REPORT DIGEST ILLINOIS STUDENT ASSISTANCE COMMISSION - ILLINOIS DESIGNATED ACCOUNT PURCHASE PROGRAM Financial Audit For the Year Ended June 30, 2015 Release Date: January 26, 2016 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 1 -- 1 Category 2: 0 -- 0 -- 0 Category 3: 0 -- 0 -- 0 TOTAL: 0 -- 1 -- 1 FINDINGS LAST AUDIT: 1 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 INTRODUCTION This report covers our financial audit of the Illinois Student Assistance Commission (Commission) - Illinois Designated Account Purchase Program (IDAPP) as of June 30, 2015 and for the year then ended. SYNOPSIS • (15-1) IDAPP was not in compliance with two of the covenants relating to the Commission’s revolving line of credit agreement. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS DEBT COVENANT VIOLATION The Illinois Student Assistance Commission (Illinois Designated Account Purchase Program) was not in compliance with two of the covenants relating to the agency’s revolving line of credit agreement. During our audits of the agency’s June 30, 2009, 2010, 2011, 2012, 2013, 2014 and 2015 financial statements, we noted that IDAPP was in violation of one or more debt covenants related to the agency’s revolving credit (loan) agreement. In addition, the facility matured on July 27, 2010 and has not been repaid. Per the agreement, the minimum required coverage condition ratio is 104%. Reviewed monthly reports noted that all 12 months fell under this ratio, ranging from 101.90% to 103.23%. Also per the agreement, the default ratio is set at a maximum of 6.25%. Reviewed monthly reports noted 5 months fell above this ratio, ranging from 6.45% to 12.84%. As a result of the debt covenant violation and the maturity of the facility, the bank has certain remedies available to it under the terms of the loan agreement, principal of which would be rights to call the loan and take possession of the collateral (the underlying student loan portfolio). The bank has been made aware of the event of default and the maturity of the loan and has not communicated to IDAPP any intent to exercise the remedies available to it under the terms of the loan agreement. The balance of the line of credit with the bank was $183,556,827 at June 30, 2015. According to Commission management, the coverage condition and default issues are due to the poor performance of the portfolio. The portfolio continues to experience a high level of delinquent accounts. The line of credit has not been refinanced because of the conditions in the private loan credit market. (Finding 1, page 34) This finding was first reported in 2009. Commission officials accepted our recommendation to continue to monitor the loan covenant violations and continue seeking remedies from the lender involved. (For the previous IDAPP response, see Digest Footnote #1.) AUDITOR’S OPINION The auditors stated the financial statements of the Illinois Designated Account Purchase Program of the Illinois Student Assistance Commission as of and for the year ended June 30, 2015, are fairly stated in all material respects. FRANK J. MAUTINO Auditor General FJM:JGR SPECIAL ASSISTANT AUDITORS Our Special Assistant Auditors for this audit were RSM US LLP. DIGEST FOOTNOTES #1 - DEBT COVENANT VIOLATION 2014 – We agree with the recommendation. The loan covenants are reviewed on a monthly basis. We continue to talk to Citibank about the portfolio.