Regional Office of Education #46%3A Brown, Cass, Morgan and Scott Counties. Financial Audit for the Year Ended June 30, 2010

              Office of the Auditor General, Iles Park Plaza, 740 E. Ash St., Springfield, IL 62703 • Tel: 217-782-6046 or TTY 888-261-2887
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REGIONAL OFFICE OF EDUCATION #46
BROWN/CASS/MORGAN/SCOTT COUNTIES
FINANCIAL AUDIT
For the Year Ended: June 30, 2010
Summary of Findings:
Total this audit:
Total last audit:
Repeated from last audit:
3
3
Release Date: D ecember 21, 2011 2
SYNOPSIS
• The Regional Office of Education #46 did not document its review and approval of building plans and
specifications as required by the School Code.
• The Regional Office of Education #46 did not have adequate controls over property and equipment.
• The Regional Office of Education #46 did not have sufficient internal controls over the financial reporting
process.
{Revenues and expenditures are summarized on the reverse page.}
ii
REGIONAL OFFICE OF EDUCATION #46
BROWN/CASS/MORGAN/SCOTT COUNTIES
FINANCIAL AUDIT
For The Year Ended June 30, 2010
FY 2010 FY 2009
TOTAL REVENUES $1,945,909 $1,943,550
Local Sources $268,553 $275,971
% of Total Revenues 13.80% 14.20%
State Sources $1,458,362 $1,425,992
% of Total Revenues 74.95% 73.37%
Federal Sources $218,994 $241,587
% of Total Revenues 11.25% 12.43%
TOTAL EXPENDITURES $2,043,203 $1,972,768
Salaries and Benefits $1,619,402 $1,616,468
% of Total Expenditures 79.26% 81.94%
Purchased Services $315,044 $218,188
% of Total Expenditures 15.42% 11.06%
All Other Expenditures $108,757 $138,112
% of Total Expenditures 5.32% 7.00%
TOTAL NET ASSETS $631,247 $728,541
INVESTMENT IN CAPITAL ASSETS $35,708 $41,493
Percentages may not add due to rounding.
REGIONAL SUPERINTENDENT
During Audit Period: Honorable Stephen Breese
Currently: Honorable Jeffrey Stephens
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The Regional Office of Education
#46 did not document its review and
approval of building plans and
specifications as required by the
School Code.
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
CONTROLS OVER COMPLIANCE WITH LAWS AND
REGULATIONS
The Illinois School Code (105 ILCS 5/3-14.20) requires the
Regional Superintendent to inspect the building plans and
specifications submitted by school boards, including but not
limited to plans and specifications for the heating, ventilating,
lighting, seating, water supply, toilets and safety against fire,
of public school rooms and buildings, and to approve all those
which comply substantially with the statutorily authorized
school building codes. The Regional Superintendent is to
approve or deny the plans and specifications within three
months after the date they were submitted by the school board.
The Regional Office of Education #46 did not document its
review and approval of all building plans and specifications as
required by the School Code. During testing, auditors noted
the following:
• Five of eight building plans submitted lacked required
documentation showing Regional Office inspection.
• One of eight building plan inspections did not have
the Regional Superintendent’s signature on the
building permit.
• The Regional Office did not maintain its own listing
of building inspection submissions. It relied on a
listing from the Illinois State Board of Education
website that did not clearly identify submissions for
building inspections.
According to Regional Office officials, the Regional Office
attempts to comply with all statutory requirements. This
situation happened in part due to a change in the personnel
responsible for conducting this portion of the work within the
office. (Finding 10-1, pages 10-11)
Auditors recommended that the Regional Office of Education
#46 should comply with the requirements of 105 ILCS 5/3-
14.20 and maintain all required documentation for building
inspections and have it appropriately approved. In addition,
the Regional Office should maintain documentation showing
all building plans submitted by school boards for inspection.
The Regional Office responded that upon notification by the
auditors of the paperwork exceptions, the ROE feels that they
have been in full compliance after March 2010. The Regional
Office also noted that they will continue to monitor this part of
the operations to insure that all documentation is done.
iv
The Regional Office of Education
#46 did not have adequate controls
over property and equipment.
INADEQUATE CONTROLS OVER PROPERTY AND
EQUIPMENT
The Regional Office of Education (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 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.
Regional Office of Education #46 did not have adequate
controls over fixed assets. The inventory listing provided by
the Regional Office was inaccurate and incomplete. Auditors
noted the following:
• Many items on the inventory listings did not include
all information required by the ROE Accounting
Manual and the Illinois State Board of Education’s
State and Federal Grant Administration Policy and
Fiscal Requirements and Procedures.
• There were many inconsistencies in the inventory
listings and many items lacked sufficient detailed
descriptions and information for identification.
• 2 items from the fixed asset listing did not have the
correct value assigned at the time of donation.
The absence of a sound system of internal controls over fixed
assets can result in inaccurate reporting and inadequate
physical control for equipment items. An incomplete fixed
asset listing does not provide an adequate basis for physical
control and losses may occur without being detected.
