Teachers' Retirement System Compliance Audit 2000

REPORT DIGEST
TEACHERS’ RETIREMENT SYSTEM

COMPLIANCE AUDIT

For the Year Ended:
June 30, 2000

Summary of Findings:

Total this audit 1
Total last audit 1
Repeated from last audit 0

Release Date:
February 14, 2001

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046

To obtain a copy of the Report contact:
Office of the Auditor General
Attn: Records Manager
Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703

(217)782-6046 or TDD (217) 524-4646

This Report Digest is also available on
the worldwide web at
http://www.state.il.us/auditor

SYNOPSIS

The System did not follow the Governor’s Travel Control Board rules in seeking approval for out of the country travel. It also did not obtain exceptions for lodging which exceeded the allowable rate.

{Financial Data and Activity Measures are summarized on the reverse page.}

TEACHERS' RETIREMENT SYSTEM OF ILLINOIS
INFORMATION FROM FINANCIAL AND COMPLIANCE AUDITS
YEAR ENDED JUNE 30, 2000

OPERATING STATEMENT ANALYSIS	FY 2000	FY 1999
Revenues: Contributions - Members Contributions - State of Illinois Contributions - School Districts Total Contributions Investment Income - Appreciation in Fair Value Investment Income - Income From Investments Total Investment Income Investment Expense Total Revenues Expenses: Total Benefits Other Expenses Total Expenses Revenues in Excess of Expenses	$ 619,622,840 639,298,949 91,298,290 $1,350,220,079 1,451,074,361 1,052,084,793 2,503,159,154 166,942,031 $3,686,437,202 $1,402,246,044 40,487,550 $1,442,733,594 $2,243,703,608	$ 866,375,866 572,950,673 63,645,260 $1,502,971,799 1,249,234,042 1,019,382,731 2,268,616,773 178,955,804 $3,592,632,768 $1,284,126,616 36,684,558 $1,320,811,174 $2,271,821,594
INVESTMENT PORTFOLIO ANALYSIS - Fair Value	JUNE 30, 2000	JUNE 30, 1999
Total Government Obligations Total Corporate Obligations International Notes Preferred Stock (U.S. & International Combined) Common Stock - U.S. Common Stock - International Short Term Investments Real Estate Investments Private Equity Foreign Currency Total Investment Portfolio	$ 3,653,438,948 3,330,485,861 1,861,842,857 98,489,594 6,490,541,514 4,954,547,913 1,322,283,789 2,428,110,937 877,028,687 39,495,154 $25,056,265,254	$3,721,789,582 3,811,831,816 1,518,930,968 106,705,409 7,484,313,905 2,664,930,858 831,540,481 2,500,511,322 596,456,656 39,166,266 $23,276,177,263
ADMINISTRATIVE EXPENSES	FY 2000	FY 1999
Personal Services Professional Services Postage Machine Repair and Rental Other Contractual Services Commodities Occupancy Expense Provision for Depreciation Loss on Disposal of Equipment Total Administrative Expenses	$ 8,521,781 714,495 295,742 422,198 811,625 257,348 175,305 465,024 17,129 $11,680,647	$ 7,534,038 849,600 296,888 409,878 673,592 271,846 194,542 448,680 1,030 $10,680,094
SELECTED ACCOUNT BALANCES	JUNE 30, 2000	JUNE 30, 1999
Cash Receivables Accrued Investment Income Receivable Investments Collateral from Securities Lending Prepaid Expenses Property and Equipment Total Assets Total Liabilities Net Assets Held in Trust for Pension Benefits Actuarial Accrued Liability Unfunded Actuarial Accrued Liability	$ 3,213,679 255,139,390 232,706,956 24,823,558,298 1,952,295,799 368,526 3,420,592 $27,270,703,240 2,789,290,633 $24,481,412,607 35,886,404,000 $(11,404,991,393)	$ 2,756,183 313,908,201 222,342,888 23,053,834,375 1,418,345,349 449,650 3,339,675 $25,014,976,321 2,777,267,322 $22,237,708,999 33,205,513,000 $(10,967,804,001)
SUPPLEMENTARY INFORMATION	FY 2000	FY 1999
Total investment manager fees Total time weighted return on investments Average Number of System Employees Number of Retirement Annuitants Total Brokerage Commissions Paid	$60,710,544 10.6% 166 54,040 $12,718,390	$77,024,415 10.8% 161 52,430 $14,031,243
EXECUTIVE DIRECTOR
During Audit Period: Mr. Keith Bozarth Currently: Mr. Keith Bozarth

$8,426 of out of country travel was not submitted for approval to the Chairman of the Governor’s Travel Control Board

Exceptions for lodging in excess of allowable rates were not submitted for approval to the Chairman of the Governor’s Travel Control Board

INTRODUCTION

This digest covers our State compliance audit of the System for the year ended June 30, 2000. A financial audit covering the year ended June 30, 2000 is issued under a separate cover.

FINDING, CONCLUSION, AND RECOMMENDATION

TRAVEL POLICIES

The Teachers’ Retirement System (TRS) is not complying with certain aspects of Section 12 of the State Finance Act relating to travel. Under the State Finance Act, 30 ILCS 105/12, TRS is required to follow the travel regulations of the Governor’s Travel Control Board (GTCB).

During fiscal year 2000, out of country travel expenditures of $8,426 were incurred for travel to Ireland, England and Scotland in connection with due diligence site visits conducted for international equity managers. The GTCB rules require out of country travel to be approved by the Chairman of the GTCB prior to such travel. TRS did not obtain such approval.

In addition, during our testing of a sample of 25 employee travel vouchers, we identified 12 instances where TRS employees paid and were reimbursed amounts for lodging in excess of what is allowed by the GTCB rules. All 12 of the instances were for lodging outside of the State. GTCB rules allow rates for out of State lodging ranging from $110 to $118 per night. The lodging rates in the 12 instances we noted ranged from $135 to $258 per night.

Exceptions for obtaining lodging in excess of the allowable rates may be granted by the Chairman of the GTCB when necessary and in the best interest of the State. TRS did not seek exceptions from the GTCB for the lodging rates. TRS travel policy notes exceptions may be granted by the TRS Executive Director.

TRS management noted it made a decision to adopt substantially all of the requirements of the GTCB, but are of the opinion that TRS does not fall under the GTCB’s jurisdiction. (Finding 1, pages 12-13)

We recommended TRS follow the Governor’s Travel Control Board and Travel Regulation Council rules and regulations codified in the Illinois Administrative Code.

TRS management concurred with the finding and indicated they have implemented the recommendation for travel commencing after February 1, 2001.

Mr. John Bauman, Chief Operating Officer, provided the response to our recommendation on January 29, 2001.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

SPECIAL ASSISTANT AUDITORS

Friedman Eisenstein Raemer and Schwartz, LLP were our special assistant auditors for this audit.