REPORT DIGEST STATE UNIVERSITIES RETIREMENT SYSTEM Financial Audit For the Year Ended June 30, 2015 Release Date: January 12, 2016 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 0 -- 1 -- 1 Category 3: 0 -- 0 -- 0 TOTAL: 0 -- 1 -- 1 FINDINGS LAST AUDIT: 1 Category 1: Findings that are material weaknesses in internal control and/or a qualification on compliance with State laws and regulations (material noncompliance). Category 2: Findings that are significant deficiencies in internal control and noncompliance with State laws and regulations. Category 3: Findings that have no internal control issues but are in noncompliance with State laws and regulations. State of Illinois, Office of the Auditor General FRANK J. MAUTINO, 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 the financial statement audit of the State Universities Retirement System (System) as of and for the year ended June 30, 2015. The State Universities Retirement System’s Compliance Examination covering the year ended June 30, 2015 will be issued in a separate report at a later date. The System’s total pension liability is $41.219 billion at June 30, 2015. The net pension liability at June 30, 2015 is $23.756 billion, which is the difference between the System’s fiduciary net position of $17.463 billion and the total pension liability. The System’s funded ratio is 42.37%. The criteria used for computing pension liability information in the financial report in accordance with GASB Statement No. 67 differs from the criteria used to compute the actuarial accrued liability and actuarial unfunded liability under the State’s funding plan, therefore this information under the State’s funding plan is no longer reported in the financial statements. FINDING SYNOPSIS • (15-1) The State Universities Retirement System has weaknesses in controls over creditable earnings and member census data reported by its employers. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS CONTROLS OVER CENSUS DATA The State Universities Retirement System (System) has weaknesses in controls over creditable earnings and member census data reported by its employers. During testing of System’s internal controls over creditable earnings and member census data, it was noted that the information was accumulated from multiple participating employers which increased the likelihood of errors in the data. During fiscal year 2015, the System’s processes and controls for verifying the data relied heavily on the reporting of the information by the participating employers, and there are limited controls in place by the System to verify the creditable earnings and member census information. During fiscal year 2015 the System developed an action plan to address the weaknesses. The System began implementation of certain details of the action plan with the expectation to implement additional controls in fiscal year 2016. A key control established as part of the action plan includes the System performing on-site employer visits at participating employers in order for the System to substantiate that the creditable wages as well as key elements of census data reported to the System’s actuary are free of material misstatement. Certain financial statement assertions relating to cost-sharing plans (that is, the Total Pension Liability (TPL) and revenues and receivables relating to contributions) are dependent on the completeness and accuracy of census data. Weaknesses in controls over the significant elements of census data could lead to a misstatement in the valuation of the TPL, a required disclosure to the System’s financial statements. In addition, a misstatement could lead to a misstatement in contributions which directly impacts valuation of Plan Net Position and the financial statements of the System. (Finding 1, pages 38-39) System officials concurred with our finding and stated they will fully implement their employer services program this year to test control systems and verify census data including creditable earnings. In addition, System officials stated they will continue to examine current processes and procedures with the goal of adding additional census data verification procedures for the active and inactive member populations. AUDITOR’S OPINION Our auditors stated the financial statements of the State Universities Retirement System as of June 30, 2015, and for the year then ended, are fairly stated in all material respects. FRANK J. MAUTINO Auditor General FJM:TLK SPECIAL ASSISTANT AUDITORS Our Special Assistant Auditors for this audit were RSM US LLP.