REPORT DIGEST

REPORT DIGEST
ILLINOIS STATE BOARD OF INVESTMENT

COMPLIANCE AUDIT

For the Year Ended:
June 30, 1999

Summary of Findings:

Total this audit 1
Total last audit 0
Repeated from last audit 0

Release Date:

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
Attn: Records Manager
Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703

(217)782-6046 or TDD (217) 524-4646

This Report Digest is also available on
the worldwide web at
http://www.state.il.us/auditor

SYNOPSIS

The Illinois State Board of Investment (Board) is not complying with travel control board rules and regulations. We noted instances of non-compliance with the rules of the Governor’s Travel Control Board for employee related travel and the rules of the Legislative Travel Control Board for Board member related travel.

{Financial Information is summarized on the reverse page.}

ILLINOIS STATE BOARD OF INVESTMENT

INFORMATION FROM FINANCIAL AND COMPLIANCE AUDITS

YEAR ENDED JUNE 30, 1999

FINANCIAL STATEMENT ANALYSIS	FY 1999	FY 1998
Revenues: Investment Income - Interest Investment Income - Dividends Investment Income - Securities Lending Total Investment Income Expenses: Operating Expenses Net Investment Income Net Realized Gain on Investments Net Change in Unrealized Gain on Investments Change in Investments Member Systems’ Withdrawals Net Assets, at Beginning of Year Net Assets, at End of Year	$ 174,325,319 53,130,599 2,602,987 $ 230,058,905 15,912,548 $ 214,146,357 590,931,959 150,072,323 $ 955,150,639 (26,100,000) 7,379,909,427 $8,308,960,066	$ 194,122,517 55,779,586 2,335,280 $ 252,237,383 15,091,365 $ 237,146,018 748,429,299 154,496,968 $1,140,072,285 (88,300,000) 6,328,137,142 $7,379,909,427
INVESTMENT PORTFOLIO ANALYSIS - Fair Value	JUNE 30, 1999	JUNE 30, 1998
Total Government Obligations Total Corporate Obligations Foreign Obligations Convertible Bonds Common Stock & Equity Funds Convertible Preferred Stock Preferred Stock Foreign Equity Securities Real Estate Funds Alternative Investments Money Market Instruments Forward Foreign Currency Contracts Options Total Investment Portfolio	$1,081,840,850 476,507,428 43,324,091 10,802,791 3,946,786,728 34,850,689 25,085,532 1,714,207,025 216,350,722 355,128,394 421,186,286 442,111 0 $8,326,512,647	$1,299,851,793 595,698,778 52,336,197 13,984,049 3,022,271,513 33,701,030 9,796,742 1,083,783,967 250,823,177 361,780,824 678,360,145 (306,533) 8,760 $7,402,090,442
OPERATING EXPENSES	FY 1999	FY 1998
Personal Services Rent and Utilities Audit Other External Support: Custody Consulting and Professional Investment Advisors/Managers Investment Services and Research Total Operating Expenses	$ 1,139,998 78,483 76,637 125,207 300,000 314,565 13,768,836 108,822 $15,912,548	$ 883,220 75,933 77,850 130,523 300,068 252,255 13,272,314 99,202 $15,091,365
SUPPLEMENTARY INFORMATION	FY 1999	FY 1998
Compounded Annual Rate of Return, Since July 1, 1982 Total Time Weighted Return on Investments, FY99 Average Number of System Employees Total Brokerage Commissions Paid	13.3% 12.9% 11 $5,587,069	13.4% 18.1% 11 $3,471,181
EXECUTIVE DIRECTOR
During Audit Period: Jane R. Patterson Currently: Jane R. Patterson

Employees and Board members were reimbursed actual meal expenses

Approvals for lodging exceptions were not received in 3 instances

Travel outside the United States was not approved by the Travel Control Board

Employees received commuting mileage to airport

INTRODUCTION

This digest covers our compliance audit of the Board for the year ended June 30, 1999. A financial audit covering the year ending June 30, 1999 is being issued separately.

FINDINGS, CONCLUSIONS, AND

RECOMMENDATIONS
TRAVEL POLICIES

During our audit testwork we noted the Board was not complying with travel control board rules and regulations. Our review of the State statutes determined that Board members should be following the rules and regulations of the Legislative Travel Control Board, and Board employees should be following the rules and regulations of the Governor’s Travel Control Board. We noted the following instances of non-compliance with the Governor’s Travel Control Board (GTCB) and the Legislative Travel Control Board (LTCB) (collectively referred to as Travel Control Boards):

Employees and Board members were reimbursed actual meal expenses for overnight trips, whereas per diem allowances are the maximum allowed by the Travel Control Boards.

The GTCB travel rules require the lowest available lodging rate be obtained when traveling on official State business; the GTCB sets the maximum rates that may be incurred. If lodging expenses exceed the maximum amount, the employee needs to request an exception to the allowable lodging rate from the GTCB. The Board failed to obtain an exception approval from the GTCB for three trips.

The GTCB rules state that travel outside the contiguous United States requires the approval of the Chairman of the GTCB prior to such travel. Three employees who traveled outside of the contiguous United States failed to obtain this approval.

Board employees have been incorrectly receiving reimbursement for travel to O’Hare Airport from their residences. GTCB rules state that an employee whose travel includes travel through headquarters shall be reimbursed for all mileage in excess of commuting mileage. Since O’Hare Airport is within the city limits of the Board’s headquarters, only those miles in excess of the normal commute to headquarters are reimbursable.

Board officials indicated they were of the opinion they were not subject to either of the travel control boards’ rules and regulations. (Finding 1, pages 8-9)

We recommended the Board follow the Governor’s Travel Control Board rules and regulations for employee related travel and the Legislative Travel Control Board rules and regulations for Board member related travel.

Board officials responded that they have never concluded that Board members or employees are subject to the jurisdiction of either travel control board, but will investigate this issue further.

In follow-up to the Board’s response we strongly recommended that it take the steps needed to come into compliance with travel control board rules and regulations. We further recommended that, after reviewing applicable laws, if the Board is still unclear about what rules and regulations it should be following, the Board should request an opinion on the matter from the Attorney General.

Ms. Jane R. Patterson, Executive Director, provided the response to our recommendation on December 18, 1999.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

SPECIAL ASSISTANT AUDITORS

KPMG, LLP were our special assistant auditors for this audit.