oversight

Illinois State Board of Education's Oversight of Local Educational Agency Single Audit Resolution

Published by the Department of Education, Office of Inspector General on 2016-11-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                 UNITED STATES DEPARTMENT OF EDUCATION
                                                 OFFICE OF INSPECTOR GENERAL

                                                                                                                     AUDIT SERVICES
                                                                                                                 New York/Dallas Region


                                                           November 7, 2016
                                                                                                       Control Number
                                                                                                       ED-OIG/A02P0008

Dr. Tony Smith
State Superintendent of Education
Illinois State Board of Education
100 North 1st Street
Springfield, IL 62777

Dear Dr. Smith:

This final audit report, “Illinois State Board of Education’s Oversight of Local Educational
Agency Single Audit Resolution,” presents the results of our audit. The purpose of the audit was
to determine whether the Illinois State Board of Education (ISBE) provided effective oversight
to ensure that local educational agencies (LEAs) took timely and appropriate action to correct
single audit findings. Our review covered ISBE’s processes and activities related to the
resolution of LEA single audit findings that occurred in fiscal years (FYs) 2011 through 2014. 1
In this report, we use the term “audit resolution” to refer to all activities required to ensure that
LEA single audit findings are fully and appropriately corrected. The specific requirements of the
audit resolution process are described in the Background section of this report.



                                                         BACKGROUND


The Single Audit Act of 1984 established uniform audit requirements for State and local
governments (recipients and subrecipients) 2 that receive Federal financial assistance. Many of
these recipients receive annual grant awards from multiple Federal agencies. Before the Single
Audit Act, the grant-by-grant audit processes of Federal agencies were not coordinated. This
resulted in overlapping audits in some cases, which increased costs to the Federal government
and placed an undue administrative burden on recipients. In other cases, recipients were not
subject to any grant audits for multiple fiscal years.

In 1985, the Office of Management and Budget (OMB) issued Circular A-128 to provide
implementing guidance for the Single Audit Act. In 1990, OMB issued Circular A-133 to extend
the single audit process to nonprofit organizations. Then, in 1997, OMB revised Circular A-133
pursuant to Single Audit Act Amendments of 1996 to extend Circular A-133’s coverage to audits
of State and local governments and rescind Circular A-128. For fiscal years ending after
December 31, 2003, recipients that spent $500,000 or more in Federal awards during a fiscal

1
    Illinois LEAs operate on a fiscal year that begins on July 1 and ends on June 30.
2
    In the remainder of this report, the term “recipient” is inclusive of subrecipients unless otherwise noted.

    The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                      excellence and ensuring equal access.
Final Report
ED-OIG/A02P0008                                                                                         Page 2 of 18

year were required to have a single audit or program-specific audit conducted in accordance with
Circular A-133.

In December 2013, OMB published final regulations in Title 2 of the Code of Federal
Regulations (Uniform Grant Guidance), which consolidated and superseded requirements from
eight Circulars, including A-133. Part 200 of the Uniform Grant Guidance streamlined the
administrative requirements, cost principles, and audit requirements for Federal awards and
increased the single audit expenditure threshold from $500,000 to $750,000. Uniform Grant
Guidance requirements became effective for recipients’ fiscal years beginning on or after
December 26, 2014.

As pass-through entities, State educational agencies (SEAs) are responsible for distributing
U.S. Department of Education (Department) grant funds to subrecipients. Circular A-133
specifies the responsibilities of pass-through entities related to the administration of Federal
awards. 3 In their oversight role, SEAs are responsible for advising LEAs of the requirements
associated with the use of Federal funds; monitoring LEAs’ use of Federal funds to ensure they
comply with laws, regulations, and grant agreements; and ensuring that LEAs achieve program
goals. SEAs must also ensure that all LEAs that meet the expenditure threshold for a given fiscal
year have a single audit performed.

As part of the single audit resolution process, the SEA must issue a management decision 4 to the
LEA stating whether the SEA sustains each audit finding and the reasons why the SEA does or
does not sustain each finding. 5 The management decision must also describe the corrective
actions that the LEA is required to take. According to Circular A-133, Section 400(d)(5), SEAs
must ensure that LEAs take timely and appropriate action to correct any control weaknesses or
instances of noncompliance identified through the single audit process. Circular A-133 includes
detailed requirements for the content of the management decision, the timeframe for its issuance,
and related SEA responsibilities.

The Department does not directly monitor the LEA single audit resolution practices of SEAs.
Instead, it relies on statewide single audits to identify SEAs that have incomplete or ineffective
oversight processes for LEA single audit resolution. The Department is responsible for
overseeing the resolution of single audit findings at SEAs that involve Federal education
programs.

According to Circular A-133, the auditee (SEA or LEA) holds primary responsibility for
following up on its audit findings and ensuring that corrective action is taken. This responsibility
includes the development of a corrective action plan to address each current-year finding and a
schedule of prior-year findings that details the status of each prior finding. For repeat findings,
the SEA or LEA must describe any corrective action that has been taken to date and what
remaining corrective actions are planned. For subrecipient audits, the SEA has an oversight role

3
  Although Circular A-133 has been superseded by the Uniform Grant Guidance, the SEA requirements described in
this report continue to be in effect under the new regulations. We cite Circular A-133 requirements in this report
because the Uniform Grant Guidance was not in effect during the period covered by the audit.
4
  As explained in this report, a “management decision” is an SEA’s written decision that it must issue to an LEA
after it evaluates an LEA’s audit findings and corrective action plan.
5
  In this report, “audit finding” refers to a compliance finding for a Federal education program reported in the single
audit, unless otherwise stated.
Final Report
ED-OIG/A02P0008                                                                                     Page 3 of 18

and must ensure that the LEA’s planned corrective actions are appropriate and implemented
timely. LEA and SEA officials must have a shared commitment to correcting LEA audit
findings for the audit resolution process to be successful.

