REPORT DIGEST

REGIONAL OFFICE OF EDUCATION #51: MENARD
AND SANGAMON COUNTIES

FINANCIAL AUDIT (IN ACCORDANCE WITH THE
UNIFORM GUIDANCE)
FOR THE YEAR ENDED JUNE 30, 2016

Release Date:  March 26, 2019

FINDINGS THIS AUDIT:  6

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  2 -- 3 -- 5
Category 2:  0 -- 0 -- 0
Category 3:  1 -- 0 -- 1
TOTAL:  3 -- 3 -- 6

FINDINGS LAST AUDIT: 4

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
• (16-1) The Regional Office of Education
#51 did not have sufficient internal
controls over the financial reporting
process.
• (16-2) The Regional Office of Education
#51 did not provide financial statements in
an auditable form and in accordance with
GAAP until February 2018.
• (16-3) The Regional Office of Education
#51 used restricted funds for an
unauthorized purpose.
• (16-4) The Regional Office of Education
#51’s financial records were out of
balance.
• (16-5) The Regional Office of Education
#51 did not prepare accurate bank
reconciliations on a monthly basis.
• (16-6) The Regional Office of Education
#51 did not have adequate internal controls
over compliance requirements.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTROLS OVER FINANCIAL STATEMENT
PREPARATION

The Regional Office of Education #51 (ROE)
did not have sufficient internal controls
over the financial reporting process. While
the ROE maintained controls over the
processing of most accounting transactions,
there were not sufficient controls over the
preparation of generally accepted
accounting principles (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.

The ROE is required to maintain a system of
controls over the preparation of financial
statements in accordance with GAAP. The
ROE’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).

In addition, the ROE did not have adequate
controls to record and report its net
accrued pension liabilities, deferred
outflows and inflows of resources, and
pension expense in accordance with GAAP.
Proposed adjusting entries were approved
and accepted by the Regional Office’s
management. However, the adjusted pension
balances were materially misstated, leading
to the disclaimer of opinion on the
governmental activities.

During review of the ROE’s financial
information prepared by the ROE, the
following was noted:

• The ROE did not have adequate controls
over the maintenance of complete records of
cash, accounts receivable, due from other
governments, interfund activity, capital
assets, accounts payable, accrued salaries
and benefits, unavailable revenue, and fund
balance. While the ROE did adjust its books
for most of these accounts and provided
records to indicate the balances of other
accounts, the adjustments made and
information provided contained numerous
inaccuracies and omissions.
• The ROE was aware that its general ledger
was out of balance beginning in prior
fiscal years, but did not timely or
adequately address the issue. This matter
was further complicated by the ROE
continuing to post transactions with debits
not equal to credits.
• The ROE did not make any effort to ensure
its general ledger agreed to the audited
financial statements for the year ended
June 30, 2015, leading to numerous issues
with the opening balances for the year
ended June 30, 2016.
• The ROE’s financial information required
numerous, material adjusting entries in
preparation of the financial statements.
• There were several balances noted on the
ROE’s books for which no known underlying
transactions had taken place. In
eliminating these balances from the ROE’s
books, additional revenue of $48,400 was
recognized in the General Fund. The
auditors’ opinion on the General Fund is
qualified with respect to this matter.

According to Regional Office management,
adequate funding levels were not allocated
to hire and/or train accounting personnel
in order to comply with these requirements
and adequately address these issues.
(Finding 16-001, pages 15a – 15c) This
finding was first reported in 2007.

The auditors recommended that as part of
internal control over the preparation of
financial statements, the ROE 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 the applicable
GAAP, GASB pronouncements, and knowledge of
the ROE’s activities and operations.

Additionally the auditors recommended that
the ROE should develop procedures to ensure
that all necessary adjustments have been
recorded in its accounting system so that
the financial statements are presented in
accordance with GAAP. The ROE should
develop procedures to ensure that audit
journal entries are correctly posted to the
accounts resulting in balances that agree
with the audited financial statements.

