REPORT DIGEST

STATE UNIVERSITIES RETIREMENT SYSTEM

 

COMPLIANCE AUDIT

For the Year Ended:

June 30, 2003

 

Summary of Findings:

 

Total this audit                      4

Total prior audit                    0

Repeated from last audit       0

 

Release Date:

March 11, 2004

 

 

 

 

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 TDD (217) 524-4646

 

 

 

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

 

SYNOPSIS

  • The System's bank account was not appropriately reconciled at June 30, 2003 and had an unlocated difference of approximately $264,000.
  • The bank reconciliations were not performed or reviewed by an official independent of the accounting function.
  • The System did not collect required employer contributions totaling $313,116 from a community college in a timely manner.

 

 

 

 

 

 

 

 

 

 

{Financial Information and Activity Measurers summarized on the reverse page.}

 

             STATE UNIVERSITIES RETIREMENT SYSTEM

INFORMATION FROM FINANCIAL AND COMPLIANCE AUDITS

                           Two Years Ended June 30, 2003

 

FINANCIAL OPERATIONS

FY 2003

FY 2002

Additions

     Contributions

          Participants

          Employer

                    Total Contributions

Investment Income

     Net appreciation (depreciation) in fair
     market 9; value

     Interest

     Dividends

     Other

     Less: Investment expense

          Net Investment Income

                    Total Additions

Deductions

     Total benefits

     Other expenses

                    Total Deductions

Net Increase (Decrease)

 

 

$275,901,085

310,016,721

$585,917,806

 

 

$37,985,978

159,186,178

72,861,166

2,954,892

17,596,727

$255,391,487

$841,309,293

 

$837,332,238

48,372,692

$885,704,930

$(44,395,637)

 

 

$277,477,660

279,091,795

$556,569,455

 

 

$(910,689,819)

190,025,259

68,858,859

3,836,795

18,515,248

$(666,484,154)

$(109,914,699)

 

$743,269,951

52,625,436

$795,895,387

$(905,810,086)

INVESTMENT PORTFOLIO ANALYSIS (Fair Market Value)

JUNE 30, 2003

JUNE 30, 2002

Total equities

Total fixed income securities

Cash and short-term investments

Real estate investments

Mutual funds and variable annuities

Accrued investment income

Total Portfolio at Fair Market Value

$6,176,436,373

3,531,907,779

398,174,643

748,250

170,428,929

32,031,269

$10,309,727,243

$6,379,593,688

3,225,836,338

414,908,800

1,046,688

119,825,534

35,735,063

$10,176,946,111

ADMINISTRATIVE EXPENSES

FY 2003

FY 2002

Personal services and benefits

Other professional fees and services

Depreciation

Postage

Printing and copying services

Building operations expenses

Self-managed plan

Other expenses

Total Administrative Expenses

$6,847,556

1,500,472

1,760,283

423,459

176,289

229,200

457,607

518,139

$11,913,005

$6,168,723

2,088,106

1,510,457

446,851

274,760

242,816

526,175

610,119

$11,868,007

SELECTED ACCOUNT BALANCES

JUNE 30, 2003

JUNE 30, 2002

Investments at Market Value

Securities lending collateral

Cash & short term investments

Pending investment sales

Accrued investment income receivable

Other assets

Total assets

Securities lending collateral

Payable to brokers for unsettled trades

Other payables

Total liabilities

Net assets held in trust for pension benefits

$9,879,521,331

1,210,412,320

398,174,643

420,616,551

32,031,269

85,847,907

$12,026,604,021

1,210,412,320

878,398,038

32,759,004

$2,121,569,362

$9,905,034,659

$9,726,302,248

881,307,948

414,908,800

618,429,216

35,735,063

42,992,838

$11,719,676,113

881,307,948

855,726,222

33,211,647

$1,770,245,817

$9,949,430,296

SUPPLEMENTARY INFORMATION

FY 2003

FY 2002

Total investment administrative expenses

Investment return (unaudited)

Average number of employees

Number of active members

Number of inactive members

Number of retirement benefit recipients

Number of survivors benefit recipients

Number of disabilities benefit recipients

$16,815,880

2.9%

122

78,936

61,447

29,020

6,138

864

$17,440,451

(6.1%)

112

79,162

52,787

27,202

5,905

781

EXECUTIVE DIRECTOR

 

 

During Audit Period and Currently: Mr. James M. Hacking

 

 

 

 

 

 

 

Reconciling items totaling approximately $264,000 not explained

 

 

 

 

 

 

 

 

 

 

 

 

 

Independent review of bank reconciliation not performed

 

 

 

 

 

 

Pension contribution totaling $313,116 from a community college received late

INTRODUCTION

This digest covers our compliance audit of the System for the year ended June 30, 2003. A financial audit covering the year ended June 30, 2003 is being issued separately.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

BANK ACCOUNT NOT RECONCILED

The State Universities Retirement System (System) did not appropriately reconcile its bank account. The bank reconciliation at June 30, 2003 showed a reconciled bank balance that was different from the book balance by approximately $264,000. The System did not fully capture all reconciling items, causing the unlocated difference.

System personnel indicated that the reconciliations have not balanced for several years, mainly because of an increase in volume and complexity of transactions due to the introduction of the optional retirement plans, as well as more electronic activity within the bank account. Differences have typically been minor; however, the difference has grown over the past year. (Finding 1, page 9)

We recommended the System review its process for the reconciliation of cash accounts and ensure that the book and bank balances are reconciled completely and in a timely manner.

The System concurred with our finding and agreed that all unreconciled differences should be located each month and the appropriate entries made to the general ledger. They stated they are currently reviewing the transactions in the cash accounts to locate the unreconciled difference and will make the necessary adjusting entries to the general ledger accounts. In addition, the System is reviewing the procedures and methodology currently being used to reconcile these accounts.

LACK OF SEGREGATION OF DUTIES

The System did not have an adequate segregation of duties over the bank reconciliation process. Bank reconciliations were performed by the same individual that performed accounting functions and were not reviewed by a responsible official independent of the accounting function. System personnel stated this was caused by an employee's role changing and the duty of bank reconciliation review not being reassigned. (Finding 2, page 10)

The System agreed with our finding and responded they will have an independent staff member review the bank reconciliations.

EMPLOYER CONTRIBUTIONS NOT REMITTED TIMELY

The System did not collect all required employer contributions from a community college for certain periods during fiscal year 2003. The community college did not report and remit employer contributions that related to federal and trust programs for payroll periods from January 1, 2003 to June 30, 2003. The System subsequently received the contributions totaling $313,116 in September, 2003 and posted the adjustment to fiscal year 2003.

System personnel identified this exception, but it was not detected in a timely manner. The error was attributed to a computer problem at the community college. The System did not have adequate procedures in place to test for accuracy or completeness of transferred funds. (Finding 3, page 11)

We recommended the System design and implement controls to detect variances in employer contributions that have historically been remitted with actual remittances to date.

The System agreed with our finding and stated effective for all payrolls processed after November 4, 2003, an edit compares the percentage of each payroll reported as federal/trust to the average for the last three payrolls. Variances greater than 20% will be investigated by the Accounting Department and explanations will be required from the contributing agency's payroll office.

 

OTHER FINDING

The remaining finding is less significant and is reportedly being addressed by the System. We will review progress toward the implementation of our recommendations in our next audit. System responses were provided by Mr. Steve Hayward, Internal Auditor.

 

 

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KMA:pp

 

SPECIAL ASSISTANT AUDITORS

BKD, LLP were our special assistant auditors.