REPORT DIGEST TEACHERS’ RETIREMENT SYSTEM OF THE STATE OF ILLINOIS Financial Audit For the Year Ended June 30, 2015 Release Date: January 12, 2016 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 0 -- 1 -- 1 Category 3: 0 -- 0 -- 0 TOTAL: 0 -- 1 -- 10 FINDINGS LAST AUDIT: 1 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 FRANK J. MAUTINO, 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, 2015. The Teachers’ Retirement System’s Compliance Examination covering the year ended June 30, 2015 will be issued in a separate report at a later date. The System’s total pension liability is $111.9 billion at June 30, 2015, an increase of $5.2 billion from $106.7 billion at June 30, 2104. The net pension liability at June 30, 2015 is $65.5 billion, which is the difference between the System’s fiduciary net position of $46.4 billion and the total pension liability. The System’s net position as a percentage of the total pension liability is 41.5% at June 30, 2015 as compared to 43.0% at June 30, 2014. 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, therefore this information is no longer reported in the financial statements. FINDING SYNOPSIS • (15-1) The Teachers’ Retirement System of the State of Illinois has weaknesses in controls over member census data reported by its participating employers. FINDING, CONCLUSION, AND RECOMMENDATION CONTROLS OVER CENSUS DATA The System has weaknesses in controls over member census data reported by its participating employers. During testing it was noted that member census data for the System is accumulated from multiple participating employers which increases the likelihood of errors within the data. During fiscal year 2015 the System’s processes and controls for verifying the data relied heavily on the reporting of the information by the participating employers with limited controls in place by the System to verify the member census information. During fiscal year 2015 the System developed an action plan to address the weaknesses. The System began implementation of certain details of the action plan during fiscal year 2015 with the expectation to implement additional controls in fiscal year 2016. Management indicated the System did not have procedures in place to verify census data. The System began implementing new processes and controls over census data during the period and will continue to update and implement new controls moving forward. 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 42-43) We recommended the System continue updating and implementing processes and controls to include the verification of the significant elements of census data going forward. System management concurred with the recommendation and indicated they will continue to implement processes and controls to verify member census data. AUDITOR’S OPINION Our auditors stated the financial statements of the Teachers’ Retirement System as of June 30, 2015, and for the year then ended, are fairly stated in all material respects. FRANK J. MAUTINO Auditor General FJM:RPU SPECIAL ASSISTANT AUDITORS Our Special Assistant Auditors for this audit were RSM US LLP.