REPORT DIGEST DEPARTMENT OF HEALTHCARE AND FAMILY SERVICES - TEACHER HEALTH INSURANCE SECURITY FUND FINANCIAL AUDIT For the Year Ended: June 30, 2011 Release Date: May 2, 2012 Summary of Findings: Total this audit: 2 Total last audit: 1 Repeated from last audit: 1 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, 2011. At June 30, 2011 the Net Assets Held in Trust for Other Postemployment Benefits reflected a net asset balance of $7,125,000. Further, the Schedule of Funding Progress reflects an Unfunded Actuarial Accrued Liability of $18,853,250,000. SYNOPSIS • The Department’s year-end financial reporting was not timely. • The Department failed to have a documented written rate- setting methodology for the calculation of the Teachers’ Retirement Insurance Program premiums. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS FINANCIAL STATEMENT PREPARATION The Illinois Department of Healthcare and Family Services’ (Department) did not complete the Teacher Health Insurance Security Fund’s (Fund) financial statements in a timely manner. During our audit of the June 30, 2011 Fund financial statements, we noted a complete set of the Fund’s financial statements were not provided to the auditors until January 17, 2012, six and a half months after the year end. In addition, to complete the Fund’s financial statements, the Department was required to obtain and include in the Fund’s financial statements actuarial valuations for purposes of complying with the requirements of Statement No. 43 of the Governmental Accounting Standards Board. The draft actuarial valuation was not available to the auditors until January 27, 2012 and the final actuarial valuation was not provided until February 27, 2012, eight months after the year end. (Finding 1, pages 20-21 of the Financial Report) We recommended the Department implement additional internal control procedures to ensure Fund financial statements are prepared in a timely manner. Department officials concurred with our recommendation and stated that the Department is continually assessing the financial reporting process and implementing procedures to improve upon timeliness. LACK OF WRITTEN RATE-SETTING METHODOLOGY The Department did not have a documented written rate- setting methodology to calculate the insurance rates that are used to determine the premium rates charged to participants for the Teachers’ Retirement Insurance Program (TRIP). We noted that only one individual is involved in calculating the insurance rates and there was no written rate-setting methodology of how this individual calculates the TRIP insurance rates. Additionally, there was no formal process for a documented review of the insurance rate calculation. Further, auditors noted that during fiscal year 2011, the Department did not provide any information relating to the health care premiums; historical and projected data on enrollment, utilization, and costs; or a rate-setting methodology to the Teachers’ Retirement System of the State of Illinois. The information and methodology were due by April 15th. (Finding 2, pages 22-23 of the Financial Report) We recommended the Department develop a formal written rate-setting methodology as required by the State Employees Group Insurance Act. We also recommended the Department comply with all submission requirements of the State Employees Group Insurance Act. Department officials concurred with our recommendation and stated that the Department will develop a formal written rate-setting methodology and comply with all submission requirements as required by the State Employees Group Insurance Act. AUDITORS’ OPINION Our auditors state the financial statements of the Teacher Health Insurance Security Fund as of June 30, 2011, are fairly presented in all material respects. WILLIAM G. HOLLAND Auditor General WGH:tld:rt AUDITORS ASSIGNED This audit was performed by the Office of the Auditor General’s staff.