REPORT DIGEST

STATE EMPLOYEES’ RETIREMENT SYSTEM OF ILLINOIS

COMPLIANCE EXAMINATION

For the Year Ended:

June 30, 2007

Summary of Findings:

Total this year

-Financial Audit 1*

-Compliance Examination 2

Total last year

-Financial Audit 0*

-Compliance Examination 1

Repeated from last year

-Financial Audit 0*

-Compliance Examination 1

* Financial audit previously released

Release Date:

April 30, 2008

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 TTY (888) 261-2887

This Report Digest and the Full Report are also available on

the worldwide web at

http://www.auditor.illinois.gov

INTRODUCTION

A financial audit covering the year ending June 30, 2007 was previously released on March 4, 2008. The financial audit report contained one finding relating to a significant deficiency in the design of the State Employees’ Retirement System of Illinois’ (System) internal control.

This digest covers our compliance attestation examination of the System for the year ended June 30, 2007. The compliance attestation examination report includes two State compliance findings and supplementary information.

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

(State Compliance Findings)

¨ Statements of Economic Interests have not been filed for all System employees having responsibility for formulation, negotiation, issuance or execution of contracts.

{Financial Data and Supplementary Information are summarized on the reverse page.}

STATE EMPLOYEES' RETIREMENT SYSTEM OF ILLINOIS

COMPLIANCE EXAMINATION

YEAR ENDED JUNE 30, 2007

OPERATING STATEMENT ANALYSIS	FY 2007	FY 2006
REVENUES: Contributions - Participants............................... Contributions - State agencies & appropriations Total Contributions.................................. Net investment income................................... Net appreciation 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 benefits............................ Total Benefits............................................ Refunds........................................................... Administration................................................... Total Expenses.......................................... Excess of revenue over expenses........................	$ 224,722,599 358,786,650 $ 583,509,249 266,766,628 1,500,507,144 12,633,405 $2,363,416,426 $1,030,284,942 65,215,133 43,053,148 22,737,815 $1,161,291,038 14,261,872 8,807,627 $1,184,360,537 $1,179,055,889	$ 214,108,896 210,499,791 $ 424,608,687 264,013,416 840,493,512 8,724,784 $1,537,840,399 $ 985,503,023 61,100,647 40,271,558 23,710,733 $1,110,585,961 13,410,048 8,139,278 $1,132,135,287 $ 405,705,112
ANALYSIS OF PLAN INVESTMENTS	FY 2007	FY 2006
Balance at beginning of year, at fair value................................. Net cash transferred to (from) investments.............................. Net investments (1)....................................................... Investment income – interest, dividends and other.................... Investment expenses............................................................. Net Investment income (2)............................................. Net realized gain on sale of investments.................................. Net unrealized gain on investments......................................... Net appreciation in fair value of investments (3)................ Total net investment income (4), (2) + (3)....................... Balance at end of year, at fair value (1) + (4)....................	$10,654,863,723 (612,000,000) $10,042,863,723 304,940,692 (38,174,064) $ 266,766,628 798,735,493 701,771,651 $ 1,500,507,144 $ 1,767,273,772 $11,810,137,495	$10,271,356,795 (721,000,000) $ 9,550,356,795 292,393,986 (28,380,570) $ 264,013,416 734,112,782 106,380,730 $ 840,493,512 $ 1,104,506,928 $10,654,863,723
iNVESTMENTS USED FOR Benefits and Expenses	FY 2007	FY 2006
CONTRIBUTIONS: Participants.......................................... ........................................................... State agencies & appropriations.......... Total Contributions (5).................. DEDUCTIONS: Benefits................................................. Refunds................................................. Administration........................................ Total Deductions (6)......................... Investments used to Pay Benefits and Expenses (5)-(6)............	$ 224,722,599 358,786,650 $ 583,509,249 $1,161,291,038 14,261,872 8,807,627 $1,184,360,537 $(600,851,288)	$ 214,108,896 210,499,791 $ 424,608,687 $1,110,585,961 13,410,048 8,139,278 $1,132,135,287 $(707,526,600)
SUPPLEMENTARY INFORMATION	FY 2007	FY 2006
Number of System employees............................................... Retirees and beneficiaries currently receiving benefits (unaudited) Total members (unaudited)..................................................... Total active members (unaudited)........................................... Total return on investments (unaudited)..................................	80 55,265 89,321 67,699 17.1%	82 54,868 89,447 68,075 11.0%
EXECUTIVE SECRETARY
During Audit Period: Timothy B. Blair, Acting Currently: Timothy B. Blair, Acting

Three employees failed to file Statements of Economic Interests

System management concurred with the recommendation

Funding legislation was changed to reduce the required State contributions

FINDINGS, CONCLUSIONS, AND

RECOMMENDATIONS

Statements of economic interests not filed for required employees

During our testing, we noted three employees had not filed Statements of Economic Interests as of either May 1, 2006 or May 1, 2007. All of these individuals either have responsibilities that require them to, or have potential to be involved in having direct responsibility for the formulation, negotiation, issuance or execution of contracts.

The Illinois Governmental Ethics Act requires State employees who have direct supervisory authority over, or direct responsibility for the formulation, negotiation, issuance or execution of contracts entered into by the State in the amount of $5,000 or more to file a verified written Statement of Economic Interests.

System management indicated the required Statements of Economic Interests were not filed because the employees were not aware they were required to file.

We recommended System management review and update the list of those employees who are in positions required to file Statements of Economic Interests to ensure an accurate and complete listing is submitted to the Secretary of State. (Finding 3, page 8)

System management concurred agreed with our recommendation.

OTHER FINDING

The remaining finding is reportedly being given attention by the System. We will review the System’s progress toward the implementation of our recommendations in our next engagement.

FUNDING LEGISLATION

In June 2005, Public Act 94-0004 became law. This legislation further modified the funding plan of the System by reducing the amount of required employer (State) contributions for fiscal year 2006 and 2007 that would have otherwise been required under the previous funding legislation. The State contributions will be higher in future years to make up for the two-year funding reduction.

ACCOUNTANTS’ REPORT

We conducted a compliance attestation examination of the System for the year ended June 30, 2007 as required by the Illinois State Auditing Act. The accountants’ report does not contain any scope limitations, disclosures or other significant non-standard language.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

SPECIAL ASSISTANT AUDITORS

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

STATE EMPLOYEES' RETIREMENT SYSTEM OF ILLINOIS

FY 2007

FY 2006

FY 2007

FY 2006

FY 2007

FY 2006

FY 2007

FY 2006

EXECUTIVE SECRETARY

Statements of economic interests not filed for required employees

FUNDING LEGISLATION

SPECIAL ASSISTANT AUDITORS