Illinois has received, on average, about $1.46 billion in Federal educational assistance each year
since 2011. The two largest Federal elementary and secondary education grant programs are
Title I, Part A of the Elementary and Secondary Education Act (Title I), which assists LEAs and
schools with high numbers or high percentages of children from low-income families, and Part B
of the Individuals with Disabilities Education Act (IDEA), which assists States and LEAs in
meeting the needs of children with disabilities. Figure 1 shows the total amounts of Federal
elementary and secondary education funds that the Department awarded to Illinois from
FYs 2011–2015 for Title I, IDEA, and all other Federal elementary and secondary education
programs combined.

Figure 1. Federal Elementary and Secondary Education Program Funds Awarded to
Illinois in Millions (a)

    $2,000

    $1,750

                $1,469               $1,477                                   $1,458               $1,475
    $1,500                                               $1,415

    $1,250

    $1,000

     $750

     $500

     $250

       $0
                 2011                2012                 2013                 2014                2015 (b)
                  Title I, Part A    IDEA, Part B      Other Elementary/Secondary Level Programs

(a) Source: State formula grant allocation tables from the Department’s Web site. Award totals do not include
Federal education funds awarded directly by the Department on a competitive basis.
(b) 2015 grant totals are estimated.

Of the 1,075 LEAs operating in Illinois in FY 2012, 424 reported having a single audit
performed. We reviewed single audit data from the Federal Audit Clearinghouse and identified
36 Illinois LEAs that had at least one audit finding that repeated for 3 or 4 years from
FYs 2011–2014. 6 We judgmentally selected four LEAs based on the (1) significance of the
repeat findings, (2) number of years that the findings repeated, (3) total number of repeat
findings at the LEA, and (4) size of the LEA in terms of student enrollment. In addition, we

6
 The Federal Audit Clearinghouse collects and disseminates information about the results of single audits of State
and local governments and nonprofit entities. The U.S. Census Bureau administers the Federal Audit Clearinghouse
on behalf of OMB.
Final Report
ED-OIG/A02P0008                                                                                       Page 4 of 18

judgmentally selected two LEAs that had segregation of duties findings because we noted this as
a recurring trend during the Illinois LEAs selection process. 7 Table 1 provides details about the
six LEAs selected for review.

Table 1. Illinois LEAs Selected for Review
                                Enrollment
Selected LEA                                                                Repeat Finding(s)
                                     (a)
                                                           Eligibility for Title I, Part A, targeted
Chicago Public Schools                    400,994
                                                           assistance programs not properly monitored.
                                                           Time and effort certification forms not properly
Rockford Public Schools                    29,160
                                                           filed.
                                                           Inadequate documentation of payroll
                                                           expenditures, controls over capital assets,
Springfield Public School
                                           15,228          controls over private school participation,
District
                                                           controls over expenditures incurred, and
                                                           controls over monitoring level of effort.
                                                           The district obligated Title I funds prior to
                                                           submitting applications for approval did not
Granite City Community                                     expend Title I funds in accordance with the
                                            6,606
Unit School District                                       program budget or have proper support for
                                                           expenditures and filed Title I and II
                                                           expenditure reports late.
Jacksonville Schools District               3,618          Segregation of duties related to Federal awards.
Rantoul City Schools                        1,632          Segregation of duties related to Federal awards.
(a) Student enrollment totals as of 2013–2014. Source: 2013–2014 Home District Enrollment Report obtained from
ISBE’s Web site.

ISBE’s Funding and Disbursement Services division (Funding and Disbursements) facilitates the
single audit resolution process, which involved ISBE’s nine Federal program divisions. Funding
and Disbursements was responsible for (1) identifying LEAs required to have a single audit each
year; (2) ensuring single audit reports were submitted timely to ISBE; (3) reviewing single audit
reports for quality, content, and funding accuracy; (4) identifying Federal award findings and
recovering questioned costs; and (5) tracking single audit findings. 8 Funding and Disbursements
issued a memorandum to the Federal program division responsible for the program area cited in
the single audit finding notifying the division of its responsibilities. The memorandum was
accompanied by a copy of the finding and the corrective action plan as it appeared in the single
audit report and the resolution criteria that the Federal program divisions used to report its
determination back to Funding and Disbursements.

Once each responsible Federal program division received the memorandum and applicable
documentation, they were notified of their responsibility to review the single audit findings. The
Federal program division staff members were to (1) determine whether Federal funds were

7
  We used a judgmental selection process to select the six LEAs for review; therefore, the results of our work cannot
be projected to the population of all Illinois LEAs.
8
  Funding and Disbursements tracked each single audit finding in a finding log, which included a description of the
finding, the Federal program division (through project codes) and key dates to track the audit findings progress
through resolution process.
Final Report
ED-OIG/A02P0008                                                                                    Page 5 of 18

appropriately expended, (2) use the corrective action plan as a guide for timely resolution of the
findings, (3) communicate or follow up on the resolution of the findings, and (4) report their
determinations back to Funding and Disbursements. If the Federal program divisions reported
questioned costs to Funding and Disbursements that required a financial adjustment, 9 Funding
and Disbursements was responsible for issuing a letter notifying the applicable LEA of the
adjustments or refund due, noting the impact of the adjustment on the LEA’s Federal grant award
for the following year.



