REPORT DIGEST ILLINOIS STUDENT ASSISTANCE COMMISSION FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2018 Release Date: May 23, 2019 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 0 -- 0 -- 0 Category 3: 0 -- 1 -- 1 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 The Illinois Student Assistance Commission’s (Commission) financial audit report consists of two sets of financial statements which are the financial statements of the Illinois Student Assistance Commission and the financial statements of the Illinois Prepaid Tuition Program (Program), a major fund of the Commission. Included in the financial statements of the Illinois Student Assistance Commission is the major fund for the Illinois Designated Account Purchase Program (IDAPP). This report covers our financial audit of the Commission as of June 30, 2018 and for the year then ended. The Commission’s compliance audit covering the two years ended June 30, 2019 will be released under separate cover. SYNOPSIS • (18-01) The Commission - IDAPP was not in compliance with one of the covenants relating to the Commission’s revolving line of credit agreement. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS DEBT COVENANT VIOLATION The Commission - IDAPP was not in compliance with a covenant relating to the agency’s revolving line of credit agreement. During our audit of the fiscal year 2018 financial statements, we noted that IDAPP was in violation of a debt covenant related to the agency’s revolving credit (loan) agreement. In addition, the Facility matured on July 27, 2010 and has not been repaid. Per the agreement, the default ratio is set at a maximum three-month rolling average of 5.0% or a maximum of 6.25% for any settlement period. We reviewed monthly reports and noted 9 months fell above these ratios, ranging from 5.19% to 8.43% for the three-month average and 7.36% to 9.58% for the settlement period. As a result of the debt covenant violation and the maturity of the facility, the bank has certain remedies available to it under the terms of the loan agreement, principal of which would be rights to call the loan and take possession of the collateral (the underlying student loan portfolio). The bank has been made aware of the event of default and the maturity of the loan and has not communicated to IDAPP any intent to exercise the remedies available to it under the terms of the loan agreement. The balance of the line of credit with the bank was $113,656,827 at June 30, 2018. (Finding 1, page 168) This finding was first reported in 2009. We recommended the IDAPP continue to monitor the loan covenant violations and continue seeking remedies from the lender involved. Commission officials accepted our recommendation and stated the loan covenants are reviewed monthly and we continue to talk to the bank about the portfolio. (For the previous Commission response, see Digest Footnote #1.) AUDITOR’S OPINION The auditors stated the financial statements of the Commission as of and for the year ended June 30, 2018 were fairly stated in all material respects. The auditors included a paragraph emphasizing that the Program has a deficit of $280 million as of June 30, 2018. This financial audit was conducted by Crowe 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:JGR DIGEST FOOTNOTES #1 - DEBT COVENANT VIOLATION 2017 – We agree with the recommendation. The loan covenants are reviewed on a monthly basis. We continue to talk to Citibank about the portfolio.