REPORT DIGEST ILLINOIS STATE BOARD OF INVESTMENT COMPLIANCE EXAMINATION FOR THE YEAR ENDED JUNE 30, 2016 Release Date: April 20, 2017 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 0 -- 0 -- 0 Category 3: 1 -- 0 -- 1 TOTAL: 1 -- 0 -- 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 This digest covers our Compliance Examination of the Illinois State Board of Investment (Board or ISBI) for the year ended June 30, 2016. A separate Financial Audit as of and for the year ending June 30, 2016 was previously released on January 12, 2017. That report did not contain any findings. SYNOPSIS • (16-01) The Board did not always obtain completed disclosures from investment managers as required in the Illinois Pension Code. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS NEED TO COMPLY WITH THE ILLINOIS PENSION CODE The Illinois State Board of Investment (ISBI) did not always obtain fully completed disclosures from investment managers as required in the Illinois Pension Code. During our testwork of eight investment manager disclosures returned to ISBI, we noted the following: • The investment manager disclosure for one investment manager did not properly disclose the number of its investment and senior staff and the percentage of its investment and senior staff who are a person with a disability. • The investment manager disclosures for three investment managers did not properly disclose the number of contracts with businesses owned by a minority, a female, or a person with a disability. • The investment manager disclosures for five investment managers (including the four investment manager disclosures identified above) did not properly disclose the number of contracts with other than those businesses owned by a minority, a female, or a person with a disability if more than 50% of services performed pursuant to the contract are performed by a minority, a female, or a person with a disability. (Finding 1, pages 11-13). We recommended the ISBI comply with the Illinois Pension Code or seek legislative remedy. ISBI officials did not agree with the finding and stated they considered the disclosures required by the Illinois Pension Code, however, the service providers were selected based on an exhaustive due diligence RFP process and that these service providers were deemed to be best suited to maximize value for the Retirement Systems’ state employee beneficiaries. AUDITOR’S OPINION(S) The auditors stated the financial statements of the Board as of and for the year ended June 30, 2016 are fairly stated in all material respects. ACCOUNTANT’S OPINION The accountants conducted a compliance examination of the Board for the year ended June 30, 2016, as required by the Illinois State Auditing Act. The accountants stated the Board complied, in all material respects, with the requirements described in the report. This compliance examination was conducted by KPMG LLP. BRUCE L. BULLARD Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:TLK