REPORT DIGEST

 

 

STATE EMPLOYEES’ RETIREMENT SYSTEM

OF ILLINOIS

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2007

 

Release Date:

March 4, 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.state.il.us/auditor

 

 

 

 

 

 

 

 

 

 

SYNOPSIS

 

 

¨   The unfunded liability of the State Employees’ Retirement System of Illinois (System) was $10.2 billion at June 30, 2007.  The System’s funded ratio at that date was 54.2%.

 

¨   The System did not have an adequate segregation of duties for the approval and payment of contracts. 

 

¨   Public Act 94-0004 (Act) became law on June 1, 2005 and established specific dollar amounts to be contributed to the System by the State for fiscal years 2006 and 2007. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

{Financial data is summarized on the reverse page}

 

 

 

 

 

STATE EMPLOYEES’ RETIREMENT SYSTEM OF ILLINOIS

FINANCIAL AUDIT

FOR THE YEAR ENDED JUNE 30, 2007
 

OPERATING STATEMENT ANALYSIS

FY 2007

FY 2006

 REVENUES: Contributions - Participants........................

                     Contributions - State Agencies & Appropriations

                        Total Contributions..........................................

                     Investment Income - Appreciation in Fair Value.

                     Investment Income – Net Investments Income....

                     Interest Earned on Cash Balances.......................

                        Total Revenues................................................

 EXPENSES: Benefits.........................................................

                     Refunds.............................................................

   Administrative Expenses......................................

                         Total Expenses...............................................

  Revenue Over Expenses.....................................

  $  224,722,599

  358,786,650

$  583,509,249

1,500,507,144

266,766,628 12,633,405 

$2,363,416,426

$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 

840,493,512

   264,013,416

       8,724,784

$1,537,840,399

$1,110,585,961 

     13,410,048   8,139,278

$1,132,135,287

$   405,705,112

INVESTMENT SUMMARY – (All investments held in the Illinois State Board of Investment commingled fund at fair value)

JUNE 30, 2007

JUNE 30, 2006

Government and Agency Obligations......................................

Foreign Obligations...............................................................

Corporate Obligations...........................................................

Common Stock & Equity Funds.........................................

Preferred Stock......................................................................

Foreign Equity Securities..........................................................

Hedge Funds...........................................................................

Real Estate Investments.........................................................

Private Equity..........................................................................

Money Market Instruments......................................................

Infrastructure Funds.................................................................

Forward Foreign Currency Contracts......................................

     Total Investment Portfolio...................................................

Other ISBI Assets Less Liabilities............................................

ISBI Net Assets......................................................................

ISBI assets owned by other retirement systems, JRS & GARS.

     State Employees’ Retirement System Investment in ISBI.....

$ 1,184,275,884

72,189,687

1,228,970,012

6,059,409,027

1,865,020

1,365,647,941

496,404,578

1,189,614,911

563,366,021

535,699,912

108,436,449

          (108,696)

$12,805,770,746

  (253,574,585)

$12,552,196,161

  (742,058,666)

$11,810,137,495

$ 1,110,919,988

104,455,671

1,382,574,163

5,369,124,032

1,057,334

1,113,268,102

416,462,183

1,134,025,154

482,264,036

320,641,552

0

              26,145

$11,434,818,360

  (118,333,506)

$11,316,484,854

  (661,621,131)

$10,654,863,723

ADMINISTRATIVE EXPENSES

FY 2007

FY 2006

Personal Services.................................................................

Retirement, Insurance & Social Security...................................

Contractual Services................................................................

Electronic Data Processing.......................................................

Printing....................................................................................

Telecommunication..................................................................

Travel......................................................................................

Commodities...........................................................................

Provision for Depreciation........................................................

Automotive..............................................................................

Other Expenses (Net)..............................................................

       Total Administrative Expenses..........................................

$3,450,579 

1,543,569

1,338,551

2,048,396

31,553

63,704

43,884

21,472

278,553 

16,686

(29,320) 

$8,807,627

$3,235,537 

1,471,229

1,352,042

1,570,156

55,944

61,765

45,970

21,844

269,841

20,535

     34,415

$8,139,278

FUNDING PROGRESS

JUNE 30, 2007

JUNE 30, 2006

Actuarial Accrued Liability.........................................................

Actuarial Value of Assets...........................................................

Unfunded Actuarial Accrued Liability.........................................

Funded Ratio.............................................................................

$22,280,916,665

12,078,908,954

$10,202,007,711 

54.2%

$20,874,541,910

10,899,853,065

$  9,974,688,845

52.2%

EXECUTIVE SECRETARY

 

 

During Engagement Period: Tim Blair, Acting

Currently:  Tim Blair, Acting



 

 

 

 

 

 

 

 

 

Unfunded liability at June 30, 2007 totals $10,202.0 million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Lack of segregation of duties identified in approving and paying of contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State contributions for fiscal year 2007 were based on a statutorily set amount

 

 

INTRODUCTION

 

      This digest covers our financial audit of the State Employees’ Retirement System of Illinois (System) for the year ended June 30, 2007.  A report on the results of our compliance attestation examination for the year ending June 30, 2007 is being issued separately. 

 

 

UNDERFUNDING OF THE SYSTEM

 

      The actuarial accrued liability was valued at $22,280.9 million at June 30, 2007.  The actuarial value of assets (at fair value) totaled approximately $12,078.9 million at June 30, 2007.  The difference between the liability and the assets of $10,202.0 million reflects the unfunded liability of the System at June 30, 2007.  The System had a funded ratio of 54.2% at June 30, 2007.

 

 

FINDING, RECOMMENDATION AND SYSTEM RESPONSE

 

     The System did not have an adequate segregation of duties for the approval and payment of contracts.  During our testing of contractual expenditures, we identified 6 out of 8 contracts (75%), totaling $95,383, where the Administrative Services Manager signed off for both his position and also for the Executive Secretary indicating approval of the contract.  In addition, we found the Administrative Services Manager approved the invoice vouchers for payment on all 6 of the contracts.

 

     System management indicated they were not aware of the lack of segregation of duties when the Administrative Services Manager approves / signs for himself and the Executive Secretary on contracts and payments.  Because of the significance of the lack of segregation of duties noted, we are considering this to be a significant deficiency in the design of the System’s internal control.

 

    We recommended someone other than the Administrative Services Manager review and sign for the Executive Secretary in those instances when the Executive Secretary is unavailable to approve contracts and payments when both the Administrative Services Manager and Executive Secretary signatures are required. (Finding 07-1, page 22)

 

     System management concurred with the recommendation.

 

 

 

 

LEGISLATION AFFECTING THE SYSTEM

 

     Public Act 94-0004 (Act) became law June 1, 2005 and established specific dollar amounts to be contributed to the System by the State for fiscal years 2006 and 2007 as opposed to the State contribution being calculated based on the existing funding formula.  The System calculated the State contributions were reduced approximately $419.0 million for fiscal year 2007 as compared to what would have been required under the previous funding formula.  State required contributions will be higher in future years to make up for the two-year funding reduction, as the overall goal of 90% funding in fiscal year 2045 was unchanged by the Act.           

 

 

AUDITORS' OPINION

 

      Our auditors state the June 30, 2007 financial statements of the System are fairly presented.

 

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:RPU:pp

 

 

SPECIAL ASSISTANT AUDITORS

 

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