REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #49: ROCK
ISLAND COUNTY

FINANCIAL AUDIT (IN ACCORDANCE WITH THE
SINGLE AUDIT ACT AND OMB CIRCULAR A-133)
FOR THE YEAR ENDED: JUNE 30, 2015

Release Date:  July 28, 2016

FINDINGS THIS AUDIT:  0

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

FINDINGS LAST AUDIT: 0

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

• (15-1) The Regional Office of Education
#49 did not have sufficient internal
controls over the financial reporting
process.

• (15-2) The Regional Office of Education
#49 departed from generally accepted
accounting principles (GAAP).

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #49 is
required to maintain a system of controls
over the preparation of financial
statements in accordance with generally
accepted accounting principles (GAAP).
The Regional Office’s internal controls
over GAAP financial reporting should
include adequately trained personnel with
the knowledge, skills, and experience to
prepare GAAP based financial statements
and include all disclosures as required by
the Governmental Accounting Standards
Board (GASB).

The Regional Office of Education #49 did
not have sufficient internal controls over
the financial reporting process.  The
Regional Office maintains its accounting
records on cash basis accounting during
the fiscal year and posts year-end accrual
entries for financial statement purposes.
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 review of the Regional Office of
Education #49’s financial information
prepared by the Regional Office, auditors
noted the Regional Office did not have
adequate controls over the maintenance of
complete records of accounts receivable,
accounts payable, and unearned revenue.
While the Regional Office did maintain
records to indicate the balances of
accounts receivable, accounts payable, and
unearned revenue, not all entries were
provided to reconcile the Regional
Office’s grant activity, such as posting
grant receivables, unearned revenue, and
other accrual entries.

Through inquiries and discussions with the
ROE’s accounting personnel and Regional
Superintendent, auditors noted the ROE did
not have adequate controls to record and
report the ROE’s net accrued pension
liabilities/assets, deferred outflows of
resources, deferred inflows of resources,
and pension expenses in accordance with
GAAP.

According to the Regional Office of
Education #49’s officials, they did not
have adequate funding to hire and/or train
their accounting personnel in order to
comply with these requirements. (Finding
2015-001, pages 15-16) This finding was
first reported in 2007.

The auditors recommended that as part of
internal control over the preparation of
financial statements, the Regional Office
of Education #49 should implement
comprehensive preparation procedures to
ensure that the financial statements are
complete and accurate.  These procedures
should be performed by a properly trained
individual possessing a thorough
understanding of applicable generally
accepted accounting principles (GAAP),
GASB pronouncements, and knowledge of the
Regional Office of Education’s activities
and operations.

The Regional Office of Education responded
that it has four positions which have some
form of direct review, contact, and
oversight of its financial statements.
These individuals have attended and will
continue to attend training opportunities
to enhance their knowledge of the
applicable accounting principles and other
areas necessary in order to obtain a
sufficient set of internal controls over
financial statement preparation.  The
Regional Office noted there will be
continued oversight, direct review, and
contact of the financial statements of the
Rock Island County Regional Office of
Education.  Further, the Regional Office
stated that opportunities to review and
provide additional oversight will be
pursued to ensure the utmost level of
monitoring of all financial assets. (For
previous Regional Office response, see
Digest Footnote #1 located at the end of
the digest.)

DEPARTURE FROM GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

The Illinois Administrative Code (74 Ill.
Adm. Code 420.320 (c) (1) and (2))
requires that each Regional Office of
Education (ROE) maintain the accounting
records necessary to prepare financial
statements in accordance with generally
accepted accounting principles (GAAP).

Governmental Accounting Standards Board
(GASB) Statement No. 45, Accounting and
Financial Reporting by Employers for
Postemployment Benefits Other Than
Pensions (OPEB), requires that employers
recognize and disclose OPEB expense.  Net
OPEB obligations, if any, should be
reported as liabilities (or assets if
overfunded) in the financial statements.
For financial reporting purposes, an
actuarial valuation is required to measure
and disclose the annual OPEB cost.  In
certain circumstances, an alternative
measurement method can be applied instead
of obtaining an actuarial valuation.

The Regional Office of Education #49
participates in a defined benefit OPEB
plan that provides postemployment benefits
other than pensions to its employees in
exchange for employee services rendered.
Under accrual accounting, the cost of
OPEB, and any related OPEB liability,
should generally be recorded in the period
when the exchange for the employees’
services occurs, rather than when the
benefits are paid.  Currently, ROE #49’s
OPEB plan is financed on a pay-as-you-go
basis, and as such, the financial
statements do not report the financial
effects of OPEB until the promised
benefits are paid.  The ROE #49 did not
obtain an actuarial valuation of its
postemployment benefits other than
pensions liability, or apply the
alternative measurement method, in order
to be in compliance with GASB Statement
No. 45.

In the absence of the actuarial valuation,
or the application of the alternative
measurement method, the auditors could not
reasonably determine the amount by which
this departure would affect the
liabilities, fund balances, and
expenditures of ROE #49 as of June 30,
2015.

According to Regional Office officials,
there was inadequate funding for the
required actuarial services needed to be
in compliance with the GASB Pronouncement.
This led to the failure to implement GASB
Statement No. 45.  (Finding 2015-002,
pages 17-18) This finding was first
reported in 2010.

The auditors recommended the Regional
Office of Education #49 obtain an
actuarial valuation or apply the
alternative measurement method to
determine its other postemployment benefit
liability to be in compliance with GASB
Statement No. 45 and include all
disclosures required by the Statement in
its financial statements.

The Regional Office responded that it is
not currently funded adequately by the
State of Illinois to perform an actuarial
valuation check of retirement costs.  The
Regional Office noted that it will
continue to research an actuarial
valuation as funds become available by the
Regional Office of Education.  (For
previous Regional Office response, see
Digest Footnote #2 located at the end of
the digest.)

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #49’s financial statements as of
June 30, 2015 are fairly stated in all
material respects except for the effects
of not recognizing a liability for
postemployment benefits other than
pensions in the Statement of Net Position
and the Statement of Activities.
Disclosure of that information is required
to conform with accounting principles
generally accepted in the United States of
America.

FRANK J. MAUTINO
Auditor General

FJM:JRB

AUDITORS ASSIGNED:   Ginoli & Company Ltd.
were our special assistant auditors.

DIGEST FOOTNOTES

#1: Controls Over Financial Statement
Preparation - Previous Regional Office
Response

In its prior response in 2014, the
Regional Office of Education responded
that it has six positions which have some
form of direct review, contact, and
oversight of its financial statements.
These individuals have attended and will
continue to attend training opportunities
to enhance their knowledge of the
applicable accounting principles and other
areas necessary in order to obtain a
sufficient set of internal controls over
financial statement preparation.  The
Regional Office noted that there will be
continued oversight, direct review, and
contact of the financial statements of the
Rock Island County Regional Office of
Education.  The Regional Office stated
that opportunities to review and provide
additional oversight will be pursued to
ensure the utmost level of monitoring of
all financial assets.

#2: Departure from Generally Accepted
Accounting Principles - Previous Regional
Office Response

In its prior response in 2014, the
Regional Office responded that it is not
currently funded adequately by the State
of Illinois to perform an actuarial
valuation check of retirement costs.  The
Regional Office noted that it will
continue to research an actuarial
valuation as funds become available by the
Regional Office of Education.