REPORT DIGEST OFFICE OF THE SECRETARY OF STATE FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2022 Release Date: March 2, 2023 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 -- 1 FINDINGS LAST AUDIT: 3 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 SYNOPSIS • (22-01) The Office of the Illinois Secretary of State (Office) had certain deficiencies in their internal control to ensure accurate census data was provided to the State Employees’ Retirement System of Illinois (System) for us in the applicable annual actuarial valuations. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INACCURATE CENSUS DATA The Office had certain deficiencies in their internal control to ensure accurate census data was provided to the State Employees’ Retirement System of Illinois (System) for us in the applicable annual actuarial valuations. Census data is demographic data (date of birth, gender, years of service, etc.) of the active, inactive, or retired members of a pension or other postemployment benefit (OPEB) plan. The accumulation of inactive or retired members’ census data occurs before the current accumulation period of census data used in the plan’s actuarial valuations (which eventually flows into each employer’s financial statements), meaning the plan is solely responsible for establishing internal controls over these records and transmitting this data to the plans actuary. In contrast, responsibility for active members’ census data during the current accumulation period is split among the plan and each member’s current employer(s). Initially, employers must accurately transmit census data elements of their employees to the plan. Then, the plan must record and retain these records for active employees and then transmit this census data to the plan’s actuary. We noted the Office’s employees are members of both the pension plan administered by the System and the State Employees Group Insurance Program (SEGIP) sponsored by the State of Illinois which includes OPEB. In addition, we noted these plans have characteristics of different types of pension and OPEB plans, including single employer plans and cost-sharing multiple employer plans. During the performance of the census examination, it was identified that: • During backwards testing, the auditors identified two of sixty (3%) employees included on Office payroll reports, one with an incorrect retirement deduction code and the other an incorrect date of birth. • The Office had not performed an initial complete reconciliation of its census data recorded by the System to its internal records to establish a base year of complete and accurate census data. The result of the error in the first bullet above led to inaccurate census data being utilized by the System and the State in the performance of the annual pension and OPEB actuarial valuation processes. The independent actuaries utilized by the System and the State of Illinois for the pension and OPEB plans deemed the errors immaterial to the plan level valuations as a whole. (Finding 1, pages 65-67) This finding was first reported in 2020. We recommended the Office strengthen controls to ensure accurate census data is provided to the System for use in the annual actuarial valuation process. If differences are noted between the Office’s data and the System’s data, these differences should be communicated timely and rectified to ensure the actuarial valuations are using accurate data. Further, we recommended the Office work with the System to develop an annual reconciliation process of its active members’ census data from its underlying records to a report from each plan of census data submitted to the plan’s actuary. After completing an initial full reconciliation, the Office may lime the annual reconciliations to focus on the incremental changes to the census data file from the prior actuarial valuation, provided no risks are identified that incomplete or inaccurate reporting of census data may have occurred during prior periods. Office officials agreed with the recommendation and stated the Office did perform the reconciliation of census data but the System was miscalculating some of the Office’s employee data. Office officials also stated they believe the problem has been found and they will continue to work with the System to perform future reconciliations. AUDITOR’S OPINION The auditors stated the financial statements of the Office as of and for the year ended June 30, 2022 are fairly stated in all material respects. This financial audit was conducted by Sikich, 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 FJM:sdw