REPORT DIGEST

STATE EMPLOYEES’ RETIREMENT SYSTEM OF ILLINOIS

 

COMPLIANCE AUDIT

For the Year Ended:

June 30, 2003

 

Summary of Findings:

 

Total this audit                       1

Total prior audit                     0

Repeated from last audit        0

 

Release Date:

March 11, 2004

 

 

 

 

 

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

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 TDD (217) 524-4646

 

 

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

 

INTRODUCTION

This digest covers our compliance audit of the State Employees’ Retirement System (System) for the year ended June 30, 2003. A financial audit covering the year ending June 30, 2003 was issued separately.

It should be noted that, pursuant to the Illinois Pension Code, investments of the System are managed by the Illinois State Board of Investment.

SYNOPSIS
  • The System’s Internal Audit Division failed to audit the required major systems of internal accounting and administrative controls within the two-year period ended June 30, 2003. In addition, the previous internal auditor appeared to have performed operational duties prior to retirement.

 

 

 

 

 

 

{Financial Information and Activity Measurers summarized on the reverse page.}

 

   STATE EMPLOYEES' RETIREMENT SYSTEM OF ILLINOIS

INFORMATION FROM FINANCIAL AND COMPLIANCE AUDITS

                     TWO YEARS ENDED JUNE 30, 2003

 

OPERATING STATEMENT ANALYSIS

FY 2003

FY 2002

REVENUES: Contributions - Participants

                      Contributions - State agencies &
                      appropriations

                                Total Contributions

                      Net investment income

                      Net (depreciation) in fair value of
                      investments

                      Interest earned on cash balances

                                Total Revenue

EXPENSES: Benefits - Retirement annuities

                      Benefits - Survivors' annuities

                      Benefits - Disability benefits

                      ; Benefits - Lump-sum death benefits

                                Total Benefits

                      Refunds

                      Administration

                                Total Expenses

                      Deficiency of revenues over expenses

$ 285,209,344

 

396,067,236

$ 681,276,580

163,852,238

 

(150,507,775)

1,675,301

$ 696,296,344

$ 733,969,930

50,724,761

32,868,545

13,923,360

$ 831,486,596

28,369,787

8,221,236

$ 868,077,619

$(171,781,275)

$ 196,915,424

 

386,116,583

$ 583,032,007

187,345,527

 

(736,577,374)

3,120,449

$ 36,920,609

$ 522,544,406

47,794,085

33,161,126

14,418,870

$ 617,918,487

14,147,218

7,623,565

$ 639,689,270

$(602,768,661)

ANALYSIS OF PLAN INVESTMENTS

FY 2003

FY 2002

Balance at beginning of year, at fair value

Net cash (withdrawn) from investments

          Net investments (1)

Investment income – interest, dividends and other

Investment expenses

          Net Investment income (2)

Net realized gain (loss) on sale of investments

Net unrealized (loss) on investments

          Net (depreciation) in fair value of investments (3)

          Total net investment (loss) (4), (2) + (3)

          Balance at end of year, at fair value (1) + (4)

$7,543,749,485

(121,000,000)

$7,422,749,485

179,817,518

(15,965,280)

$ 163,852,238

(579,743,925)

429,236,150

$ (150,507,775)

$ 13,344,463

$7,436,093,948

$ 8,144,981,332

(52,000,000)

$ 8,092,981,332

205,029,989

(17,684,462)

$ 187,345,527

(198,743,013)

(537,834,361)

$ (736,577,374)

$ (549,231,847)

$ 7,543,749,485

SELECTED ACCOUNT BALANCES

JUNE 30, 2003

JUNE 30, 2002

Cash

Receivables

Investments, at fair value

Property and equipment, net of accumulated depreciation

Liabilities

Net Assets Held in Trust for Benefits

Actuarial Accrued Liability

Unfunded Liability

$ 36,049,053

31,658,281

7,436,093,948

3,087,685

(4,777,551)

$ 7,502,111,416

(17,593,980,039)

$(10,091,868,623)

$ 97,562,972

34,549,705

7,543,749,485

3,227,188

(5,196,659)

$ 7,673,892,691

(14,291,044,457)

$(6,617,151,766)

SUPPLEMENTARY INFORMATION

FY 2003

FY 2002

Number of System employees

Retirees and beneficiaries currently receiving benefits (unaudited)

Total members (unaudited)

Total active members (unaudited)

Total return on investments (unaudited)

74

54,375

93,517

70,192

.3%

83

44,557

103,846

81,680

(6.9)%

EXECUTIVE SECRETARY

During Audit Period: Michael L. Mory until December 31, 2002; Robert V. Knox effective January 1, 2003

Currently: Robert V. Knox

 

 

 

 

Required internal audits for fiscal year 2003 were not performed

 

Internal auditor performed administrative function part of the year

 

 

 

 

Management indicated previous internal auditor was utilized to help with ERI

 

 

 

 

 

 

 

 

 

 

System received $1,385,895,278 from pension bond proceeds and forwarded it on to ISBI for investment

 

 

 

 

 

 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NONCOMPLIANCE WITH THE FISCAL CONTROL AND INTERNAL AUDITING ACT

As part of our audit testing we noted the State Employees’ Retirement System’s (System) Internal Audit Division did not complete any of the required audits planned for fiscal year 2003. The last time these audits were completed was fiscal year 2001.

In addition, during our audit we noted that for the period from May 2002 to August 2002, the previous chief internal auditor performed operational duties by participating as a benefits counselor during the early retirement incentive (ERI).

The Fiscal Control and Internal Auditing Act (Act) (30 ILCS 10/2003) requires the chief executive officer to ensure the internal auditing program performs audits of all major systems of internal accounting and administrative control at least once every two years. The Act (30 ILCS 10/2002) also notes that the chief internal auditor is to "be free of all operational duties".

System management indicated that the current internal auditor was hired in August 2002 and required time to become acclimated to the System in order to perform the audits. In addition, the implementation of the ERI reduced resources available to gather information for the audits. The previous internal auditor had served in the benefits division prior to becoming the internal auditor and was therefore utilized to provide additional assistance during the ERI process. (Finding 1, pages 9-10)

We recommended the chief internal auditor make it a priority to complete all fiscal year 2003 audits and that the chief internal auditor be free of all operational duties.

System management concurred with the recommendation and indicated the internal auditor will complete the planned fiscal year 2003 and scheduled fiscal year 2004 audits during fiscal year 2004.

Mr. Robert V. Knox, Executive Secretary provided the System’s response to the finding.

SUBSEQUENT EVENT

On April 7, 2003, Governor Rod Blagojevich signed House Bill 2660 into law as Public Act 93-0002. This new law authorized the State of Illinois to issue $10 billion of General Obligation Bonds for the purpose of making contributions to designated retirement systems, which included the State Employees’ Retirement System.

On July 1, 2003, the System received an allocation of $1,385,895,278 from the pension bond proceeds. The System deposited the allocation into its master trust account with the Illinois State Board of Investments, on July 2, 2003.

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

SPECIAL ASSISTANT AUDITORS

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