ROE Response: The ROE understands the
nature of this finding and realizes that
this circumstance is not unusual in an
organization of this size. During FY16, the
Regional Office of Education staff had a
reasonable understanding of the financial
statements and could determine that the
information in the financial statements was
accurate. However, they lacked the ability
to prepare the notes to the financial
statements. Beginning in FY17, the Regional
Office of Education #51 will utilize staff
and other accounting professionals who have
proper training and who possess a thorough
understanding of applicable generally
accepted accounting principles, GASB
pronouncements, and knowledge of the
Regional Office’s activities and
operations. The Regional Office of
Education #51 accepts the auditors’
recommendations and has revised policies,
procedures and/or practices to address the
finding noted. The corrective actions taken
will be implemented for the FY17 financial
statements and moving forward.

Prior Year ROE Response: The Regional
Office understands the nature of this
finding and realizes that this circumstance
is not unusual in an organization of this
size. The ROE staff has a reasonable
understanding of the financial statements
and can determine that the information in
the financial statements is accurate,
however, they lack the ability to prepare
the notes to the financial statements. The
recommendation that “such procedures should
be performed by a properly trained
individual(s) possessing a thorough
understanding of the applicable generally
accepted accounting principles, GASB
pronouncements, and knowledge of the
Regional Office’s activities and
operations” has been noted by the Regional
Office. The ROE will continue to work with
other ROEs to determine the most effective
method of ensuring that employees possess
the knowledge required to compile the
necessary GAAP based financial statements.
The ROE accepts the auditors’
recommendations and has revised policies,
procedures and/or practices to address the
finding noted.

DELAY OF AUDIT

The Regional Office of Education #51 did
not provide financial statements in an
auditable form in accordance with GAAP
until February 2018. Fieldwork was
originally scheduled for the week of
November 28, 2016. Auditors were unable to
begin fieldwork due to major issues
associated with the ROE’s general ledger
not balancing and the beginning fund
balances not agreeing with the ending
balances from the prior year financial
statements.

The Regional Office 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.

The original general ledger provided by the
Regional Office on November 22, 2016 was
out of balance by $33,989. It was noted the
ROE had 59 active funds set up in its
general ledger, of which 40 were out of
balance.

The Regional Office hired an outside
accounting firm in May 2017 to assist in
fixing the issues with the general ledger.
A general ledger was then provided to the
auditors at the end of September 2017 and
audit fieldwork was scheduled for late
October 2017. Fieldwork was not completed
at that time due to new issues with the
general ledger balances and the auditors
left the field.

The Regional Office provided an updated
general ledger in December 2017, but
auditors noted significant differences
between the sum of the cash balances as
reported on the general ledger and the bank
reconciliation and also noted that
interfund loans did not offset each other.

The Regional Office continued to work with
the outside accounting firm through
February 2018 and the ROE provided an
updated ledger at that time. However,
significant differences between the sum of
the cash balances as reported on the
general ledger and the bank reconciliation
still existed. It was also noted that
interfund loan balances still did not
offset each other since some interfund loan
balances were simultaneously considered
receivables and payables from transactions
with outside parties. These issues were
subsequently corrected during audit
fieldwork; however, the financial
statements still required numerous,
material journal entries to correct
additional errors and omissions noted.

As a result of these issues, fieldwork for
the audit was delayed from November 2016
until May 2018 and extended through October
2018.

According to Regional Office management,
the issues with the accounting system
appeared to begin when the ROE moved to a
new accounting software package in a prior
year, and these issues were never
adequately addressed and were exacerbated
by continuing to post out of balance
transactions. (Finding 16-002, pages 15d –
15e)

The auditors recommended that 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: The Regional Office of
Education #51 will implement procedures to
ensure compliance with 105 ILCS 5/2-3.17a
and 74 Ill. Adm. Code 420.320 (c) (2).
Annual financial statements will be
prepared on an accrual basis of accounting
in accordance with GAAP. They will be
presented to the independent auditors with
as little delay as possible. This will be
accomplished by hiring an outside
accounting firm to prepare the FY17
financials with assistance from the ROE
fiscal staff.

