REPORT DIGEST

DEPARTMENT OF CENTRAL MANAGEMENT SERVICES
- COMMUNITY COLLEGE HEALTH INSURANCE
SECURITY FUND

FINANCIAL AUDIT
For the Year Ended: June 30, 2015

Release Date:  April 21, 2016

FINDINGS THIS AUDIT:  1

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 0 -- 1
Category 2:  0 -- 0 -- 0
Category 3:  0 -- 0 -- 0
TOTAL:  1 -- 0 -- 1

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

INTRODUCTION

This digest covers our financial audit of
the Community College Health Insurance
Security Fund for the year ended June 30,
2015. At June 30, 2015 the Net Position
Held in Trust for Other Postemployment
Benefits reflected a deficit of
$26,774,000. Further, the Schedule of
Funding Progress reflects an Unfunded
Actuarial Accrued Liability of
$1,680,761,000.

SYNOPSIS

• (15-1) The Department failed to
establish a reasonable estimation
methodology for certain rebate receivables
resulting in a $581 thousand overstatement
of receivables at June 30, 2015.


FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FAILURE TO ESTABLISH REASONABLE ESTIMATION
METHODOLOGY

The Department failed to establish a
reasonable estimation methodology for
certain rebate receivables resulting in a
$581 thousand overstatement of receivables
at June 30, 2015.

The Department receives formulary rebates
from its pharmacy benefit vendor. Under
the terms of the contract, the Department
is guaranteed a minimum rebate amount per
claim processed and paid. Following the
end of each contract year, the vendor
calculates the actual rebates earned by
the State for utilization by its members
and determines the amount due to the
State. The vendor has 180 days after
contract year-end to pay the amount due to
the State. Due to proprietary and
confidential contractual agreements
entered into by the vendor, the Department
does not have the ability to independently
calculate the formulary rebate due at each
year-end. It has been the Department’s
practice to record current year
receivables at the amount of the formulary
rebate payment received for the prior
year. Specifically, the rebate receivables
of $953 thousand at June 30, 2015 were the
amount of the formulary rebate payment
related to fiscal year 2014 activity
received in fiscal year 2015. The
Department failed to consider any changes
in relevant factors between fiscal years
2014 and 2015 in estimating the rebates to
be received for fiscal year 2015. Such
factors might include the number of claims
processed and paid, the average cost per
claim, the average number of plan members,
or other historical trends such as rebates
received as a percentage of total claims
expense. Rebate reports received from the
vendor on December 30, 2015 showed the
actual rebate payment to be $372 thousand.
The Department revised the applicable
financial statements for this error.
(Finding 1, pages 20-21).

We recommended the Department establish a
process for preparing reasonable
accounting estimates. Such processes
normally consist of identifying relevant
factors that may affect the accounting
estimate; accumulating relevant,
sufficient, and reliable data on which to
base the accounting estimate; developing
assumptions that represent management’s
judgment of the most likely circumstances
and events with respect to the relevant
factors; and determining the estimated
amount based on the assumptions and
relevant factors. In the event amounts are
not reasonably estimable, the Department
should consider the need to disclose the
significance and uncertainty of those
estimates.

Department management agreed with our
recommendation and stated it has remedied
the situation through a new contract
requirement for the vendor to provide the
necessary information within 60 days.

AUDITOR’S OPINION

Our auditors stated the financial
statements of the Community College Health
Insurance Security Fund as of June 30,
2015, and for the year then ended, are
fairly stated in all material respects.

FRANK J. MAUTINO

Auditor General

FJM:SKM

SPECIAL ASSISTANT AUDITORS

Our Special Assistant Auditors for this
audit were Sikich, LLP.