                                           AUDIT RESULTS


ISBE did not provide effective oversight to ensure that LEAs took timely and appropriate
corrective action on single audit findings. This occurred because ISBE lacked an audit
resolution process that effectively resolved findings, did not comply with Federal requirements,
and lacked coordination among ISBE divisions and between ISBE and the LEAs. No one
division within ISBE was overseeing this function and ISBE did not develop appropriate controls
to identify weaknesses or areas of noncompliance. As a result, findings at numerous LEAs
repeated for multiple years, putting Federal funds and program outcomes at risk.

In its comments to the draft report, ISBE agreed with the finding and recommendations. We
summarize ISBE’s comments at the end of the finding and include the full text of its comments
as Attachment 2 of this report.

FINDING – ISBE Did Not Ensure that LEAs Took Timely and Appropriate Actions
           to Correct Single Audit Findings

ISBE did not ensure corrective action plans were appropriate to resolve the respective audit
findings and prevent the findings from repeating. ISBE did not communicate effectively with
LEAs during the audit resolution process to obtain sufficient information about the findings, or
determine appropriate corrective actions. ISBE also did not issue management decisions for
LEA single audit findings as required by Circular A-133. Finally, ISBE did not adequately track
LEA findings or the status of corrective actions, nor did ISBE follow up with LEAs to ensure
they timely implemented corrective actions.

ISBE Did Not Identify and Require Appropriate Corrective Actions

ISBE did not ensure that corrective action plans for the LEA audit findings were appropriate to
resolve and prevent repeat audit findings. Specifically, we found that all five 10 Federal
Program divisions we reviewed accepted corrective plans that lacked sufficient detail or action
items that would correct the condition or address the underlying cause for 49 of the 54 repeat


9
  An audit adjustment is an increase or decrease made by Funding and Disbursements to the Federal grant award in
the subsequent year or a refund made by the LEA to ISBE.
10
   Department grant funds flowed through eight of the nine Federal program divisions and five of those divisions
received single audit findings during our audit period.
Final Report
ED-OIG/A02P0008                                                                                       Page 6 of 18

single audit findings that we reviewed. 11 The corrective action plans were deemed appropriate
and implemented based on each division’s responsible staff member’s review of the plan and
the finding. These staff members were responsible for communication, which included
contact with LEA officials through phone calls and/or email exchanges to confirm corrective
actions. However, the evidence showed that this was only practiced by one of the five Federal
program divisions and did not extend beyond confirming the corrective actions. Funding and
Disbursements would receive and record each division’s determinations in the finding log. All
54 corrective action plans were recorded as appropriate and implemented without any ISBE
division ensuring that LEAs took appropriate corrective action to resolve their single audit
findings, as required by Section 400(d) (5) of Circular A-133.

Funding and Disbursements requested that each Federal program division report its
determination through the submission of a “finding sheet.” The determination was recorded in
a grey “For ISBE Review” box printed at the bottom of the copy of each finding. This
contained two code categories associated with the status of resolution and questioned costs.
The numeric codes (Codes 1–5) represented the status of each audit findings resolution status
and the alpha codes (Codes A–E) represented each finding and related questioned costs.
Table 2 below lists the codes ISBE used for audit resolution criteria. 12

Table 2. ISBE Single Audit Resolution Criteria
Code                  Resolution                           Code                Questioned Costs
         An appropriate action plan has been                         Amounts shown as questioned costs
     1                                                        A
         implemented.                                                were resolved by ISBE.
                                                                     Amounts shown as questioned costs
         Corrective action is not necessary and                      are allowed costs in accordance with
     2                                                        B
         this is not a finding.                                      program regulations and should not
                                                                     have been questioned.
         Corrective action is not necessary,                         Questioned costs were not recovered
     3                                                        C
         reasons other than the prior. 13                            as they are immaterial to this project.
         The finding will be further analyzed
                                                                     There are no amounts shown as
     4   during an upcoming review/monitoring                 D
                                                                     questioned costs.
         on-site visit or audit of the program.
                                                                     Send to Funding and Disbursements
     5   Other (with explanation).                            E
                                                                     for financial adjustment.

The finding sheets we reviewed all used numeric code “1” for the resolution of the single audit
finding and used either alpha codes “D” or “E” for the questioned costs of the single audit
finding. There were 14 code “E” findings, of the 54 findings, and all had financial
adjustments by Funding and Disbursements. The responsible Federal program division was
not instructed to “clearly state” whether the single audit finding was sustained and reasons
why the Federal program division reached its decision. Instead, they were instructed to
determine whether the LEA spent Federal funds appropriately and then assign the appropriate

11
   We reviewed all 54 corrective action plans for each of the applicable single audit findings we selected that
repeated for 3 or 4 years in FYs 2011–2014 at the six selected LEAs.
12
   The alpha and numeric code justifications were taken directly from ISBE’s single audit resolution criteria.
13
   The numeric code justification, “reasons other than the prior,” was language ISBE used to refer to the numeric
code “2.”
Final Report
ED-OIG/A02P0008                                                                        Page 7 of 18

codes for each audit finding before returning the finding sheet to Funding and Disbursements.
If the Federal program division selected alpha code “E,” it indicated the expected action to
repay the disallowed costs. This prompted Funding and Disbursements to issue a letter to the
LEAs noting an audit adjustment or noting a refund due to ISBE from the LEA. This letter
was the only formal document issued to the LEAs and it did not clearly state any of the
required elements of a management decision aside from the expected action to repay the
disallowed costs. For the remaining 40 single audit findings without questioned costs, LEAs
received no formal written communication about the findings from the Federal program
divisions or Funding and Disbursements.

