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REPORT DIGEST STATE UNIVERSITIES RETIREMENT SYSTEM COMPLIANCE
EXAMINATION For the Year Ended: June 30, 2008 Summary of Findings: Total this audit 1 Total prior audit 0 Repeated from last audit 0 Release Date: State of
Office of the Auditor General WILLIAM G. HOLLAND AUDITOR GENERAL
To obtain a copy of the
Report contact: Office of the Auditor
General
(217) 782-6046 or TTY (888)
261-2887 This Report Digest and Full
Report are also available on the worldwide web at http://www.auditor.illinois.gov |
INTRODUCTION
This digest covers our compliance
examination of the System for the year ended June 30, 2008. A financial audit covering the year ended
June 30, 2008 was issued separately.
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. SYNOPSIS
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STATE UNIVERSITIES RETIREMENT
SYSTEM
COMPLIANCE EXAMINATION
Year Ended June 30, 2008
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FINANCIAL OPERATIONS |
FY 2008 |
FY 2007 |
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Additions Contributions Participants.............................................. Employer................................................. Total
Contributions............................. Investment Income Net appreciation
(depreciation) in fair Interest.................................................... Dividends................................................. Securities lending...................................... Less: Investment expense........................ Net Investment
Income (Loss)............ Total
Additions............................ Deductions Benefits.......................................................... Refunds
of contributions................................. Administrative
expense................................... Total
Deductions.......................... Net Increase (Decrease)...................................... |
$310,101,265 383,899,304 $694,000,569
($938,306,823) 60,706,695 187,602,637 14,161,232 (39,012,867) ($714,849,126) ($20,848,557) $1,279,172,742 54,939,592 12,079,244 $1,346,191,578 ($1,367,040,135) |
$303,992,601 294,451,464 $598,444,065 $2,249,927,509 225,548,765 155,508,304 4,958,036 (38,111,626) $2,597,830,988 $3,196,275,053 $1,180,574,674 53,407,456 11,704,567 $1,245,686,697 $1,950,588,356 |
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INVESTMENTS USED FOR BENEFITS AND EXPENSES (Defined Benefit Plan) |
FY 2008 |
FY 2007 |
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Contributions Participants ................................................ State of Illinois.............................................. Federal/Trust and other sources....................... Total Contributions.................................... Deductions Benefits.................................................... Refunds.................................................... Administrative Expenses................................. Total Deductions.....................................
Investments Used to Pay Benefits and Expenses.... |
$264,149,354 306,914,260 38,030,978 $609,094,592
$1,275,713,711 44,984,290 12,079,244 $1,332,777,245
$(723,682,653) |
$262,350,838 224,064,475 37,078,160 $523,493,473
$1,177,348,076 41,353,881 11,704,567 $1,230,406,524
$(706,913,051) |
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SUPPLEMENTARY
INFORMATION |
FY 2008 |
FY 2007 |
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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.................
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$37,659,805
(4.5%)
119.10
83,074
76,721
37,055
7,122
762 |
$37,104,488 18.3%
120.10
81,691
75,261
35,200
6,958
849 |
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EXECUTIVE
DIRECTOR |
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During Audit Period: Dan M. Slack Currently: Ms. Judith Parker – Interim Executive
Director (1-1-09 to present) |
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Improvements needed
in accounting and reporting the fair value of alternative investments
The System did not
perform a review to determine whether there was a material difference
Alternative
investments comprise approximately 10% of the System’s total investments
Reliance on
external investment managers and advisors |
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS VALUATION OF
ALTERNATIVE INVESTMENTS The State Universities Retirement System (System) should enhance its accounting and reporting process for determining and reviewing the fair value measurements and disclosures, enhance documentation of valuation methods and significant supporting assumptions used for its alternative investments on a timely basis. In conjunction with the audit for the year ended June 30, 2008, an analysis was performed on the System’s alternative investments. As part of this process, it was discovered that the financial activity reported for certain alternative investments was not current as June 30, 2008. The amounts that were reported represented the values provided by their Investment Management Firms as of March 31st with cash activity through June 30th, but did not include the change in the underlying investments for the period from April 1st through June 30th. As a result, the System’s beginning Plan Net Assets and Net Increase in Plan Net Assets were understated by approximately $85 million. Generally accepted accounting principles require the System to report their investments at fair value as of the Statement of Plan Net Assets date. Management has been unable to obtain more current financial data in time to prepare the June 30 financial statements. Errors occurred because management had historically used a March 31 cutoff date in the System’s financial statements and they have not performed any retrospective look backs to determine that the values reported at March 31st were not materially different than the June 30th actual balances. Alternative investments are defined as investments for which a readily determinable fair value does not exist. These are investments not listed on national exchanges or over-the-counter markets, or for which quoted market prices are not available from sources such as financial publications, the exchanges, or the National Association of Securities Dealers Automated Quotations System (NASDAQ). Alternative investments comprise approximately 10% of the System’s total investments and include real estate and private equity as of June 30, 2008. Based on the organizational structure and limited staff of the System, they have traditionally relied on the due diligence and valuation procedures performed by external investment managers and the investment advisors. System management may look to the external managers and advisors for guidance, but management must have sufficient information to evaluate and independently challenge the information provided by the external managers and advisors. We recommended the System review its current process for determining the fair value measures and disclosures for alternative investments and develop written procedures related to the determination of fair value measurements, selecting appropriate valuation methods, identifying and adequately supporting assumptions used, and assignment of responsibilities. The System should also evaluate current staffing to determine whether appropriate resources exist and work with their external investment managers to obtain the necessary financial information on a timely basis. (Finding 1, Pages 32-34) System management concurred with the finding and stated that they will adjust the reporting and accounting schedules to allow the use of June valuation amounts for the alternative investments class. In addition, they stated that they will improve the documentation and review of valuation methods as well as the ongoing monitoring process of its investment managers. AUDITORS' OPINION Our auditors state the June
30, 2008 financial statements of the System are fairly presented in all
material respects. _____________________________________ WILLIAM G. HOLLAND, Auditor General WGH:TLK:pp SPECIAL ASSISTANT AUDITORS McGladrey & Pullen, LLP were our special assistant auditors for this audit. |