REPORT DIGEST

DEPARTMENT OF CENTRAL MANAGEMENT SERVICES -
TEACHER 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:  1
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
Teacher 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
$80,139,000.  Further, the Schedule of Funding
Progress reflects an Unfunded Actuarial Accrued
Liability of $19,539,746,000.

SYNOPSIS

• The Department’s determination of unpaid
claims liabilities was inadequate and the
preparation of financial statements was not
timely.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FINANCIAL STATEMENT PREPARATION

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
$14.6 million 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 $10.9 million to the actuary
calculation exceeding the Department calculation
by $69 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 Teacher Health Insurance
Security Fund was requested and not received as
of the October 31, 2013 due date:

• Teachers’ Retirement 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.

In response to the letter, the Department
submitted a report and action plan on November
15, 2013 to the Comptroller, Governor, Speaker
of the House, House Minority Leader, Senate
President, Senate Minority Leader and the
Auditor General.  The action plan included
fifteen steps which did not provide a pre-
determined timeline for receipt of final copies
of the actuarial reports necessary to prepare
the appropriate footnote disclosure and/or
supplementary information cited above.
Department personnel stated the “other post
employment benefit” (OPEB) valuations are
performed by a third party actuary under
contract with the retirement system.  While some
of the data required to complete these valuation
comes from the Department, the majority of the
data comes from the retirement system.  Not all
of the retirement system data was submitted to
the actuary in a timely fashion, hampering the
timeline for completion of the OPEB valuations.

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 20 –
22)

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 Teacher Health Insurance Security Fund as of
June 30, 2013, are fairly presented in all
material respects.

WILLIAM G. HOLLAND
Auditor General

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SPECIAL ASSISTANCE AUDITORS

Sikich LLP were our special assistant auditors