REPORT DIGEST

EGIONAL OFFICE OF EDUCATION #40: CALHOUN,
GREENE, JERSEY AND MACOUPIN COUNTIES

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2023

Release Date:  January 31, 2024

FINDINGS THIS AUDIT: 5

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 1 -- 2
Category 2:  0 -- 1 -- 1
Category 3:  0 -- 2 -- 2
TOTAL:  1 – 4 -- 5

FINDINGS LAST AUDIT:  7

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

• (22-1) The Regional Office of Education
#40 did not provide completed financial
statements in an auditable form by the
August 31 deadline.

• (22-2) The Regional Office of Education
#40 had inadequate controls over bank
reconciliations.

• (22-3) The Regional Office of Education
#40 lacked adequate controls over the review
of internal controls over external service
providers.

• (22-4) The Regional Office of Education
#40 did not comply with grant reporting
requirements.

• (22-5) The Regional Office of Education
#40 had in adequate controls over payroll.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

DELAY OF AUDIT

The Regional Office of Education #40 (ROE)
did not provide completed financial
statements in an auditable form by the
August 31 deadline. The preliminary draft
was provided to the auditors on October 18,
2022.

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 the financial
statements for audit. The ROE has chosen to
change to the cash basis of accounting for
financial statement reporting.

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 this
was a result of unexpected staff turnover.
(Finding 2022-001, pages 11A – 11B)

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,
on the cash basis of accounting, or on the
modified cash basis of accounting. These
financial statements need to be presented to
the Auditor General’s independent auditors
for audit by the August 31 deadline.

ROE Response: ROE 40 shall make available to
the Auditor General or his designee all
books and records deemed necessary to make
and complete the required audits no later
than August 31st.

CONTROLS OVER CASH

The Regional Office of Education #40 (ROE)
had inadequate controls over bank
reconciliations. Monthly reconciliations for
May and June 2022 were not prepared timely
and had to be prepared by the ROE’s hired
CPA firm when they were closing the books at
year end. In addition, the initially
prepared and approved bank reconciliations
for the months of July 2021 through April
2022 were completed but had significant
unexplained variances when comparing the
book balance per the reconciliation to the
book balance per the general ledger.

Sound internal control requires bank
reconciliations to be performed monthly to
ensure all transactions have been recorded.
The bank reconciliation process should
include identifying and correcting all
discrepancies between the bank records and
the books in a timely manner. Sound internal
control over cash also requires bank
reconciliations to be completed and reviewed
by the appropriate level of management on a
monthly basis.

Regional Office management indicated this
was a result of unexpected staff turnover.
(Finding 2022-002, page 11C)

The auditors recommended that as part of its
internal controls over cash, the ROE should
reconcile all bank statements every month
and correct any discrepancies in a timely
manner. In addition, the ROE’s management
should review bank reconciliations and
document their review each month after the
reconciliation has been completed.

ROE Response: ROE 40 will reconcile all bank
statements every month and correct any
discrepancies in a timely manner and
management will review bank reconciliations
and document their review each month after
the reconciliation has been completed.

LACK OF ADEQUATE CONTROLS OVER THE REVIEW OF
INTERNAL CONTROLS OVER EXTERNAL SERVICE
PROVIDERS

The Regional Office of Education #40 (ROE)
lacked adequate controls over the review of
internal controls over external service
providers.

The ROE is responsible for the design,
implementation, and
maintenance of internal controls, including
the controls that are outsourced to service
providers, related to information systems
and operations to ensure resources and data
are adequately protected from unauthorized
or accidental disclosure, modifications, or
destruction.

Generally accepted information technology
guidance endorses the review and assessment
of internal controls related to information
systems and operations to assure the
accurate processing and security of
information.

During testing, the auditors noted the ROE
had not:

• Developed a formal process for identifying
service providers and for either obtaining
the Service. Organization Controls (SOC)
report from the service provider and related
subservice organization or performing
alternative procedures to determine the
impact of such services on its internal
control environment prior to signing an
agreement with the service provider.
• Documented its review of the SOC report,
or performed alternative procedures, to
evaluate any
issues relevant to the ROE’s internal
controls.
• Monitored and documented the operation of
the Complementary User Entity Controls
(CUECs) relevant to the ROE’s operations.

Regional Office management indicated it was
unaware of third party service provider’s
review of internal controls associated with
its outsourced systems. (2022-003, pages 11D
– 11E)

The auditors recommended the ROE identify
all third-party service providers and
determine and document if a review of
controls is required. If required, the ROE
should:

• Obtain SOC reports or perform independent
reviews of internal controls associated with
outsourced systems, including services
provided by subservice organizations, prior
to signing agreements with the providers and
annually thereafter.
• Document its review of the SOC report, or
perform alternative procedures, to evaluate
all significant issues to ascertain if a
corrective action plan exists, when it will
be implemented, any impacts to the ROE, and
any compensating controls.
• Monitor and document the operation of the
CUECs relevant to the ROE’s operations.
• Review contracts with service providers to
ensure applicable requirements over the
independent review of internal controls are
included.

ROE Response: ROE 40 shall obtain SOC
reports or perform independent review of
internal controls associated with outsourced
systems, including services provided by
subservice organizations, prior to signing
agreements with the providers and annually
thereafter. ROE 40 shall document its review
of the SOC report, or perform alternative
procedures, to evaluate all significant
issues to ascertain if a corrective action
plan exists, when it will be implemented,
any impacts to the Regional Office of
Education No. 40, and any compensating
controls. ROE 40 shall monitor and document
the operation of the CUECs relevant to the
ROE 40’s operations and review contracts
with service providers to ensure applicable
requirements over the independent review of
internal controls are included.

