REPORT DIGEST TEACHERS’ RETIREMENT SYSTEM OF THE STATE OF ILLINOIS FINANCIAL AUDIT For the Year Ended June 30, 2014 Release Date: January 22, 2015 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 1 -- 0 -- 1 Category 3: 0 -- 0 -- 0 TOTAL: 1 -- 0 -- 1 FINDINGS LAST AUDIT: 0 Category 1: Findings that are material weaknesses in internal control and/or a qualification on compliance with State laws and regulations (material noncompliance). Category 2: Findings that are significant deficiencies in internal control and noncompliance with State laws and regulations. Category 3: Findings that have no internal control issues but are in noncompliance with State laws and regulations. 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 TTY (888) 261-2887 This Report Digest and Full Report are also available on the worldwide web at www.auditor.illinois.gov INTRODUCTION This digest covers the financial statement audit of Teachers’ Retirement System of the State of Illinois (System) as of and for the year ended June 30, 2014. The Teachers’ Retirement System’s Compliance Examination covering the year ended June 30, 2014 will be issued in a separate report at a later date. During fiscal year 2014 the System implemented Governmental Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension Plans. Implementation of the new statement requires the System to disclose the total pension liability and net pension liability in the financial statement notes as well as other related information as required supplementary information. The System’s total pension liability is $106.7 billion at June 30, 2014. The net pension liability at June 30, 2014 is $60.9 billion, which is the difference between the System’s fiduciary net position of $45.8 billion and the total pension liability. The System’s funded ratio is 43%. The criteria used for computing pension liability information in the financial report in accordance with GASB Statement No. 67 differs from the criteria used to compute the actuarial accrued liability and actuarial unfunded liability, this information is no longer reported in the financial statements. FINDING SYNOPSIS (14-1) The Teachers’ Retirement System of the State of Illinois has weaknesses in controls over creditable earnings and member census data reported by its participating employers. FINDING, CONCLUSION, AND RECOMMENDATION CONTROLS OVER CENSUS DATA The System has weaknesses in controls over creditable earnings and member census data reported by its participating employers. During testing it was noted that creditable earnings and member census data for the System is accumulated from multiple participating employers which increases the likelihood of errors within the data. The System’s current processes and controls for verifying the data rely heavily on the reporting of the information by the participating employers and there are limited controls in place by the System to verify the creditable earnings and member census information. System management indicated the System did not have procedures in place to conduct employer audits or other controls to verify census data. Certain financial statement assertions relating to cost-sharing plans (that is, the Total Pension Liability (TPL) and revenues and receivables relating to contributions) are dependent on the completeness and accuracy of census data. Weaknesses in controls over the significant elements of census data could lead to a misstatement in the valuation of the TPL, a required disclosure to the System’s financial statements. In addition, a misstatement could lead to a misstatement in contributions which directly impacts valuation of Plan Net Position and the financial statements of the System. (Finding 1, pages 40-41) We recommended the System update current processes and controls to include the verification of significant elements of census data. System management concurred with the recommendation and indicated they will implement processes and controls to include verification of census data from participating employers. AUDITOR’S OPINION Our auditors stated the financial statements of the Teachers’ Retirement System as of June 30, 2014, and for the year then ended, are fairly stated in all material respects. WILLIAM G. HOLLAND Auditor General WGH:RPU SPECIAL ASSISTANT AUDITORS Our Special Assistant Auditors for this audit were McGladrey LLP.