RESTRICTED FUNDS FOR UNAUTHORIZED PURPOSE

The Regional Office of Education #51 (ROE)
improperly used accumulated certificate
license fees and renewal and duplicate fees
by making interfund loans totaling $122,181
from the Institute Fund (restricted fund)
to cover cash deficits in other funds.

The Illinois School Code (105 ILCS 5/3-12)
states that all certificate license fees
and a portion of renewal and duplicate fees
shall be used by the Regional
Superintendent to defray expenses
associated with the work of the regional
professional development review committees;
to defray expenses connected with improving
technology necessary for the efficient
processing of licenses; to defray all costs
associated with the administration of
teaching licenses; and to defray expenses
incidental to teachers’ institutes,
workshops, or meetings of a professional
nature that are designed to promote the
professional growth of teachers or for the
purpose of defraying the expense of any
general or special meeting of teachers or
school personnel of the region, which has
been approved by the Regional
Superintendent.

According to Regional Office management,
the condition noted above was a result of a
lack of monitoring of cash balances to
ensure enough cash was available in
unrestricted funds to cover cash deficits
in the Regional Office’s restricted funds.
(Finding 16-003, page 15f)

The auditors recommended that the Regional
Office should ensure that funds generated
from license, renewal, and duplicate fees
are only used for the limited purposes
described in the Illinois School Code (105
ILCS 5/3-12).

ROE Response: The Regional Office of
Education will monitor the cash balances in
order to prevent any future interfund loans
from restricted funds. During FY16 budget
impasse, the State of Illinois failed to
fund programs operating through Regional
Office of Educations statewide.

FINANCIAL RECORDS

The Regional Office of Education #51 (ROE)
initially presented the auditors with a
general ledger trial balance that was out
of balance by $33,989. Further, the ROE
maintained 59 active funds in its general
ledger system, of which 40 were out of
balance.

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

According to Regional Office management,
the issues with the accounting system
appeared to begin when the ROE moved to a
new accounting software package in a prior
year, and these issues were never
adequately addressed and were exacerbated
by continuing to post out of balance
transactions. (Finding 16-004, page 15g)

The auditors recommended that the ROE
should establish procedures to monitor the
general ledger to timely detect issues, and
any issues detected should be corrected as
soon as possible. The ROE should also
develop procedures to ensure financial
records are accurate.

ROE Response: The Regional Office of
Education #51 accepts the auditors’
recommendations and will implement policies
and procedures to ensure that proper
monitoring of the general ledger will be
timely in order to detect issues. The
corrective actions will be handled in a
timely manner to ensure the general ledger
is correct. The system will be corrected
and monitored going forth.

RECONCILIATION OF BANK STATEMENTS

The Regional Office of Education #51 (ROE)
did not prepare accurate bank
reconciliations on a monthly basis. During
the auditors’ testing of the Regional
Office’s June 30, 2016 bank
reconciliations, the following was noted:

• One of the Regional Office’s bank
accounts with a balance of $17,460 at June
30, 2016, was not included on the bank
reconciliation.
• The June 30, 2016 bank reconciliation
contained reconciling items totaling
$15,097 which were determined to be
disbursements actually made that were not
recorded in the accounting system when the
transaction occurred in fiscal year 2015.
This reconciliation also included a
reconciling item for $17,979, that was
determined to be a disbursement that was
voided in fiscal year 2014 but not voided
in the accounting system.

According to Regional Office management,
the bank reconciliation errors occurred due
to inadequate supervisory review. (Finding
16-005, pages 15h – 15i)

The auditors recommended that the ROE only
include actual outstanding checks and
deposits on its bank reconciliation and
immediately correct any errors or omissions
noted. The ROE’s bank reconciliation should
encompass all of the ROE’s bank accounts.
The bank reconciliations should be reviewed
for accuracy by a member of management who
has adequate knowledge to oversee the
process.

ROE Response: The Regional Office of
Education #51 will implement a system for
bank reconciliations to ensure they are
verified and matched to the accounting
system by upper management with adequate
knowledge moving forward.

