statements as
of June 30, 2019 are fairly presented in
all material respects.

This financial audit was conducted by the
firm of Adelfia 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