We found that Granite City Community Unit School District had three separate repeat single
audit findings with questioned costs that were all first reported in FY 2008 and repeated in its
FY 2014 single audit report. The independent public accountant identified about $671,526 in
total questioned costs related to the lack of adequate procedures to ensure that the LEAs
performed required administrative responsibilities. Other than the letters from Funding and
Disbursements notifying Granite City Community Unit School District of the audit adjustment
made to its Federal award each year, no Federal program divisions contacted LEA officials or
were involved in the resolution of these single audit findings. Further, the corrective action
plans stated that, “[t]he District will implement additional controls to ensure that all deadlines
are being met” for all three findings in FYs 2011 through 2014. The Federal program
divisions deemed these corrective actions to be appropriate and implemented, yet each year
reported to Funding and Disbursements of the need for an audit adjustment prompting the
letter to be issued notifying the LEA of the audit adjustment without identifying and requiring
an amended appropriate corrective action to resolve the underlying cause and/or condition for
the audit findings.

We also found that Rantoul City Schools had a repeat audit finding that was first reported in
FY 2009 without questioned costs and repeated through FY 2014, despite being reported each
year in its single audit report. The corrective action plan, which the Federal program division
deemed appropriate, stated that, “[t]he District will continue to review the current practice for
a reasonable solution and implementation process to improve internal controls.” This
corrective action plan was intended to address a lack of segregation of duties, but did not
provide details about how the LEA would improve its internal controls. Further, the LEA and
its independent public accountant agreed to use the identical corrective action plan each year
from FYs 2011 through 2014 and the Federal program division reported to Funding and
Disbursements that the plan was appropriate and implemented each year even though the
findings continued to repeat. Neither the responsible Federal program division nor Funding
and Disbursements provided evidence that it obtained any additional details about the
corrective actions or issued any formal communication to Rantoul officials. The corrective
actions for both Granite City Community Unit School District and Rantoul City Schools
identified the need for internal controls, but were not specific enough to ensure that the actions
described would resolve the finding.

ISBE Did Not Communicate Effectively With LEA Officials Regarding Audit Resolution

ISBE did not communicate effectively with LEAs during the single audit resolution process.
Specifically, Federal program divisions did not proactively and cooperatively engage LEA
officials to ensure the LEAs took corrective actions that were both timely and appropriate. The
Final Report
ED-OIG/A02P0008                                                                                 Page 8 of 18

six LEAs we reviewed had single audit findings cited for program areas that were administered
by five of the eight Federal program divisions. During interviews with the division
administrators, three stated that their staff communicated with LEAs regarding the resolution of
single audit findings through emails and/or phone calls to discuss the corrective actions
contained in the single audit report. However, only one of the divisions provided evidence of
LEA communications and we noted that it did not extend beyond confirmation of the corrective
actions listed in the audit report. Further, one of the three division administrators stated that his
staff provided additional guidance to LEAs during the audit resolution process, including on-site
technical assistance, if necessary. However, the administrator did not provide evidence that the
division had given technical assistance to LEAs related to audit resolution. Officials from all
six LEAs stated that no Federal program division had been in contact with them or involved in
the resolution of their findings during the audit period. We found that Funding and
Disbursements’ communication with LEAs was limited to standard notifications about financial
adjustments made to the LEA’s Federal award and the Federal programs divisions did not
consistently communicate to confirm corrective actions.

Circular A-133 does not specify the degree of outreach and communication that SEAs must
have with LEAs related to single audit resolution, as long as SEAs fulfill the specific
requirements for pass-through entities. However, proactive and cooperative engagement with
LEA officials facilitates the audit resolution process by enabling the SEA to ensure that LEAs
take corrective actions that are both timely and appropriate. The Department’s guide on
cooperative audit resolution provides guidance for how entities can improve communication
and interaction during the audit resolution process. 14 The guide states that oral communication
between the auditee and oversight agency is an essential component of audit resolution and
that complex findings may require full and open dialogue among all participants on a
continuing basis. Although the guide targets cooperation between Federal and State agencies
when resolving State level audit findings related to Federal programs, it also states that SEAs
and LEAs can apply these tenets of cooperative audit resolution. Principles of cooperative
audit resolution are now included in the Uniform Grant Guidance as a requirement for Federal
agencies. According to Uniform Grant Guidance § 200.25, “[c]ooperative audit resolution
means the use of audit follow-up techniques which promote prompt corrective action by
improving communication, fostering collaboration, promoting trust, and developing an
understanding between the Federal agency and the non-Federal entity.”

ISBE Did Not Issue Management Decisions for LEA Audit Findings

ISBE did not issue management decisions for LEA single audit findings as required by
Circular A-133. ISBE provided us with a finding sheet as its single audit resolution
documentation to the 54 repeat single audit findings at the 6 LEAs. We found that the finding
sheet was not a management decision as it did not include all of the required information and
ISBE did not issue the internal document to the LEAs.

According to Section 405(a) of Circular A-133, “[t]he management decision shall clearly state
whether or not the audit finding is sustained, the reasons for the decision, and the expected

14
  U.S. Department of Education, Cooperative Audit Resolution and Oversight Initiative (1999) “Discovering New
Solutions through Cooperative Audit Resolution: A Guide.” This has been adopted by Association of Government
Accountants’ Intergovernmental Partnership, which makes two guides now available online.
Final Report
ED-OIG/A02P0008                                                                                    Page 9 of 18

auditee action to repay disallowed costs, make financial adjustments, or take other action.…
The management decision should describe any appeal process available to the auditee.”
According to Section 105 of Circular A-133, a “[m]anagement decision means the evaluation
by the Federal awarding agency or pass-through entity of the audit findings and corrective
action plan and the issuance of a written decision as to what corrective action is necessary.”