INADEQUATE INTERNAL CONTROLS OVER
COMPLIANCE REQUIREMENTS

The Regional Office of Education #51 (ROE)
did not have adequate internal controls
over compliance requirements. The following
instances of noncompliance were noted
during testing:

• The budget for the Regional Office’s
Title I Grants to Local Educational
Agencies program allowed the ROE to earn an
administrative fee based on either 5% or
2.5% of actual expenditures of certain
budgeted costs. Based on testing, the ROE
charged $54,135 of administrative fees
during fiscal year 2016 which was $20,948
higher than what was allowable based on
actual budgeted expenditures.
• The Regional Office did not have a policy
in place to require employees who have only
a portion of their payroll costs allocated
to the Title I Grants to Local Educational
Agencies program complete time and effort
documentation to support the distribution.
The auditors noted 2 such employees with
total salary, benefit, and pension costs
charged to the program in the amount of
$4,049. In addition, the auditors noted
another employee with $334 of unallowable
pension costs charged to the program due to
the employee not being eligible to
participate in the pension at the time of
the contributions. The Uniform Guidance (2
CFR 200.430) requires nonfederal entities
to maintain support for the distribution of
payroll costs among multiple activities.
• The Regional Office did not perform risk
assessments of subrecipients, and did not
obtain the audit reports of subrecipients
and issue management decisions on relevant
findings therein as required by the Uniform
Guidance (2 CFR 200.331).
• The Regional Office did not obtain
certifications from subrecipients required
by the Uniform Guidance (2 CFR 200.415(a)).
• The support for one of 10 (10%)
expenditure reports filed with the Illinois
State Board of Education could not be
located by the ROE for compliance testing.
The Uniform Guidance (2 CFR 200.333)
generally requires all records to be
retained for three years after the
completion of the grant.

As a recipient of U.S. Department of
Education grant funds passed through by the
Illinois State Board of Education, the ROE
must incorporate certain procedures into
its operations to ensure compliance with
the Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for
Federal Awards (Uniform Guidance) as well
as requirements contained in the grant
agreements.

The questioned costs were $25,331.

According to Regional Office management,
they were unaware of the specific
documentation requirements for personnel
costs and subrecipient monitoring, and were
unaware of the excessive administrative
fees. Further, the supporting documentation
for the expense report which could not be
located was inadvertently misplaced in
preparation of the fiscal year 2016 audit.
(Finding 16-006, pages 15j – 15l) This
finding was first reported in 2014.

The auditors recommended that the ROE
implement procedures to properly calculate
administrative fees based on actual
expenditures made to date. The calculation
should then be reviewed and approved by ROE
management. The ROE should also implement
procedures to ensure all costs associated
with personnel time and effort are properly
documented in accordance with the Uniform
Guidance. Further, the ROE should perform
risk assessments on and obtain
certifications from subrecipients as
required by the Uniform Guidance. The ROE
should follow the record retention policies
in the Uniform Guidance.

ROE Response: The Regional Office of
Education #51 accepts the auditors’
recommendations and will implement
policies, procedures, and/or practices to
address proper calculation of
administrative fees, and perform risk
assessments and monitoring of
subrecipients. The Regional Office of
Education will follow the record retention
policies in the Uniform Guidance. The
Regional Office will ensure that personnel
time and effort are properly documented in
accordance with the Uniform Guidance.

Prior Year ROE Response: The Regional
Office accepts the auditors’
recommendations and will revise policies,
procedures, and/or practices to address the
finding noted.

AUDITORS’ OPINION

Our auditors state the Regional Office of
Education #51’s financial statements as of
June 30, 2016 are fairly stated in all
material respects except for a disclaimer
of opinion on Governmental Activities in
the Statement of Net Position and Statement
of Activities and a qualified opinion on
the General Fund in the Governmental Fund
Balance Sheet and Statement of Revenues,
Expenditures, and Changes in Fund Balances.

This financial report was conducted by the
firm of Doehring, Winders & Co. LLP.

KELLY MITTELSTAEDT
Audit Manager

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

FJM:JRB