GRANT REPORTING NONCOMPLIANCE

The Regional Office of Education #40 (ROE)
did not comply with grant reporting
requirements. During the course of the
audit, auditors noted that 13 of the 25
(52%) quarterly expenditure reports required
by the Illinois State Board of Education
(ISBE) were not submitted timely. Eight of
the quarterly expenditure reports were
submitted 2 days late and 5 expenditure
reports were submitted 97 days late.

In addition, auditors noted that the
expenditures reported on the final
expenditure reports for the Digital Equity
and Social Emotional Learning grants did not
agree to the expenditures recorded in the
general ledger. Expenditures reported on the
Digital Equity grant’s expenditure report
included $4,076 of capital outlay
expenditures misclassified as supplies and
materials. Actual expenditures recorded in
the general ledger for the Social Emotional
Learning grant exceeded expenditures
reported on the grant’s expenditure report
by $17,873.

As a recipient of federal, State, and local
funds from various grantor agencies, the ROE
must incorporate certain procedures into its
operations in order to comply with the grant
agreements with these entities.

The ROE is responsible for establishing and
maintaining an internal control system over
the completion of timely quarterly
expenditure reports required for grants
administered by ISBE. ISBE requires
expenditure reports to be filed within 20
days of the applicable end of each quarter.

Regional Office management indicated this
was a result of unexpected staff turnover.
(Finding 2022-004, page 11F – 11G)

The auditors recommended the ROE should
implement adequate internal controls to
ensure that expenditure reports are
submitted timely and to ensure that
expenditures reported on the expenditure
reports agree to the actual expenditures
recorded in the general ledger.

ROE Response: The ROE shall implement
adequate internal controls to ensure that
expenditure reports are submitted timely and
to ensure that expenditures reported on the
expenditure reports agree to the actual
expenditures recorded in the general ledger.

CONTROLS OVER PAYROLL

The Regional Office of Education #40 (ROE)
had inadequate controls over payroll. During
the course of audit fieldwork, auditors
noted the following:

• The ROE did not use time and effort
documentation to distribute salary and
benefit costs for employees paid from
multiple funding sources. The ROE budgeted
amounts at the beginning of the year to
allocate payroll expense to each fund;
however, the ROE never reconciled the
amounts expensed in the general ledger to
the employees’ submitted timesheets.
Therefore, the ROE was unable to determine
the reasonableness of the allocation of
salaries and benefits amongst federal and
State programs.
• While closing the books, the ROE’s hired
CPA firm noted that the bookkeeper
incorrectly set up payroll deductions
related to a new insurance plan provided by
the ROE. Due to the error, the ROE under-
withheld $23,349 from employees’ payroll
checks. The insurance plan started July 1,
2021 and the issue was not caught and
remedied until after the end of Fiscal Year
2022. While the ROE’s hired CPA firm did
catch the issue, the issue was pervasive and
was not remedied timely.
• Two out of twenty-four (8%) payroll
disbursements tested did not have a
completed direct deposit authorization form
available.  In addition, it was noted that
for four out of twenty-four (16%) payroll
disbursements tested, the recalculated gross
pay amount per the employee’s contract did
not agree to the gross pay amount reported
on the employee’s paycheck.

The ROE is responsible for establishing and
maintaining an internal control system over
payroll to prevent errors or fraud. In
addition, the Grant Accountability and
Transparency Act (GATA) 30 ILCS 708/1
establishes that State grant programs are
subject to the requirements set forth in
Title 2 U.S. Code of Federal Regulations
Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit
Requirements for Federal Awards (Uniform
Guidance). The Uniform Guidance (2 CFR
200.430) requires charges for salaries and
benefits to be supported by a system of
internal controls which provide reasonable
assurance that the charges are accurate, and
properly allocated. It also requires records
to be used to support the distribution of
employee salaries and benefits among
specific activities if the employee works on
multiple programs. It further states that
budget estimates alone do not qualify as
support for salary and benefit expenditures
charged to federal and State grants.

Regional Office management indicated the
time and effort system that was in place was
not adequate enough and incorrectly setup
for payroll deductions related to a new
insurance plan and did not distribute salary
and benefit costs for employees pay from
multiple funding sources. In addition, the
missing direct deposit authorizations and
employee gross pay recalculation issues were
due to simple oversights by ROE staff.
(Finding 2022-005, pages 11H – 11I)

The auditors recommended the ROE use time
and effort documentation to distribute
salary and benefit costs for all employees.
Also, auditors recommended the ROE implement
the necessary controls over payroll to
ensure that payroll deductions are being
calculated properly.  Also, we recommend
that the ROE maintain direct deposit
authorizations for every employee and ensure
that the employee’s gross pay agrees to
amounts reported in the employee’s contract.

ROE Response: After year end, the ROE began
using time and effort documentation to
distribute salary and benefit costs for all
employees and implemented the necessary
controls over payroll to ensure that payroll
deductions are being calculated properly.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #40’s financial statements as of
June 30, 2022 are fairly presented in all
material respects.

This financial audit was conducted by the
firm of West & Company, 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:JRB