REPORT DIGEST

TEACHERS’ RETIREMENT SYSTEM OF THE STATE OF
ILLINOIS

COMPLIANCE EXAMINATION
FOR THE TWO YEARS ENDED JUNE 30, 2023

Release Date:  March 14, 2024

FINDINGS THIS AUDIT: 3

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 0 -- 1
Category 2:  0 -- 1 -- 1
Category 3:  0 -- 1 -- 01
TOTAL:  1 – 2 -- 3

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 compliance
examination audit of the Teachers’
Retirement System (System) for the two years
ended June 30, 2023.   A digest covering the
System’s Financial Audit as of and for the
year ended June 30, 2023, was previously
released on January 18, 2024.

SYNOPSIS

• (23-1) The Teachers’ Retirement System of
the State of Illinois (System) did not
always obtain fully completed disclosures
from investment managers as required by the
Illinois Pension Code.
• (23-3) The System had not implemented
adequate controls over its service
providers.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NONCOMPLIANCE WITH CERTAIN DISCLOSURES
REQUIRED BY THE ILLINOIS PENSION CODE

The Teachers’ Retirement System of the State
of Illinois (System) did not always obtain
fully completed disclosures from investment
managers as required by the Illinois Pension
Code.

Before the System hires a new investment
manager, they require the entity to complete
the Firm Employment and Use of Professional
Service Providers form. The form includes
all of the disclosures required by the
Pension Code for its investment and senior
staff (Form A) and its contractors (Form B).
In addition, the form requests additional
comments and certifications from the
prospective investment manager related to
their diversity initiatives that the System
takes into consideration when hiring new
investment managers.

Illinois Pension Code 40 ILCS 5/1-113.21

During testing, we noted 2 of 96 (2%)
investment manager disclosures returned to
the System where the investment manager did
not properly disclose the number of
contracts with businesses owned by
minorities, women or persons with a
disability and the number of contracts with
other than those businesses owned by
minority, women or persons with a
disability. We noted that both investment
managers did not track the number of
contracts for investment services,
consulting services and professional
services with minority-owned businesses,
women-owned businesses or businesses owned
by persons with a disability. (Finding 1,
pages 8-9)

This finding has been reported since 2016.

We recommended the System work with its
investment managers to comply with the
disclosure requirements of the Illinois
Pension Code or seek legislative remedy from
the statutory requirement.

System management stated that as with prior
years, they disagreed with this finding and
believe the System is following statute
compliance.

INADEQUATE INTERNAL CONTROLS OVER SERVICE
PROVIDERS

The System had not implemented adequate
controls over its service providers.

We requested the System’s population of
service providers utilized during the
examination period to determine if the
System had reviewed the internal controls of
its service providers. In response to our
request, the System provided a population;
however, the population contained
inaccuracies.

Due to these conditions, we were unable to
conclude the System’s population records
were sufficiently precise and detailed under
the Professional Standards promulgated by
the American Institute of Certified Public
Accountants (AT-C § 205). Even given the
population limitations, we tested a sample
of two service providers, noting the System
had not:

• Conducted an analysis of deviations noted
in the service providers’ System and
Organization Control (SOC) reports to
determine the impact to their internal
control environment.

• Conducted an analysis to determine if the
subservice providers’ service impacted the
System’s internal control environment.

• Conducted a review of the Complementary
User Entity Controls (CUECs) and the
System’s related controls. (Finding 3, pages
11-12)

We recommended the System strengthen its
controls in identifying and documenting all
service providers utilized. Further, we
recommended the System obtain SOC reports
and analyze the deviations noted in the
service providers’ SOC reports to determine
the impact to the System’s internal control
environment, the subservice providers to
determine their impact to the System’s
internal controls, and the CUECs as they
relate to the System’s internal controls.

System management agreed with the finding.

OTHER FINDINGS

The remaining finding pertained to
weaknesses in cybersecurity programs and
practices. We will review the System’s
progress towards the implementation of our
recommendations in our next State compliance
examination.

AUDITOR’S OPINION

The financial audit report was previously
released. The auditors stated the financial
statements of the System as of and for the
year ended June 30, 2023, are fairly stated
in all material respects.

ACCOUNTANT’S OPINION

The accountants conducted a State compliance
examination of the System for the two years
ended June 30, 2023, as required by the
Illinois State Auditing Act. The accountants
qualified their report on State compliance
for Finding 2023-003.  Except for the
noncompliance described in this finding, the
accountants stated the System complied, in
all material respects, with the requirements
described in the report.

This State compliance examination was
conducted by FORVIS, LLP.

JANE CLARK
Division Director

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

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