REPORT DIGEST

 

 

STATE EMPLOYEES’ RETIREMENT SYSTEM OF ILLINOIS

 

 

COMPLIANCE EXAMINATION

For the Year Ended:

June 30, 2008

 

 

Summary of Findings:

 

    Total this report                 2

    Total last report                 1

    Repeated from last report  0

                                             

 

 

Release Date:

May 21, 2009

 

 

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

 

      This digest covers our compliance attestation examination of the State Employees’ Retirement System of Illinois’ (System) for the year ending June 30, 2008.  A financial audit covering the year ending June 30, 2008 was previously released on January 15, 2009.  It should be noted that, pursuant to the Illinois Pension Code, investments of the System are managed by the Illinois State Board of Investment.

 

       The auditors identified 2 findings during their testing.  Following is a summary of the finding included in this digest.

 

 

¨      The System did not have a process to review financial journal entries independent of the person who initiates and posts them to the financial records.

 

SUBSEQUENT EVENT

 

     Public Act 96-006 provides for the termination of the terms of Board of Trustee members appointed by the previous Governor as well as making changes in the composition of the Board of Trustees. 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

STATE EMPLOYEES' RETIREMENT SYSTEM OF ILLINOIS

COMPLIANCE EXAMINATION

YEAR ENDED JUNE 30, 2008

 

OPERATING STATEMENT ANALYSIS

FY 2008

FY 2007

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

Contributions - State agencies & appropriations...........

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

Net investment income.............................................

Net appreciation (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 benefits.....................................

Total Benefits.....................................................

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

           Administration...........................................................

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

Excess of revenue over (under) Expenses.....................

$     249,955,208

     587,732,407

$     837,687,615 

274,524,210

(968,688,184)

       13,404,255

$     156,927,896 

$  1,089,743,632 

68,770,552

43,086,065

       12,515,378 

$  1,214,115,627

16,817,433

         9,537,305

$  1,240,470,365

$(1,083,542,469)

$   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 

ANALYSIS OF PLAN INVESTMENTS

FY 2008

FY 2007

Balance at beginning of year, at fair value.........................................

Net cash transferred 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 (loss) on investments.........................................

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

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

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

$11,810,137,495 

  (462,000,000)

$11,348,137,495

313,924,157

     (39,399,947)

$     274,524,210 

559,623,090

    (1,528,311,274)

$  (968,688,184)

$  (694,163,974) 

$10,653,973,521

$ 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

iNVESTMENTS USED FOR Benefits and Expenses

FY 2008

FY 2007

CONTRIBUTIONS:  Participants..................................................

            State agencies & appropriations....................

           Total Contributions (5)...........................

DEDUCTIONS:       Benefits..........................................................

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

                     Administration.................................................

Total Deductions (6)..................................

Investments used to Pay Benefits and Expenses (5)-(6).....................

$   249,955,208

   587,732,407

$   837,687,615

$1,214,115,627

16,817,433

       9,537,305

$1,240,470,365

$(402,782,750)

$   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)

SUPPLEMENTARY INFORMATION

FY 2008

FY 2007

Number of System employees........................................................

Retirees and beneficiaries currently receiving benefits (unaudited).......

Total members (unaudited)............................................................

Total active members (unaudited)...................................................

Total return on investments (unaudited)...........................................

81

56,111

87,625

66,237

(6.2)%

80

55,265

89,321

67,699

17.1%

EXECUTIVE SECRETARY

During Audit Period:  Timothy B. Blair, Acting

Currently:  Timothy B. Blair, Acting


 

 

 

 

 

 

 

 

 

 

 

Same individual prepares and posts the financial journal entries

 

 

 

 

 

 

Original accounts receivable information was understated $26.8 million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Public Act 96-006 changes the membership of the Board of Trustees

 

 

 

 

FINDINGS, CONCLUSIONS, AND

RECOMMENDATIONS

 

JOURNAL ENTRY REVIEW

 

     During our testing, we noted the same individual prepares and posts the financial journal entries.  During our testing of the System’s accounts receivable we identified a journal entry did not include all the accrued payroll contributions that should have been recorded at June 30, 2008.  As a result, the accounts receivable balance information originally presented to the auditors was understated by approximately $26.8 million as of June 30, 2008. 

 

     System personnel indicated the journal entry omission was the result of a formula error in a spreadsheet used to generate the amounts for the journal entry.  System personnel went on to note the information provided to the auditors was not final and believed the omission of the payroll contributions would have been discovered during their review process of the System’s financial statements. Because of the significance of the omission and the lack of an independent review of journal entries, we are considering this to be a significant deficiency in the System’s internal control. 

 

    We recommended someone other than the person preparing and posting the journal entries review the journal entries and the related supporting documentation for accuracy and that the review be documented. (Finding 08-1, pages 7-8)

 

     System management concurred with the recommendation and indicated they will institute a system to have all financial journal entries and supporting documentation reviewed by a person independent of the person that initiates them.

 

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.

 

 

 

SUBSEQUENT EVENT

 

On April 3, 2009 the Governor signed Senate Bill 364 into law as Public Act 96-006.  This new law provided for the termination of the terms of Board of Trustee members appointed by the previous Governor as well as making changes in the composition of the Board of Trustees.  The new law expanded the Board of Trustees from seven members to thirteen and set forth criteria new members must meet to be on the Board of Trustees.

       

ACCOUNTANTS’ REPORT

 

      We conducted a compliance attestation examination of the System for the year ended June 30, 2008 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

 

      The public accounting firm of BKD LLP was our special assistant auditor for this engagement.