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REPORT DIGEST STATE UNIVERSITIES RETIREMENT SYSTEM FINANCIAL AUDIT For the Year Ended: June 30, 2008 Release Date: February 5, 2009
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 |
INTRODUCTION This digest covers our financial audit
of the System for the year ended June 30, 2008. A compliance examination report covering
the year ending June 30, 2008 will be issued separately. UNDERFUNDING
OF THE SYSTEM The actuarial accrued liability was
valued at $24,917.7 million at June 30, 2008.
The actuarial value of assets (at market) totaled approximately
$14,586.3 million at June 30, 2008.
The difference between the liability and the assets of $10,331.4
million reflects the unfunded liability of the System at June 30, 2008. The State Universities Retirement System
had a funded ratio of 58.5% at June 30, 2008. SYNOPSIS(of Financial
Statement Finding)
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STATE
UNIVERSITIES RETIREMENT SYSTEM
FINANCIAL
AUDIT
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 ...... market value............................................
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)
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$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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INVESTMENT PORTFOLIO ANALYSIS |
JUNE 30, 2008 |
JUNE 30, 2007 |
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Equities
Fixed income.......................................................
Real estate...........................................................
Mutual funds and
variable annuities.......................
Total
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4,813,443,832
352,275,186
562,118,120
$14,459,641,623 |
5,180,583,996
328,033,841
533,000,506
$16,283,843,887 |
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FUNDING PROGRESS (millions) |
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Actuarial Accrued Liability...................................
Actuarial Value of Assets.....................................
Unfunded Actuarial Accrued
Liability....................
Funded Ratio....................................................... |
$24,917.7
14,586.3
$10,331.4
58.5% |
$23,362.1
15,985.7
$7,376.4
68.4% |
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SUPPLEMENTARY INFORMATION |
June 30, 2008
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June 30, 2007
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Benefit recipients..................................................
Active members...................................................
Inactive members.................................................
Total.............................................................. |
45,408
83,074
76,721
205,203 |
43,443
81,691
75,261
200,395 |
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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. |
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