We interviewed seven Federal program division administrators 15 and found that none were
familiar with the term “management decision.” We also determined that none of the Federal
program divisions issued documentation to the LEAs that included the required information
for a management decision. Officials from the six LEAs confirmed that they received no
documentation from the Federal program divisions and they were not familiar with the
requirement for management decisions.

The Federal program divisions did not convey in writing to the LEA what ISBE expected the
LEAs to do to take “timely and appropriate” action. ISBE did not have a formal appeal process,
and the LEA was not informed of any possible action it could take if the LEA disagreed with
Federal program division’s final determination of a financial adjustment being made to their
Federal grant award.

ISBE Did Not Adequately Track the Resolution of Findings or Follow Up on Corrective
Actions

Funding and Disbursements did not adequately track the resolution of LEA findings and the
Federal program divisions did not follow up on the status of corrective actions. Funding and
Disbursements was responsible for tracking single audit findings, while the Federal program
divisions were responsible for carrying out audit resolution activities. Funding and
Disbursement’s tracking process relied primarily on the codes and the receipt dates of the finding
sheets by the Federal program divisions. Officials in Funding and Disbursements stated that they
expected the Federal program divisions to address findings with the appropriate amount of
scrutiny before submitting the finding sheet and to follow-up with the LEA on the status of
corrective actions. However, because the Federal program divisions did not identify and require
appropriate corrective actions prior to submitting the codes to Funding and Disbursements, the
findings were “closed” 16 within the tracking process without assurance that the corrective actions
were appropriate and implemented to resolve the findings. According to one Federal program
division administrator, his staff identified repeat audit findings and tracked the resolution status
of their audit findings and provided evidence of the tracking practices (i.e. tracking criteria and
spreadsheet). Three division administrators were unaware of the repeat audit findings in their
Federal program divisions and generally did not follow up on the status of corrective actions
plans after returning the finding sheet to Funding and Disbursements. Because Funding and
Disbursements did not adequately track audit findings and the Federal program divisions did not
consistently follow up on corrective actions, ISBE could not ensure that the LEAs took
appropriate and timely corrective action as required by Section 400(d)(5) of Circular A-133.


15
   We did not interview the division administrator from Nutrition & Wellness because the Federal program division
was not funded by the Department.
16
   An audit review is “closed” when Funding and Disbursements has received and verified all corrections made by
the LEA and has received the appropriate documentation from the Federal program divisions.
Final Report
ED-OIG/A02P0008                                                                      Page 10 of 18

The tracking performed by Funding and Disbursements did not include any information to justify
closing each audit finding in a given year, which should include follow-ups with the LEAs to
ensure the corrective actions were appropriate, timely, and implemented. For example, Chicago
Public Schools had a single audit finding first reported in FY 2012 that repeated through
FY 2014, despite being reported every year in a single audit report. The finding concerned the
lack of support to verify that Chicago Public Schools used Title I funds only for programs
designed to meet the need of eligible students. The independent auditors identified over
$1.2 million in total questioned costs during this period. For three consecutive years, Funding
and Disbursements recorded the single audit finding information, the same resolution codes,
made the audit adjustments and issued the letters noting the adjustments or refunds due. Even
though each year’s single audit report stated that Chicago Public Schools had not implemented
the corrective action plan or resolved the audit finding, Funding and Disbursements closed these
audit findings the end of each year and the finding sheet indicated that the corrective action plans
were appropriate and implemented.

Tracking audit findings is an essential component of an SEA’s oversight of LEA audit
resolution. Without an adequate tracking system for individual findings, Funding and
Disbursements cannot easily identify specific findings reported at LEAs across the State,
determine how many times each finding has repeated, or effectively follow up to ensure that
LEAs take timely corrective actions. In addition, ISBE lacks a tool that could provide a control
mechanism allowing it to periodically assess the pervasiveness of LEA risks of noncompliance
with Federal requirements, the existence of systemic control weaknesses across LEAs, and the
risk of improper payments.

Underlying Weaknesses in ISBE’s Oversight of LEA Audit Resolution

The weaknesses noted above occurred because the LEA single audit resolution process was
divided between Funding and Disbursements and the various Federal program divisions, with no
one division overseeing and ensuring the findings were resolved. Specifically, Funding and
Disbursements processed LEA’s single audit reports, tracked LEA findings, and recovered any
questioned costs, while the resolution of all single audit findings was handled by the Federal
program divisions. Funding and Disbursements designed and monitored only the portion of
ISBE’s single audit resolution process over which it had responsibility. The Federal program
divisions lacked written policies and varied in how they conducted audit resolution.

