REPORT DIGEST DEPARTMENT OF CENTRAL MANAGEMENT SERVICES - COMMUNITY COLLEGE HEALTH INSURANCE SECURITY FUND Financial Audit For the Year Ended:  June 30, 2013 Release Date:   April 22, 2014 Summary of Findings: Total this audit: 1 Total last audit:  0 Repeated from last audit: 0 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 INTRODUCTION This report covers our financial audit of the Community College Health Insurance Security Fund for the year ended June 30, 2013.  At June 30, 2013 the Net Position Held in Trust for Other Postemployment Benefits reflected a deficit of $13,238,000.  Further, the Schedule of Funding Progress reflects an Unfunded Actuarial Accrued Liability of $2,395,434,000. SYNOPSIS • The Department’s determination of unpaid claims liabilities was inadequate and the preparation of financial statements was not timely. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING The Department of Central Management Services’ (Department) internal controls over the determination of unpaid claims liabilities were inadequate and preparation of financial statements was not timely. During our audit of the June 30, 2013 financial statements we noted the Department conducted an inadequate review of the independent actuarial valuation report for unpaid claims liabilities to evaluate the overall reasonableness of the Department’s calculation of unpaid claims liabilities at June 30, 2013.  A variance of $255 thousand was noted between the unpaid claims liabilities calculation for claims reported in the fund as prepared by the Department and the independent actuary.  In addition, individual plan variances ranged from the Department calculation exceeding the actuary calculation by $335 thousand to the actuary calculation exceeding the Department calculation by $560 thousand.   The variances were not adequately evaluated to determine if the Department’s calculations were reasonable or if the potential for factors which may cause divergent results were present.  Such factors could include, but are not limited to, inaccurate data provided to the actuary or invalid assumptions used in the valuation methodology.  In addition, the lack of an adequate evaluation conducted by the Department led to delays in obtaining a timely resolution as to whether the Department’s calculation of unpaid claims liabilities for health insurance claims appeared reasonably stated as of June 30, 2013. Due to delays in the preparation of financial information, Department personnel in the Office of Finance and Management received a memorandum from the Comptroller dated November 4, 2013 noting the following financial information relating to the Community College Health Insurance Security Fund was requested and not received as of the October 31, 2013 due date: • Community College Insurance Plan of the State of Illinois – GASB No. 45 Actuarial Valuation Report as of June 30, 2013. • Footnote disclosure and/or supplementary information relating to actuarially calculated amounts for the above listed health insurance plan. As a result of these deficiencies, auditors did not receive a complete draft of the financial statements and footnotes from the Department until December 20, 2013.  (Finding 1, pages 21 – 23) We recommended the Department implement procedures to ensure GAAP Reporting Packages prepared and submitted to the Office of the State Comptroller for financial reporting purposes are complete and accurate and financial statements are completed in a timely manner. The Department concurred with the recommendation and stated they will continue to work with the actuary to complete a review of the actuarial evaluation for unpaid claims and with applicable retirement systems that, in addition to CMS, are primarily responsible for providing essential data to the independent actuary for accurate valuation. AUDITORS’ OPINION Our auditors state the financial statements of the Community College Health Insurance Security Fund as of June 30, 2013, are fairly presented in all material respects. WILLIAM G. HOLLAND Auditor General WGH:etl SPECIAL ASSISTANCE AUDITORS Sikich LLP were our special assistant auditors.