ILLINOIS STUDENT ASSISTANCE COMMISSION

FINANCIAL AUDIT

For The Year Ended June 30, 2008 (Amounts Expressed In Thousands)

(Certain FY2007 information has been reclassed to conform to the FY2008 presentation)

FINANCIAL OPERATIONS (All Funds)	FY 2008	FY 2007
GOVERNMENTAL ACTIVITIES Program revenues: Operating grants and contributions......................... Program expenses: Scholarships, awards and grants............................. Interest................................................................ Governmental activities, net (expenses)........................ BUSINESS-TYPE ACTIVITIES Program revenues: Charges for services............................................. Operating grants and contributions......................... Program expenses: Student loan purchase program.............................. Prepaid tuition....................................................... Scholarships, awards and grants............................. Loan guarantee program....................................... Business-type activities, net (expenses).................. Program activities, net................................. GENERAL REVENUES Appropriations............................................................ Investment income...................................................... Special item – sale of loan portfolio.............................. Other…..................................................................... Change in net assets....................................	$ 5,052 429,558 569 430,058 (425,006) 114,445 131,839 246,284 101,174 73,559 - 226,553 401,286 (155,002) (580,008) 429,309 2,579 (10,855) (4,702) 416,331 $ (163,677)	$ 5,142 402,384 569 402,953 (397,811) 227,552 414,999 642,551 303,817 61,641 53,306 225,843 644,607 (2,056) (399,867) 397,650 1,056 (17) (89) 398,600 $ (1,267)
SELECTED BALANCE SHEET ACCOUNTS	FY 2008	FY 2007
Cash and cash equivalents................................................. Investments and marketable securities................................ Securities lending collateral................................................ Student loans receivable, net Other receivables.............................................................. Notes receivable............................................................... Tuition & accretion payable............................................... Revenue bonds payable and lines of credit.......................... Securities lending collateral obligation................................. Total assets...................................................................... Total liabilities................................................................... Total net assets.................................................................	$ 134,374 987,650 167,529 1,135,038 63,829 98,838 1,102,406 1,270,211 170,776 2,603,605 2,589,606 13,999	$ 222,587 1,024,630 - 3,414,956 131,743 87,587 956,201 3,674,744 - 4,897,236 4,767,522 129,714
AGENCY DIRECTOR
During Audit Period: Mr. Andrew Davis Currently: Mr. Andrew Davis

Controls over financial reporting were not adequate

Collateral investments, obligations, and losses were not recorded

Disclosures were not made

Management stated that information was not received timely

Controls over reporting investment transactions need improvement

The Commission accepted our recommendation

Deposits were not collateralized

Investments exceeded investment policy limits

10% invested in a single issuer limited by policy to 5%

$5 million deposit balance uncollateralized

Management stated that errors were made

Recommended improved monitoring of deposits and investments

The Commission accepted the auditor’s recommendation

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

SECURITIES LENDING PROGRAM NOT ACCOUNTED FOR PROPERLY

The Illinois Prepaid Tuition Program (Program) of the Illinois Student Assistance Commission (Commission) did not have adequate internal controls over financial reporting for its securities lending transactions.

The Commission implemented a securities lending program in fiscal year 2008. The Commission did not record its $168 million in securities lending collateral investments or $171 million in liabilities related to securities lending as of June 30, 2008, or the associated $3 million unrealized loss incurred for the fiscal year. In addition, the draft financial statements provided to the auditors did not have the required securities lending disclosures.

According to Commission management, the Commission receives information on a monthly basis from the custodial bank. The final information regarding impairment of the value of the securities lending collateral was received by the Commission only after year-end in August 2008. (Finding 1, page 76)

We recommended the Commission improve its controls so that it timely obtains all relevant investment information necessary to properly record and disclose of all material investment transactions in the Program’s annual financial statements.

The Commission accepted our recommendation and indicated it had implemented additional controls to ensure that all material transactions and disclosures are properly recorded on the financial statements on a timely basis.

INVESTMENT POLICIES NOT FOLLOWED

The Illinois Designated Account Purchase Program (IDAPP) does not have adequate collateral to cover 100% of its bank deposit balances that exceed FDIC insured amounts, and investments in a single issuer exceeded investment policy established limits.

IDAPP was in violation of its current investment policy restricting investments in a single issuer to no more than 5% of the total investment portfolio of the agency. IDAPP held over $5.6 million in commercial paper issued by a financial institution. This investment was approximately 10% of IDAPP’s total investment balance at its fiscal year-end.

In addition, during testing of cash and investments, a lack of sufficient collateral for deposits in excess of FDIC insured amounts was noted. IDAPP has an uninsured uncollateralized deposit balance of approximately $5 million at June 30, 2008, consisting of 2 locally held accounts in violation of the State Officers and Employees Money Disposition Act (Act).

According to Commission management, one of the bank accounts was set-up incorrectly, resulting in the balances being uncollateralized. An additional $4.7 million in a different bank was set up as a collateral account based on a contractual agreement. It was an oversight that a reciprocal collateralization was not provided (by the bank) for the funds that IDAPP provided to the bank as collateral. The $5,612,565 of commercial paper at another financial institution was also set-up in error. (Finding 3, pages 78-79)

We recommended IDAPP obtain sufficient collateral to cover uninsured deposit balances at each applicable bank. In addition, IDAPP should improve monitoring controls over deposit balances and to ensure that it adheres to its investment policy.

The Commission accepted our recommendation and stated that it had subsequently reduced its commercial paper investment to $3.5 million and invested in treasury bills. The $4.7 million uncollateralized deposit at Guarantee Bank has now been closed and other deposits are now fully collateralized.

OTHER FINDINGS

The remaining findings concern other insufficient controls over financial reporting. We will review progress toward implementation of all recommendations during the next audit.

AUDITORS’ OPINION

Our auditors stated the June 30, 2008 financial statements of the Illinois Student Assistance Commission are fairly presented in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

Our special assistant auditors for this audit were McGladrey & Pullen, LLP.

INTRODUCTION

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

AUDITORS’ OPINION

SPECIAL ASSISTANT AUDITORS