According to Regional Office officials, most of the fixed
assets that were underreported were items that had been
donated to the program. The Regional Office also noted that
while this equipment does have value, mostly it would be
considered non-consequential to many businesses. At the
time, the Regional Office felt it did not need to assign a value
to these items, however, it does understand the need for better
records. (Finding 10-2, pages 12-14)
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Auditors recommended that the Regional Office of Education
#46 establish and implement more detailed written policies
and procedures for inventory. The policies and procedures
should be updated on a periodic basis or at least annually and
include the following:
• procedures for the individual responsible for annual
inventory listings to ensure annually that all lists are
consistently completed and accurate;
• procedures for documenting, recording, and assigning
values for donated items;
• procedures for recording and updating inventory and
asset listings as assets are purchased; and
• procedures for the disposition of assets.
The Regional Office of Education #46 responded that it has
had property and equipment procedures in place for several
years and continues to follow those procedures. The Regional
Office noted that errors were made on the inventory and asset
listing and have since been corrected. The vast majority of the
equipment is used and donated, and not immediately, if ever,
put into service. The ROE noted that these items are placed in
storage and much of it is never used and goes directly to be
recycled.
The Regional Office further responded that it has updated
procedures to tag items and place them on the fixed asset
listing only if and when the item is put into service. The ROE
noted that it has also prepared for better tracking and
documentation of equipment or inventory items before they
are moved from one location to another. In addition, the ROE
noted that it has implemented a more detailed listing of items
being recycled. The ROE noted that it will also ensure that
each employee’s inventory listing for their area will be
complete to include serial number and description.
CONTROLS OVER FINANCIAL STATEMENT
PREPARATION
Regional Office of Education #46 is required to maintain a
system of controls over the preparation of financial statements
in accordance with generally accepted accounting principles
(GAAP). Regional Office internal controls over GAAP
financial reporting should include adequately trained
personnel with the knowledge and expertise to prepare and/or
thoroughly review GAAP based financial statements to ensure
they are free of material misstatements and include all
disclosures as required by the Governmental Accounting
Standards Board (GASB).
vi
The Regional Office of Education
#46 did not have sufficient internal
controls over the financial reporting
process.
The Regional Office of Education #46 did not have sufficient
internal controls over the financial reporting process. The
Regional Office maintains their accounting records on the
cash basis of accounting during the year and records accruals
at year end. 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.
For example, auditors, in their review of the Regional Office’s
accounting records, noted the following:
• The Regional Office was unable to provide accurate
trial balances and footnote disclosures to present
financial statements in accordance with generally
accepted accounting principles.
• The fiscal year 2010 beginning fund balances in the
accounting records provided to auditors did not agree
to the prior year’s ending fund balance for some of the
accounts due to prior year adjusting journal entries not
being recorded correctly. Additional adjusting entries
were necessary to correct the accounting records.
According to Regional Office officials, they did not have
adequate funding to hire and/or train their accounting
personnel in order to comply with these requirements.
(Finding 10-3, pages 15-16) This finding was first reported
in 2007.
Auditors recommended that as part of internal control over the
preparation of its financial statements, including disclosures,
the Regional Office of Education #46 should implement a
comprehensive preparation and/or review procedure to ensure
that the financial statements, including disclosures, are
complete and accurate. Such procedures should be performed
by a properly trained individual(s) possessing a thorough
understanding of applicable generally accepted accounting
principles, GASB pronouncements, and knowledge of the
Regional Office of Education’s activities and operations.
The Regional Office of Education #46 responded that it has
made great strides in improving its year-ending general ledger.
The Regional Office noted that it continues to improve its
system in an effort to meet the necessary requirements. The
ROE noted that it is limited as to what adjusting journal
entries can be made as its accounting system does not allow it
to add new accounts to the chart of accounts going back to
prior fiscal years. The ROE noted that it made efforts to try to
book all audit adjustments proposed by auditors but were
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limited due to the system limitations, which was understood
between the auditing team and the ROE. The Regional Office
noted that it understands errors were made and will continue
to improve its review. Finally, the ROE noted that due to
continued funding limitations and uncertainties, the ROE does
not foresee the ability to hire a CPA to prepare full financial
statements for future audits. (For previous Regional Office
response, see Digest Footnote #1.)
AUDITORS’ OPINION
Our auditors state the Regional Office of Education #46’s
financial statements as of June 30, 2010 are fairly presented in
all material respects.
___________________________________
WILLIAM G. HOLLAND
Auditor General
WGH:KJM
AUDITORS ASSIGNED: This audit was performed by the
Office of the Auditor General's staff.
DIGEST FOOTNOTE
#1: Controls Over Financial Statement Preparation - Previous
Regional Office Response
In its prior response in 2009, the Regional Office of Education #46
responded that it will establish guidelines to more thoroughly review
the books and the refinement of its close-out procedures before
submitting them to the auditors. The Regional Office officials noted
that while many improvements have already taken place, they
understand this is an ongoing process and hope to reach the level of
no finding by the end of next fiscal year.