REPORT DIGEST

ILLINOIS STUDENT ASSISTANCE COMMISSION - ILLINOIS
DESIGNATED ACCOUNT PURCHASE PROGRAM

FINANCIAL AUDIT
For the Year Ended: June 30, 2012


Release Date:   February 21, 2013

State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, 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 report covers our financial audit of the Illinois
Student Assistance Commission (Commission) - Illinois
Designated Account Purchase Program (IDAPP) as of June
30, 2012 and for the year then ended.

SYNOPSIS

• IDAPP was not in compliance with two of the covenants
relating to the Commission’s revolving line of credit
agreement.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

DEBT COVENANT VIOLATIONS

The Illinois Student Assistance Commission (Illinois
Designated Account Purchase Program) was not in
compliance with two of the covenants relating to the
agency’s revolving line of credit agreement.

During the audit of the agency’s June 30, 2009 financial
statements, the Illinois Designated Account Purchase
Program (IDAPP) management discovered that they had
potentially violated one of the covenants relating to
the agency’s revolving credit line (loan) agreement with
a bank. The noncompliance pertained to the “Coverage
condition ratio” covenant.  The minimum Coverage
Condition ratio required by the line of credit agreement
is 104% and the current ratio as of June 30, 2012 was
101.30%.

During our audits of the agency’s June 30, 2010 and 2011
financial statements, we noted that IDAPP was in
violation of the covenant noted above.  In addition, the
agency was in violation of another covenant, the
“Default ratio.”  IDAPP is required to maintain a
maximum Default ratio of 6.25%. As of June 30, 2012,
IDAPP’s Default ratio was 8.36%, resulting in
noncompliance with the Default ratio by IDAPP.

As a result of the violation, 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 has not
communicated to IDAPP any intent to exercise the
remedies available to it under the terms of the loan
agreement.  Management believes the bank would have
little incentive to call the line of credit and begin
servicing the student loans itself, particularly because
IDAPP has made all of its required payments in a timely
fashion.  The balance of the line of credit with the
bank was $275,956,827 at June 30, 2012.

According to Commission management, the coverage
condition and default issues are due to the increased
level of delinquent accounts in the portfolio.  The
level has increased due to the poor global economic
conditions.  (Finding 2, pages 34-35)  This finding was
first reported in 2009.

Commission officials accepted our finding and
recommendation to continue to monitor the loan covenant
violations and continue seeking remedies from the lender
involved.  Commission officials also indicated that due
to the tight credit markets for student loans and the
performance of the portfolio, neither the bank nor ISAC
has been able to refinance the facility.  (For the
previous IDAPP response, see Digest Footnote #1.)

OTHER FINDING

The remaining finding for Illinois Designated Account
Purchase Program pertains to the budget not being
properly approved.

AUDITORS’ OPINION

Our auditors stated the financial statements of IDAPP
are fairly presented in all material respects.  Auditors
included a paragraph emphasizing that IDAPP is in
default of certain conditions of its Revolving Credit
Facility.

WILLIAM G. HOLLAND
Auditor General

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SPECIAL ASSISTANT AUDITORS

Our special assistant auditors for this audit were
McGladrey LLP.

DIGEST FOOTNOTE

#1 - DEBT COVENANT VIOLATION

We accept the recommendation.  IDAPP will continue to
monitor these loan covenants.  Commission management has
been in constant communication with the lender and is
working with them to resolve the violations and to
refinance the facility.