REPORT DIGEST STATE EMPLOYEES’ RETIREMENT SYSTEM OF ILLINOIS FINANCIAL AUDIT For the Year Ended: June 30, 2013 Release Date: January 8, 2014 Summary of Findings: Total this audit: 1 Total last audit: 1 Repeated from last audit: 0 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 Full Report are also available on the worldwide web at www.auditor.illinois.gov INTRODUCTION This digest covers our financial audit of the State Employees’ Retirement System, State of Illinois (System) for the year ended June 30, 2013. A compliance examination report covering the year ending June 30, 2013 will be issued in a separate report at a later date. FUNDED RATIO The actuarial accrued liability was valued at $34.7 billion at June 30, 2013. The actuarial value of assets (at smoothed value) totaled approximately $11.9 billion at June 30, 2013. The method for determining the actuarial value of the assets was changed beginning with the June 30, 2009 valuation from the market value to a smoothed value where the actuarial investment gains or losses for each year are recognized in equal amounts over the ensuing five-year period. The difference between the actuarial accrued liability and the actuarial value of assets of $22.8 billion reflects the unfunded liability of the System at June 30, 2013. The System had a funded ratio (at smoothed value) of 34.2% at June 30, 2013. When using the market value, the System would have had a funded ratio of 35.7% at June 30, 2013. SYNOPSIS • The State Employees’ Retirement System did not maintain an adequate allowance for uncollectible accounts receivable. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE The State Employees’ Retirement System (System) did not maintain an adequate allowance for uncollectible accounts receivable. During testing, we noted the System had delinquent accounts receivable of $3,100,000 at June 30, 2013. Of the delinquent balance $540,000 was over ten years old. Based on a review of receivable aging and other risk factors identified, we determined that the System should have evaluated the delinquent receivables to estimate the allowance for the portion of the receivables that it believes might be uncollectible and to determine its potential impact on the fair presentation of the financial statements. The System did not have a formal methodology to review and evaluate the allowance for uncollectible accounts receivable that takes into account historical factors, such as collections, along with other qualitative factors. The System passed on recording any adjustment for an estimated allowance to accounts receivable because the delinquent balance was not material to the financial statements. System officials stated they do not write-off accounts receivable amounts until notified by the Attorney General they are not collectible. (Finding #1, pages 36-37) We recommended the System develop and adopt a methodology to review and evaluate an estimate for the allowance for uncollectible accounts receivable. System officials indicated that they concur with the finding and have already developed and adopted a methodology to review and evaluate an estimate for the allowance for uncollectible accounts receivable. AUDITORS’ OPINION The auditors stated the financial statements of the State Employees’ Retirement System of Illinois as of June 30, 2013 and for the year then ended, are fairly stated in all material respects. WILLIAM G. HOLLAND Auditor General WGH:JAF SPECIAL ASSISTANT AUDITORS Our special assistant auditors for this audit were BKD LLP.