REPORT DIGEST

REPORT DIGEST

STATE UNIVERSITIES RETIREMENT SYSTEM

COMPLIANCE EXAMINATION

For the Year Ended:

June 30, 2006

Summary of Findings:

Total this audit 1

Total prior audit 1

Repeated from last audit 1

Release Date:

April 17, 2007

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

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Office of the Auditor General

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740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

This Report Digest and Full Report are available on

the worldwide web at

http://www.auditor.illinois.gov

SYNOPSIS

¨ The System did not have collateralization or insurance for foreign currency deposits totaling $19,913,922 at June 30, 2006.

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

STATE UNIVERSITIES RETIREMENT SYSTEM

COMPLIANCE EXAMINATION

Year Ended June 30, 2006

FINANCIAL OPERATIONS (All Funds)	FY 2006	FY 2005
Revenues Contributions Participants.............................................. Employer.................................................. Total Contributions.............................. Investment Income Net appreciation in fair market value.......... Interest.................................................... Dividends................................................. Securities lending...................................... Less: Investment expense......................... Net Investment Income....................... Total Revenues............................. Expenses Total benefits.................................................. Other expenses............................................... Total Expenses............................. Excess (deficiency) of Revenues over (under) expenses..........................................................	$292,392,188 209,651,367 $502,043,555 $1,281,932,946 183,792,025 126,245,756 4,525,486 (29,685,842) $1,566,810,371 $2,068,853,926 $1,086,565,418 63,584,559 $1,150,149,977 $918,703,949	$285,585,320 312,834,985 $598,420,305 $1,073,726,553 137,186,111 113,089,192 4,493,205 (26,530,253) $1,301,964,808 $1,900,385,113 $1,005,369,722 55,936,646 $1,061,306,368 $839,078,745
INVESTMENT PORTFOLIO ANALYSIS (Fair Market Value)	JUNE 30, 2006	JUNE 30, 2005
Equities ................................................................ Fixed income........................................................ Real estate........................................................... Self-managed plan funds....................................... Total Portfolio at Fair Market Value.................	$9,692,422,530 3,816,079,807 131,569,925 405,332,778 $14,045,405,040	$9,160,596,032 3,759,068,138 43,258,905 317,175,851 $13,280,098,926
INVESTMENTS USED FOR BENEFITS AND EXPENSES (Defined Benefit Plan)	FY 2006	FY 2005
Contributions Participants .................................................... State of Illinois................................................ Federal/Trust and other sources....................... Total Contributions.................................... Deductions Benefits......................................................... Refunds......................................................... Administrative Expenses................................. Bond Interest Expense.................................... Total Deductions....................................... Investments Used to Pay Benefits and Expenses....	$252,921,802 142,196,464 37,821,618 $432,939,884 $1,085,383,795 42,620,200 11,982,284 179,640 $1,140,165,919 $(707,226,035)	$251,939,562 247,418,620 38,004,690 $537,362,872 $1,004,452,222 35,775,893 12,087,116 692,750 $1,053,007,981 $(515,645,109)
SUPPLEMENTARY INFORMATION	FY 2006	FY 2005
Total investment administrative expenses................ Investment return (unaudited)................................ Average number of employees (unaudited)............. Number of active members................................... Number of inactive members................................. Number of retirement benefit recipients.................. Number of survivors benefit recipients................... Number of disabilities benefit recipients..................	$28,813,142 11.7% 121.30 80,869 72,606 33,574 6,807 864	$25,473,352 10.4% 122.25 80,102 69,849 32,002 6,550 864
EXECUTIVE DIRECTOR
During Examination Period: James M. Hacking (through August 2005), Dan M. Slack, Interim (August – December 2005) Currently: Dan M. Slack (effective December 2005)

All deposits not collateralized or insured

State contributions reduced for fiscal year 2006 and 2007

INTRODUCTION

This digest covers our compliance examination of the System for the year ended June 30, 2006. A financial audit covering the year ended June 30, 2006 was issued separately.

FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS

DEPOSITS SUBJECT TO CUSTODIAL CREDIT RISK

The System did not have collateralization or insurance for all deposits. At June 30, 2006, the System had $376.5 million in cash deposits of which $19,913,922 was foreign currency deposits and was exposed to custodial credit risk. Custodial credit risk is the risk that in the event of a financial institution failure, the System’s deposits may not be returned. Prudent business practices dictate that assets be protected from possible losses. The System’s policies did not address custodial credit risk for foreign deposits. (Finding 1, pages 10-11)

We recommended that the System make the necessary policy changes to address the lack of collateralization or insurance on foreign currency deposits.

System officials concurred and stated a revised investment policy was approved by their Investment Committee. They anticipated approval of the investment policy by the System Board at the December meeting.

We will review progress toward the implementation of our recommendation in our next examination. The System response was provided by Mr. Steven Hayward, Internal Auditor, on December 4, 2006.

FUNDING LEGISLATION

Public Act 94-0004 became law June 1, 2005 and affected the System by modifying several retirement benefit calculations for fiscal year 2006 and beyond. In addition, the Act also established specific dollar amounts to be contributed by the State for fiscal years 2006 and 2007, as opposed to the State contribution being calculated based on the existing funding formula. State required contributions will be higher in future years to make up for the two-year funding reduction.

AUDITORS’ OPINION

We conducted a compliance examination of the System for the year ended June 30, 2006 as required by the Illinois State Auditing Act. A financial audit covering the year ending June 30, 2006 was issued separately.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KMA:pp

SPECIAL ASSISTANT AUDITORS

BKD, LLP were our special assistant auditors.