REPORT DIGEST OFFICE OF THE STATE TREASURER – THE ILLINOIS FUNDS FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2017 Release Date: March 15, 2018 FINDINGS THIS AUDIT: 2 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 2 -- 0 -- 2 Category 3: 0 -- 0 -- 0 TOTAL: 0 -- 0 -- 0 FINDINGS LAST AUDIT: 0 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 SYNOPSIS • (2017-001) The Office did not properly evaluate and report a section of the deposit and investment note disclosure. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE INTERNAL CONTROLS OVER FINANCIAL STATEMENT REPORTING The Office of the Treasurer (Office) did not properly evaluate and report a section of the deposit and investment note disclosure. During our testing of the financial statements and notes, we noted the Office utilized information provided by its service organization, as the custodian of the Illinois Funds Program, to prepare the financial statement note disclosures, including the deposits and investments note (Note 2). Note 2 includes information related to a financial instrument’s level within the fair value hierarchy in accordance with Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application (GASB 72). The Office used the information provided by its service organization to prepare Note 2 without properly evaluating the information. At June 30, 2017 and 2016, investments in money market mutual funds, totaling $218 million and $519 million, respectively, were moved from level 2 to level 1. Level 1 investments are investments whose fair value is determined based on quoted prices for identical assets in active markets. Level 2 investments are investments whose fair value is determined based on observable inputs other than quoted prices in an active market. In the prior year, the first year of GASB 72 implementation, auditors accepted the Office’s disclosure of money market mutual funds under the GASB 72 level hierarchy as Level 2. After the auditors in the current year noted the money market mutual fund investments were listed in an active market, a Level 1 pricing methodology under GASB 72, the Office changed its fair value disclosure for money market mutual funds to Level 1 for both fiscal years 2017 and 2016. (Finding 2017-001, pages 38-39). We recommend the Office improve its internal control over the financial reporting process to ensure accurate preparation of financial statements and note disclosures. The Office should evaluate and determine the accuracy of information provided by the service organization and review all amounts included in the financial statements and note disclosures. The Office accepted the recommendation. OTHER FINDING The remaining finding is reportedly being given attention by the Office. We will review the Office’s progress towards implementation of our recommendation in our next engagement. AUDITOR’S OPINION The auditors stated the Office of the Treasurer, The Illinois Funds financial statements as of and for the year ended June 30, 2017, are fairly stated in all material respects. This financial audit was conducted by Crowe Horwath LLP. JANE CLARK Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:SJS