ISBE did not develop and implement policies and procedures for resolving single audit findings
for each Federal program division involved in the process. Funding and Disbursements
developed policies and procedures governing its own process for resolving single audits that
quoted Circular A-133 Section 400(d)(5) and Section 405 and then described the Federal
program division’s responsibility to issue management decisions. However, these policies and
procedures did not include an effective level of communication between ISBE and the LEAs to
resolve audit findings, how to evaluate a finding and the corrective action plan, and how to track
findings and follow up on corrective actions. Funding and Disbursements also did not distribute
these policies and procedures to each of the responsible Federal program divisions. We found
that one division administrator possessed a version of the Federal program division’s
responsibilities as described in the policies and procedures, but possession of this information did
not result in the issuance of management decisions to the LEAs. This division administrator
stated he was not familiar with the term “management decision.” The remaining division
Final Report
ED-OIG/A02P0008                                                                      Page 11 of 18

administrators stated they were unaware of the existence of any policies and procedures for the
single audit resolution process. Although Funding and Disbursements issued a memorandum to
the responsible Federal program divisions each year regarding applicable single audit findings,
the memorandum did not identify the Federal requirements or the Federal program division’s
responsibility to issue management decisions. It requested that the responsible Federal program
division review the finding and determine whether Federal funds were appropriately expended
and identified the Federal program division’s responsibility to communicate and follow up with
the LEAs to resolve the finding.

Written policies and procedures are an essential component of effective internal control. The
“Internal Control–Integrated Framework” published by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) is a widely accepted standard for internal
control in organizations. The Internal Control–Integrated Framework identifies five components
of internal control (control environment, risk assessment, control activities, information and
communication, and monitoring) that must all be adequately designed, implemented, and
operating in an integrated manner for internal control to be effective. The U.S. Government
Accountability Office’s “Standards for Internal Control in the Federal Government” adapts
COSO for the government environment. According to those standards, management is
responsible for designing policies and procedures to fit the organization’s circumstances and
incorporating them as an integral part of its operations. An organization’s control activities are
the actions management establishes through policies and procedures to achieve objectives and
respond to risks in the internal control system.

Finally, without adequate oversight of the single audit resolution process, ISBE had no assurance
of its effectiveness. ISBE had controls to identify and notify applicable LEAs to timely complete
single audit reports, to perform multiple reviews of the single audit reports for completeness and
accuracy, and to track the completion of ISBE’s finding sheets by the Federal program divisions.
However, ISBE lacked the policies and procedures to ensure effective internal and external
communication; proper evaluation of findings and corrective actions; the timely resolution of
findings; and compliance with regulatory requirements. Had ISBE instituted a management
review and quality assurance process to assess its performance and its oversight of the single
audit resolution process, it would have been able to evaluate its overall effectiveness. These
processes would have been able to systematically detect and correct errors, control weaknesses,
and noncompliance with regulatory requirements.

By not issuing management decisions, ISBE did not provide the necessary guidance to LEAs
in-order to timely and appropriately resolve single audit findings. Further, ISBE did not comply
with Federal requirements, putting education program funds and program outcomes at risk.
ISBE did not identify appropriate corrective actions, track and follow-up on findings and
corrective action plans, thus resulting in single audit findings repeated for multiple years, often
with financial implications as evident with 14 of the 54 repeat findings that had questioned costs.

Based on our analysis of single audit data from the Federal Audit Clearinghouse, Illinois had
among the highest number of LEAs (36 of 424), with repeat findings for 3-4 years in any State.
The repeat findings included those described earlier as well as multiple findings at other LEAs
related to inaccurate or untimely financial reporting for Federal education grants, insufficient
documentation of personnel time and effort charged to Federal grants, and failure to check the
Federal suspension and debarment list before awarding contracts to vendors.
Final Report
ED-OIG/A02P0008                                                                       Page 12 of 18

Recommendations

We recommend that the Director of the Office of the Chief Financial Officer’s Post Audit Group
require ISBE to—

1.1    Assign responsibility for designing and overseeing ISBE’s LEA single audit resolution
       process to a single division. This division would be responsible for ensuring that the
       audit resolution process effectively resolves findings, complies with Federal
       requirements, and coordinates with other ISBE divisions and communicates with the
       LEAs.

1.2    Revise existing written policies and procedures pertaining to the LEA single audit
       resolution process based on the weaknesses identified in this report, distribute these
       procedures to program divisions, and ensure that Federal program divisions fully
       implement these procedures.

1.3    Develop a management decision template that meets regulatory requirements for content
       and require issuance of a management decision letter to applicable LEAs for every
       Federal education program finding.

1.4    Modify the current tracking methods for individual LEA audit findings to identify repeat
       findings and the status of the corrective action plan for the finding to facilitate effective
       oversight and timely LEA finding resolution. ISBE should not close the finding until the
       LEA has demonstrated that it has fully implemented all required corrective actions.

1.5    Take immediate action to ensure that all LEAs that currently have unresolved repeat
       findings, including those highlighted in this report, take prompt and appropriate
       corrective actions. ISBE should initially prioritize the resolution of the findings with the
       greatest program or fiscal impacts and contact the Department as necessary for guidance
       and assistance.

1.6    Establish an internal management review process to be conducted by the unit assigned
       responsibility for ISBE’s LEA single audit resolution process. This review process
       should cover the status and performance of ISBE’s activities related to LEA single audit
       resolution.

1.7    Design and implement a periodic quality assurance process for ISBE’s LEA single audit
       resolution oversight activities to detect and correct errors, control weaknesses, and
       noncompliance with regulatory requirements. The quality assurance review should be
       conducted by an ISBE unit that is not involved in any aspect of LEA audit resolution.


ISBE Comments

In its response to the draft report, ISBE agreed with the finding and the recommendations. ISBE
stated that it will take immediate action to resolve repeat single audit findings. Further, ISBE
stated that it will provide technical assistance to the program areas to assist them in taking an
active role in corrective action implementation to ensure resolution. ISBE also noted that the
Final Report
ED-OIG/A02P0008                                                                    Page 13 of 18

State of Illinois is in the process of implementing the Illinois Grant Accountability and
Transparency Act, which will ensure ISBE and other State agencies have a more streamlined
process and are able to provide an adequate and timely review of single audit reports.



