REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #34

LAKE COUNTY

FINANCIAL AUDIT

(In Accordance with the
Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2007

Summary of Findings:

Total this audit                  2

Total last audit                  1

Repeated from last audit   0

Release Date:

June 21, 2008

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

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 is also available on

the worldwide web at

http://www.auditor.illinois.gov

SYNOPSIS

·        Lake County Regional Office of Education #34 did not properly record several transactions and, as a result, did not properly apply the appropriate generally accepted accounting principles.

·        During testing of cash and bank reconciliations, auditors noted two bank accounts not recorded in the general ledger and, consequently, without bank reconciliation statements.

{Expenditures and Revenues are summarized on the reverse page.}

FY 2007

FY 2006

TOTAL REVENUES

$5,626,220

$4,824,746

Local Sources

$1,863,784

$1,917,226

% of Total Revenues

33.13%

39.74%

State Sources

$2,784,572

$2,010,315

% of Total Revenues

49.49%

41.67%

Federal Sources

$977,864

$897,205

% of Total Revenues

17.38%

18.60%

TOTAL EXPENDITURES

$5,634,651

$4,701,154

Salaries and Benefits

$2,927,292

$2,474,439

% of Total Expenditures

51.95%

52.63%

Purchased Services

$1,761,991

$833,988

% of Total Expenditures

31.27%

17.74%

All Other Expenditures

$945,368

$1,392,727

% of Total Expenditures

16.78%

29.63%

TOTAL NET ASSETS

$2,121,210

$2,129,641

INVESTMENT IN CAPITAL ASSETS

$14,823

$28,449

               Percentages may not add due to rounding.

REGIONAL SUPERINTENDENT 

During Audit Period:  Honorable Roycealee Wood

Currently:  Honorable Roycealee Wood

Lake County Regional Office of Education #34 did not properly record several transactions and, as a result, did not properly apply the appropriate generally accepted accounting principles.

During testing of cash and bank reconciliations, auditors noted two bank accounts not recorded in the general ledger and, consequently, without bank reconciliation statements.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

FAILURE TO APPLY APPROPRIATE  ACCOUNTING PRINCIPLES

Lake County Regional Office of Education #34 did not properly record several transactions and, as a result, did not properly apply the appropriate generally accepted accounting principles.

For fiscal year 2007, payments on leases of certain equipment that have bargain purchase options and a lease term equal to the estimated life of the leased property, were treated as operating leases and recorded as purchased services ($21,688) and capital expenditures ($8,426).  These leases met the criteria for capital leases.  Also, interfund receipts and disbursements pertaining to reimbursements of Teachers’ Retirement System (TRS) and Teachers’ Health Insurance Security (THIS) Fund employee contributions ($144,366) and purchases of supplies and materials, services and capital outlay ($11,502) were recorded as revenues and expenses instead of receivables/payables.

Generally accepted accounting principles require that a lease be capitalized if any one of the following four criteria is a characteristic of the lease transaction:  1) the lease transfers ownership of the property  to the lessee by the end of the lease term, 2) the lease contains bargain purchase options, 3) the lease term is equal to 75% or more of the estimated economic life of the leased property, or 4) the present value of the minimum lease payments at the inception of the lease, excluding executory costs, equals at least 90% of the fair value of the leased property.  Capital leases are treated as an acquisition of assets and the incurrence of obligations by the lessee.

Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements – Management’s Discussion and Analysis – for State and Local Governments defines Reciprocal Interfund Activities as interfund activities that have many of the same characteristics of exchange and exchange-like transactions that occur with external parties.  Loans should be reported as interfund receivables by the lender fund and interfund payables by the borrower fund.  Reimbursements should not be reported in the governmental entity’s financial statements as revenues and expenses in order to avoid “double counting” of revenues and expenses/expenditure items.  (Finding 07-01, pages 12 and 13)

The auditors recommended that the Regional Office establish procedures to ensure that transactions are properly accounted for and reported in accordance with generally accepted accounting principles.  If necessary, accounting and reporting guidance should be obtained from technical resources to be in conformity with GAAP.

The Regional Office of Education #34 agrees with the recommendation and will establish procedures to ensure that transaction are properly accounted for.  The Regional Office of Education #34’s accountant and bookkeeper will make entries in the accounting system to address the lease transactions.  In addition, the staff will make eliminating entries to address the TRS contribution concerns.

UNRECORDED AND UNRECONCILED BANK ACCOUNTS

During testing of cash and bank reconciliations, auditors noted two bank accounts not recorded in the general ledger and, consequently, without bank reconciliation statements.  The first bank account, with an ending balance of $979 as of June 30, 2007, serves as a pass through account for monies received from the Illinois State Board of Education for distribution to other entities.  The second bank account, with an ending balance of $14,259 as of June 30, 2007, represents Institute Fund monies collected from e-payments from on-line teachers’ registration.

 Sound internal control requires complete and accurate accounting records of all transactions of the entity.  Sound internal control also requires bank reconciliations to be performed monthly to ensure that all transactions have been recorded.  The bank reconciliation process should include identifying and correcting all discrepancies between the bank records and the books on a timely basis.  (Finding 07-02, pages 14 and 15)

The auditors recommended that the Regional Office should immediately record these bank accounts in the general ledger and properly account for all transactions of these accounts in the books.  Bank reconciliations should be performed on all bank accounts on a regular basis and differences identified should be investigated promptly.

 The Regional Office of Education #34 agrees with the recommendation that bank accounts should be recorded immediately in the general ledger and all transactions properly accounted for.  The bank accounts will be entered in the general ledger and will be reconciled by the ROE staff on a timely basis.

 AUDITORS’ OPINION

Our auditors state the Regional Office of Education #34’s financial statements as of June 30, 2007 are fairly presented in all material respects.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JRB

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors were E.C. Ortiz & Company, LLP.