REPORT DIGEST
OFFICE OF THE TREASURER – CHANGE OVER AUDIT
Financial Audits and Agreed-Upon Procedures
For the Period: July 1, 2010 through opening
of business January 10, 2011
Release Date: June 9, 2011
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
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INTRODUCTION
The Illinois State Auditing Act (30 ILCS 5/3-2.1) requires
the Office of the Auditor General to “conduct a change over audit of the State
Treasurer’s accounts at the conclusion of each term of office of the State Treasurer
or, in the case of successive terms by a State Treasurer, at the conclusion of
that State Treasurer’s time in office.”
This digest presents our financial audits for the Office of
the Treasurer Fiscal Officer Responsibilities, Illinois Funds, and College
Savings Program for the period July 1, 2010 through opening of business January
10, 2011.
In addition, Agreed-Upon Procedures covering insurance,
fixed assets, unclaimed property, locally held funds, and unexpended
appropriations were performed for the period July 1, 2010 through opening of
business January 10, 2011.
OTHER DISCLOSURES
FISCAL OFFICER RESPONSIBILITIES
FINDINGS
During the financial audit testing of the Office of the
Treasurer (Office) - Fiscal Officer Responsibilities the auditors were required
to follow-up on previously reported findings that affected the financial
operations. Two findings that had been
reported in the June 30, 2010 Fiscal Officer Responsibilities report are being
repeated in the Change Over Audit of the Fiscal Officer Responsibilities. A summary of the two findings are as follows:
• The Office did not document the reason for gaps in the
sequential numbering of general ledger journal entries processed during the
audit period. Strong management
controls, due diligence and fiduciary responsibility require procedures to
include proper checks and balances and adequate supervision to ensure
safeguarding of assets and proper financial reporting. The Office’s personnel attributed the gaps to
the design of the application. (Finding #1, page 48)
The auditors recommended the Office improve its internal
control over general ledger journal entries and ensure documentation is
maintained for the entire population of journal entries. The Treasurer’s Office agreed with the
recommendation and indicated the Office is working towards making changes in
the system to resolve the problem.
• During testing of the Office’s securities lending program,
auditors noted the Office did not comply with the Deposit of State Moneys Act
and the Illinois State Treasurer’s Investment Policy. Failure to comply with mandated
responsibilities in noncompliance with statutory requirements and does not
fulfill the legislative intent of the statute.
(Finding #2, pages 49-50)
The auditors recommended the Office strengthen its internal controls over the securities lending program. The Treasurer’s Office agreed with the recommendation and noted the Office has either implemented or will be implementing changes to address the issues identified.
ILLINOIS INSURED MORTGAGE PILOT PROGRAM TRUST
The Illinois Insured Mortgage Pilot Program Trust (Trust)
was created in October 1982 in order to stimulate construction activity in the
State. The State purchased $120,000,000
of investment certificates for which the underlying collateral was a pool of
mortgage loans for the purpose of providing financing to approved construction
projects. Two mortgage agreements in the
pool were secured by hotel properties, the Collinsville Holiday Inn
(Collinsville Hotel) and the Abraham Lincoln Hotel and Conference Center
(formerly the Renaissance).
Through the result of defaulting on the loan and subsequent
foreclosure, the Trust purchased the Collinsville Hotel and all associated
property for $25,375,654. The sale price
was paid in full through the Trust’s credit of the sale price against the
unpaid principal and interest secured by the mortgage on the property. On November 1, 2007 the court issued a
judicial deed, and the Trust took title to the property. At a sealed bid
auction, the Trust sold the Collinsville Hotel property to a hotel developer
for $5.25 million. The sale closed on
August 26, 2008. The Trust subsequently
received approximately $600,000 from an outstanding operating account of the
Collinsville Hotel. In May 2010, the
Trust settled litigation against a financial institution related to the
collection on four letters of credit totaling $1,637,375, that were additional
loan collateral. After the financial
institution transferred $853,874 and the deeds and/or titles to several properties,
the litigation was dismissed. It is anticipated the properties will be sold for
an amount less than $1 million.
Again, through the
result of defaulting on the loan and subsequent foreclosure, the Trust, on
March 4, 2008, purchased the President Lincoln Hotel and all associated property
for $100,000. The sale price was paid in
full through the Trust’s credit of the sale price against the unpaid principal
and interest of the mortgage note. The
court confirmed the sale on March 14, 2008.
The President Lincoln Hotel was sold via public auction on December 14,
2009 to the high bidder for $6.5 million.
The transaction closed on February 2010, with the purchaser transferring
the sale price to the Trust accounts.
The Trust transferred $16 million to the State Treasury on
September 30, 2010.
THE ILLINOIS FUNDS
The Illinois Funds was established under the name Illinois
Public Treasurers’ Investment Pool (IPTIP) in 1976 to supplement and enhance
the investment opportunities available to custodians of public agency funds
throughout the State of Illinois. The
management, custodianship and operation of The Illinois Funds are under the
supervision of the Office of the Treasurer – State of Illinois.
To administer the
Illinois Funds, the Treasurer has established a division entitled “The Illinois
Funds Administrative Office”. The
revenues and expenditures of the Division were recorded in a fund maintained by
the Treasurer entitled “The Illinois Funds Administrative Trust Fund”.
An investment trust fund is used to account for assets held
by The Illinois Funds in a trustee capacity for public treasurers throughout
the State of Illinois. The custodian for
this fund was U.S. Bank of Illinois.
COLLEGE SAVINGS PROGRAM
The College Savings Program (Program) was established in
March 2000 pursuant to P.A. 91-0607 which authorizes the State Treasurer to
establish and administer a “qualified state tuition program” under Section 529
of the Internal Revenue Code of 1986, as amended. Participants of the Program have a choice of
two Section 529 investment programs, the Bright Start College Savings Program,
which commenced operations on March 27, 2000, and the Bright Directions College
Savings Program, which commenced operations on November 18, 2005.
The State Treasurer selected an investment firm (Manager),
one for Bright Start and one for Bright Directions, to advise the office on the
investment of the Trust assets, to administer the Trust assets, and to provide
other services relating to the Program.
As such, the Managers act as agents of the Treasurer, and as trustees of
the Trust. The Treasurer, however,
retains ultimate authority to manage the investments of the Trust.
To administer the Program, the Treasurer has established a
division entitled “The College Savings Program Division”. The revenues and expenditures of the Division
are recorded in a fund maintained by the Treasurer entitled College Savings
Program Administrative Trust Fund, which is classified as an enterprise
fund.
An investment trust fund was used to account for assets held
by the Program in a trustee capacity or as agent for individuals throughout the
United States.
AUDITORS’ OPINIONS
The auditors stated the State Treasurer’s financial
statements as of the beginning of business on January 10, 2011 are fairly
presented in all material respect.
WILLIAM G. HOLLAND
Auditor General
WGH:RPU:pp
SPECIAL ASSISTANT AUDITORS
Crowe Horwath LLP were our Special Assistant Auditors for
this engagement.