                  OBJECTIVE, SCOPE, AND METHODOLOGY


The objective of our audit was to determine whether ISBE provided effective oversight to ensure
that LEAs took timely and appropriate action to correct single audit findings. Our audit covered
ISBE’s processes and activities related to the resolution of LEA single audit findings that
occurred in FYs 2011–2014.

To achieve our audit objective, we performed the following procedures:

   1. Reviewed applicable sections of the Single Audit Act of 1984, Circular A-133, the
      Circular A-133 Compliance Supplement dated March 2014, and the Uniform Grant
      Guidance to gain an understanding of the oversight responsibilities of the Department and
      SEAs related to LEA single audit resolution.

   2. Reviewed previous reports issued by our office and the U.S. Government Accountability
      Office that addressed various aspects of SEA oversight of LEAs, including the resolution
      of LEA audit findings.

   3. Judgmentally selected six Illinois LEAs for review (see “Sampling Methodology”
      below).

   4. Reviewed all of the FYs 2011–2014 single audit reports for ISBE and the six selected
      LEAs to identify information relevant to the audit objective, including repeat findings
      and areas of internal control weakness at the entities.

   5. Interviewed ISBE officials and reviewed ISBE’s written policies and procedures to gain
      an understanding of ISBE’s oversight processes related to LEA single audit resolution
      and other areas relevant to the audit objective.

   6. Interviewed officials at each of the six LEAs to obtain information about the repeat
      findings and to evaluate the nature and extent of ISBE’s interaction with the LEAs related
      to the resolution of the findings.

   7. Requested management decision letters and reviewed the documentation provided for
      adherence to Circular A-133 requirements for content and timeliness. We also obtained
      and reviewed any other available documentation regarding ISBE communications with
      the LEAs related to the resolution of audit findings.
Final Report
ED-OIG/A02P0008                                                                       Page 14 of 18

Sampling Methodology

Selection of LEAs. We extracted and analyzed data from the Federal Audit Clearinghouse to
identify Illinois LEAs that had repeat audit findings during the audit period. We identified
36 LEAs that had findings that repeated for 3 or 4 years from 2011–2014. We judgmentally
selected 6 of the 36 LEAs and then obtained as well as reviewed each single audit report to gain
more information about the nature and significance of the repeat findings. To achieve our
objective, we judgmentally selected 4 of the 36 LEAs for review based on the following factors:
(a) significance of the repeat findings, (b) number of years that the findings repeated, (c) total
number of repeat findings at the LEA, and (d) the size of the LEA in terms of student enrollment.
The LEAs selected were: Springfield Public School District, Granite City Community Unit
School District, Chicago Public Schools, and Rockford Public Schools were initially selected.

During our review of the Federal Audit Clearinghouse data we noted a trend of recurring
findings related to segregation of duties at 9 of the 36 LEAs with repeat findings. Therefore, we
selected two additional LEAs for review with segregation of duties findings due to their size and
repeat findings. We selected the Jacksonville School District and Rantoul City Schools with
segregation of duties findings that recurred in FYs 2010–2014.

We used a judgmental selection process to choose six sample LEAs for review. As a result, we
cannot project our results to the population of all Illinois LEAs.

Selection of Management Decision Letters. We requested management decision letters for the
universe of 54 findings from 23 single audit reports, which included 42 repeat findings for 3 or 4
years in FYs 2011–2014 at the 4 LEAs initially selected and the 12 segregation of duties findings
from the two additional LEAs selected. ISBE did not provide management decisions letters, but
instead provided finding sheets that it considered to be sufficient to address the 54 audit findings.
We determined that the finding sheets were not sufficient and that ISBE did not issue any
management decisions as required by Circular A-133, which we fully discuss in the Audit
Results section.

We held an entrance conference with ISBE officials and performed onsite audit work at ISBE’s
offices in Springfield, Illinois, in September 2015. We interviewed officials at Springfield
Public School District, Granite City Community Unit School District, Jacksonville School
District and Rantoul City Schools at their offices in September 2015 and interviewed officials at
Chicago Public Schools and Rockford Public Schools in October 2015. We conducted an exit
conference with ISBE officials on April 20, 2016.

We assessed ISBE’s internal controls over LEA to ensure the single audit findings are corrected
by reviewing ISBE’s policies and procedures, internal audit finding tracking log, other relevant
documentation and interviewing ISBE and LEA officials. We concluded that ISBE did not
provide effective oversight to ensure that LEAs took timely and appropriate corrective action on
single audit findings

Our use of computer-processed data was limited to a review of ISBE’s audit finding tracking log.
We performed a limited assessment of the accuracy and completeness of data for the audit period
FYs 2011–2014. We traced a sample of log entries to the support documentation to verify the
Final Report
ED-OIG/A02P0008                                                                      Page 15 of 18

correct codes as well as matched each requested finding sheet to the corresponding log entry and
found it to be sufficiently reliable for our audit purposes.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our finding and conclusions based on our audit objective.



                            ADMINISTRATIVE MATTERS

Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials.

If you have any additional comments or information that you believe may have a bearing on the
resolution of this audit, you should send them directly to the following U.S. Department of
Education official, who will consider them before taking final Departmental action on this audit:

                              Charles Laster
                              Director, Post Audit Group
                              Office of the Chief Financial Officer
                              U.S. Department of Education
                              550 12th Street SW
                              6th Floor
                              Washington, D.C. 20202

It is the policy of the U. S. Department of Education to expedite the resolution of audits by
initiating timely action on the findings and recommendations contained therein. Therefore,
receipt of your comments within 30 calendar days would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. §552), reports issued by the Office
of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.


