REPORT DIGEST

REPORT DIGEST

STATE UNIVERSITIES RETIREMENT SYSTEM
COMPLIANCE AUDIT

For the Year Ended:
June 30, 1999

Summary of Findings:

Total this audit 6
Total last audit 5
Repeated from last audit 2

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/audito

SYNOPSIS

The internal audit department of the State Universities Retirement System (SURS) had not performed all required testing in the investment area.

SURS did not have sufficient documentation to support certain benefit and refund calculations.

SURS did not have formal documented procedures for making computer program changes.

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

STATE UNIVERSITIES RETIREMENT SYSTEM

INFORMATION FROM FINANCIAL AND COMPLIANCE AUDITS

Two Years Ended June 30, 1999

FINANCIAL OPERATIONS	FY 1999	FY 1998
Additions Contributions Participants Employer Total Contributions Investment Income Net appreciation in fair market value Interest Dividends Other Less: Investment expense Total Investment Income Total Additions Deductions Total benefits Other expenses Total Deductions Net Increase	$219,675,072 244,307,504 $463,982,576 $924,335,988 135,613,846 57,071,338 1,778,173 14,249,419 $1,104,549,926 $1,568,532,502 $525,966,160 43,215,106 $569,181,266 $999,351,236 $1,417,330, $1,417,330,579	$221,769,326 227,798,626 $449,567,952 $1,318,526,073 113,753,599 54,520,698 1,055,193 13,265,935 $1,474,589,628 $1,924,157,580 $466,508,747 40,318,254 $506,827,001 $1,417,330,579
INVESTMENT PORTFOLIO ANALYSIS (Fair Market Value)	JUNE 30, 1999	JUNE 30, 1998
Total equities Total fixed income securities Cash and short-term investments Real estate investments Self-Managed Plan Funds Accrued investment income Total Investments at Fair Market Value	$7,680,799,360 2,964,729,349 319,260,567 59,883,071 29,438,232 20,968,780 $11,075,079,359	$6,852,903,345 2,660,031,036 460,282,838 134,492,069 1,581,208 27,736,948 $10,137,027,444
ADMINISTRATIVE EXPENSES	FY 1999	FY 1998
Personal services Other professional fees and services Depreciation Postage Equipment repair and rental Printing and copying services Building operations expenses Other expenses Total Administrative Expenses	$4,861,317 2,009,427 1,373,103 557,026 129,415 429,513 175,111 456,310 $9,991,222	$3,777,555 2,198,519 1,290,287 611,189 231,418 778,697 176,174 364,455 $9,428,294
SELECTED ACCOUNT BALANCES	JUNE 30, 1999	JUNE 30, 1998
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	$10,734,850,012 651,738,947 319,260,567 121,072,974 20,968,780 29,427,851 $11,877,319,131 $651,738,947 399,280,115 33,270,951 $1,084,290,013 $10,793,029,118	$9,649,007,658 506,584,024 460,282,838 126,243,506 27,736,948 33,673,038 $10,803,528,012 $506,584,024 473,418,203 29,847,903 $1,009,850,130 $9,793,677,882
SUPPLEMENTARY INFORMATION	FY 1999	FY 1998
Total investment administrative expenses Return on investments (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	$14,249,419 11.5% 95 78,406 41,814 22,652 5,374 1,255	$13,265,935 17.8% 89 78,001 38,054 21,623 5,152 1,257

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

Internal audits of investment areas were not extensive

Adequate audit trails and supporting documentation did not always exist

Controls over changes to computer programs not formalized

INTRODUCTION

This digest covers our State compliance audit of the State Universities Retirement System (SURS) 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

INTERNAL AUDIT OF INVESTMENTS

The internal audit department of SURS had not performed all required testing in the investment department as required by the Fiscal Control and Internal Auditing Act (FCIAA).

We noted that the internal audit department did not include any testing of investment valuation or extensive testing of compliance with investment policies and procedures. Since investments are a significant part of SURS’ operations, an independent review should be performed periodically. SURS’ staff stated that the investment department believes it has sufficient controls in place to monitor the activities of the custodial banks and investment managers to mitigate any significant risks to its investment portfolio. Also, with limited internal audit personnel and the significant risks for Y2K and new system implementation, the investment department was deemed low risk compared to other departments. (Finding 99-4, page 14)

SURS officials concurred with the finding and stated they will add reviews of policy compliance to its mandatory two year internal audit plan.

CONTROLS OVER BENEFITS AND REFUNDS

Documentation of SURS benefits and refunds calculations was insufficient to substantiate certain amounts. We noted that adequate audit trails and supporting documentation did not exist for the on-line claims system or in the members’ image files. The calculation of benefits is crucial to SURS, and therefore, prudent business practices require an adequate audit trail for calculating benefits be maintained. (Finding 99-5, page 15)

We recommended SURS strengthen or revise its controls over benefits and refunds to ensure all documentation is complete and claim calculations are properly documented.

SURS officials concurred with our recommendation and stated they are working to identify system enhancements which will provide the documentation. They expect these enhancements will be completed during fiscal year 2000.

INFORMATION SYSTEMS PROCEDURES

The System did not have adequate procedures and processes in place to ensure the integrity of data and computer programs. We noted that the formalized procedures that document the process of making controlled changes to a computer application were not in place. This increases the risk of inconsistent procedures and lack of continuity in control over computer program changes. (Finding 99-6, page 16)

We recommended SURS design and implement formal program change control procedures by documenting the process of making controlled changes to a computer application.

SURS officials concurred with our recommendation and stated they plan to implement change management software in January, 2000. They stated the delay in implementation was due to the need to prevent any conflict with their new Pay Benefits Application which was needed to avoid any Year 2000 problems.

OTHER FINDINGS

The remaining findings are less significant, and SURS’ responses indicate it is addressing the conditions. We will review progress toward implementing these recommendations in our next audit.

Mr. Steve Hayward, Internal Auditor at SURS provided responses to our recommendations.

____________________________________

WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

Arthur Andersen LLP were our special assistant auditors for this audit.