REPORT DIGEST OFFICE OF THE TREASURER – ILLINOIS SECURE CHOICE SAVINGS PROGRAM FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2019 Release Date: April 15, 2020 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 1 -- 0 -- 1 Category 2: 0 -- 0 -- 0 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 • (19-01) The Office did not have an adequate process in place to determine the proper financial reporting of seed money (and earnings on the seed money) for the Secure Choice Savings Program and was noncompliant with the Illinois State statute related to the seed money. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CONTROLS IN PLACE FOR FINANCIAL STATEMENT REPORTING AND NONCOMPLIANCE WITH STATE STATUTE The Office did not have an adequate process in place to determine the proper financial reporting of seed money (and earnings on the seed money) for the Secure Choice Savings Program and was noncompliant with the Illinois State statute related to the seed money. The Secure Choice Savings Program officially launched July 1, 2018. Seed money was added to the Secure Choice funds by either the Program Manager or a Portfolio Custodian to set the Net Asset Value (NAV) and ensure a sufficient balance in each fund to buy and sell shares. The seed money was invested the same as participant funds and earned investment income. Once an individual fund had a sufficient balance, the seed money and any related investment income was returned to the entity which provided the funds. As identified in Note 4 to the financial statements, the seed money and related earnings was returned in all instances except two fund options by June 30, 2019. The Office improperly reported seed money and related earnings in the Secure Choice Savings Program financial statements. The Net Position Held in Trust for Participants was overstated by $10,445 (0.33% of Net Position) and the Seed Money Payable was understated by $10,445 (0.33% of Net Position) on the Statement of Fiduciary Net Position. Program Contributions were overstated by $75,000 (2.39% of Net Position), Program Withdrawals were overstated by $69,150 (2.21% of Net Position) and investment expenses were understated by $4,595 (0.15% of Net Position) on the Statement of Changes in Fiduciary Net Position due to the improper inclusion of seed money. With the exception of assets, all financial statement account categories were misstated by varying amounts due to the inclusion of seed money and related earnings/expenses. The Office updated the financial statements to adjust for these misstatements. The Office did include a note to the financial statements indicating seed money and earnings of $10,445 were included in total assets on the Statement of Fiduciary Net Position by Portfolio as of June 30, 2019, but the note did not specifically disclose the inclusion of seed money and earnings within Net Position Held in Trust for Participants, Program Contributions, and Program Withdrawals on the financial statements. The note also did not disclose the exclusion of seed money and related earnings from liabilities. The Office revised the seed money footnote when the financial statements were revised for the misstatements. The seed money does not represent eligible participants funds related to retirement savings for Illinois workers who do not have access to an employer-sponsored retirement plan and thus does not qualify for reporting within the Statement of Fiduciary Net Position, as restricted for participants, nor for reporting within the Statement of Changes in Fiduciary Net Position as Program Contributions and Withdrawals. (Finding 1, pages 40-41) We recommended the Office strengthen its financial reporting internal controls to ensure new activity is properly analyzed and researched prior to the submission of financial statements to properly report the activity within the financial statements and notes. The Office should also perform a detailed review of applicable statutes to ensure compliance. The Office accepted the finding. The Office did not view the inclusion of the seed money to have a material effect on the financial statements and determined that the elimination of the seed money was unnecessary based on the Office’s materiality threshold. Despite the lack of materiality, the Office noted the inclusion of the seed money in the financial statement footnotes to allow for full disclosure to any users. AUDITOR’S OPINION The auditors stated the financial statements of the Office of the Treasurer, Illinois Secure Choice Savings Program as of and for the year ended June 30, 2019, are fairly stated in all material respects. This financial audit was conducted by Crowe 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:sjs