                                             Sincerely,

                                               /s/

                                             Daniel P. Schultz
                                             Regional Inspector General for Audit
Final Report
ED-OIG/A02P0008                                                                     Page 16 of 18

          Attachment 1: Abbreviations, Acronyms, and Short Forms Used in this Report


Audit finding                 Compliance finding for a Federal education program reported in a
                              Circular A-133 single audit

COSO                          Committee of Sponsoring Organization of the Treadway
                              Commission

Department                    U.S. Department of Education

Funding and Disbursements Funding and Disbursements Services Division

FY                            Fiscal Year

IDEA                          Part B of the Individuals with Disabilities Education Act

ISBE                          Illinois State Board of Education

LEA                           Local Educational Agency

OMB                           Office of Management and Budget

SEA                           State Educational Agency

Title I                       Title I, Part A of the Elementary and Secondary Education Act

Uniform Grant
Guidance                      Title 2 of the Code of Federal Regulations
Final Report
ED-0IG/ A02 P0008                                                                                                        Page 17 of 18

                        Attachment 2: ISBE Comments on the Draft Report



                           Illinois State Board ol Education
                              •oo North F ~r$l Stroe:. Spronqf•cld. lll•nO<s 62777·0001
                              'N'WW •sbe net

                           J•mes T. Me~k•                                                                         Tony Smllh. Ph .D.
                          ChlJttmllrJ                                                                Slollo Su~mton<Jonr ot EducarJ<m




        Oc10ber 10. 20 I6



         Mr. Daniel Schultz
         R.::ginnal Inspector (i.:ncral
         Audi t S~n icc.:s Ne" York/Dallas Region
         .n Old Slip
         Ncw York. NY 10005

         RE: ED-OIG/;\02P0008

         Dear Mr. Schult:t.:

         As requested. attached you wi ll find the rcsPQnsc 10 the (.lratllinding which wns no!cd in your
         :ll!dil .. lllim>i~ St<lle Board of Education· s Ovc:rsight of l.m:nl t:ducatim:al Agcn~·~ Singh: Audit
         Resolu tion:· 1"11.: Illinois State ~oanl of Educa tion (ISI3F.) undc:rstanJs the importance of the
         sin~lc audit process <lml wi ll make.: rcsolutitm of the.: notc.:d ti nuing a priorit y :-ts Jo~umc.:nt.::d in the
         Agency rc:spons~.

         As always ISI3E apprc.:ia tcs your feedback and 1hc rccommcmhuions 10 .-trcngJ hcn the single
         audit pmcc:ss.


         / (ccrdy.•.-     (            n
        (~~
         Suuc Supc:rintcndcnt ,,cl:dliC<IIion



         Anachmcm
Final Report
ED-OIG/A02P0008                                                                                                    Page 18 of 18




        Response from ISHE      ~lated   to f.:D-01G ft\02POOO!!

        IS11E :.grcc~ with the linding. :.nti th<:   n-::omm<:n~ ..n ions.


       IS DE will take immediate action as it rt:latcs to unrt'solved repco.1t single audit lindings. For all
       single audits received in the FY 17 cycle. ISBE will identify r<:pt:at tim..ling~. both fiuam:iul ami
       non-tinancial. ilnd monitor the progress uf tho.: ro.:sulutiun. To.:dmio.:al :1ssistano.:e wilt be providt:d
       to tho.: prugmm uro.::~s within ISBE to ussisttho.:m in taki n~ an :!Ctivc: role: 111 the correc:tive ac tion
       implementation to ensure resolution. IS HE will also continue h> evaluatt: the reso lution process
       in FY 17 whilo.: aligning resources and tracki ng outcomes as the administro.~tivc fum:ti<H1 of the
       single audit review process transitions to the Grants Accoumahility and Tran~parcncy lJnit
       {(;/\·I I !) in I·YII'l.

       The Stale of Illinois is in the proct:ss of implerm:nti ng the Ill inois Grnut Accountability anJ
       ·1ro.~nsparcncy Act (G/\ J i\1. which includes discussions related to the ~u brecipient single auJi t
       re\ ie" fum:tion 10 ensure IS13E. along with other state agcnci.:s. ha\'C a more strc:unlined process
       :md are able to prO\·ide an adequate and timt:ly l'l:\'i&:\\ of single audit rcpons. The intent or this
       Jimction at GA'I U. \\ hid! is housed in the (i<)\'ernor's Oilice or' M:tnagement :tnd Budget. will
       he tn de~ign. oversee, a~d 1r:.ck th.: singlt: audit process trom beginning to end. JSBE wi:l
       continue 10 pia~· a role at tb: programmatic J.:,c( and will implement the recommendations
       ro.:lat~·d to ~ubro.:c1picnt re~olution of findings as part ol'thc nC\\ pmec~s. As t hi~ process i~
       dc:,clopcd and irnplc:mcmcc. IS DE \\ ill share these rccommcnd:nions \\ ith GA TlJ ~the unit is
       :marc of the cxpcct...1tions of 1he U.S. Department o f Ed~tc:ui on . ISBF \\ illwntinuc to monitor
       this process and the implementation by (it\ I'L' to ensure the pro.::e~sc:~ and proc~"<.lure:. :~rc.­
       inclusiH• of tht.' recommenda tions.