REPORT DIGEST OFFICE OF THE TREASURER - FISCAL OFFICER RESPONSIBILITIES FINANCIAL AUDIT AND COMPLIANCE EXAMINATION FOR THE YEAR ENDED JUNE 30, 2016 Release Date: March 9, 2017 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 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 • (16-1) The draft financial statements prepared by the Office of the Illinois Treasurer were delayed and required Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application related adjustments and additional disclosures. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS FINANCIAL REPORTING ADJUSTMENTS AND DISCLOSURES The draft financial statements prepared by the Office of the Illinois State Treasurer (IST) were delayed and required Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application related adjustments and additional disclosures. The IST was not fully prepared for the implementation of GASB. 72 when it prepared the Fiscal Officer Responsibilities’ financial statements. The IST did not adopt a comprehensive policy to implement GASB 72 until after the end of the fiscal year. A draft of the policy was provided to the auditors on November 9, 2016 more than three weeks after the draft financial statements were due to the Illinois Office of the Comptroller (Comptroller) and the external auditors for review on October 15, 2016. Draft financial statements were provided to the auditors on October 31, 2016. On November 21st and December 5th adjustments to the Technology Development Investment (TDA) accounts I and II, respectively were made by the IST and updated trial balances and financial statements were provided to the auditors. When these revised draft financial statements were provided on December 5, 2016, five weeks after the original draft financial statements were provided, they were missing required disclosures for investments measured using the net asset value (NAV) per share (or its equivalent) as a practical expedient, required by GASB 72. In addition, $119 million of time deposits were improperly classified as Level 2 investments. IST officials stated that the Fiscal Officer Responsibilities’ draft financial statements were delayed, a GASB policy was not formally approved and footnote disclosures were inadvertently omitted due to the complexity of the new industry standard for the application of fair value measurements. (Finding 1, pages 10-11) We recommended the IST formally adopt written policies and procedures to implement new GASB standards to ensure they are implemented timely. In addition, we recommended the IST should update its GASB 72 policy to address deposits and investments measured at cost, alternative investments measured using NAV per share, and the required disclosures pertaining to each. IST officials accepted the auditor’s recommendation. AUDITOR’S OPINION Our auditors stated the Office of the Treasurer, Fiscal Officer Responsibilities financial statements as of June 30, 2016 and for the year then ended were presented fairly in all material respects. The auditors noted the financial statements have been prepared by the Treasurer on the basis of the financial reporting provisions determined by the Office of the State Comptroller, which is a basis of accounting other than accounting principles general accepted in the United States of America, to meet the requirements of the State of Illinois. The auditor’s opinion was not modified with respect to this matter. ACCOUNTANT’S OPINION We conducted a compliance examination of the Office of the Treasurer, Fiscal Officer Responsibilities for the year ended June 30, 2016, as required by the Illinois State Auditing Act. The accountants stated the Treasurer complied, in all material respects, with the requirements described in the report. This financial audit and State compliance examination was conducted by the firm of RSM US LLP. BRUCE L. BULLARD Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:JAF