REPORT DIGEST STATE EMPLOYEES’ RETIREMENT SYSTEM OF ILLINOIS FINANCIAL AUDIT FOR THE YEAR ENDED: JUNE 30, 2012 Release Date:   January 16, 2013 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 digest covers our financial audit of the State Employees’ Retirement System, State of Illinois (System) for the year ended June 30, 2012.  A compliance examination report covering the year ending June 30, 2012 will be issued in a separate report at a later date. FUNDED RATIO The actuarial accrued liability was valued at $33.1 billion at June 30, 2012.  The actuarial value of assets (at smoothed value) totaled approximately $11.5 billion at June 30, 2012.  The method for determining the actuarial value of the assets was changed beginning with the June 30, 2009 valuation from the market value to a smoothed value where the actuarial investment gains or losses for each year are recognized in equal amounts over the ensuing five-year period. The difference between the actuarial accrued liability and the actuarial value of assets of $21.6 billion reflects the unfunded liability of the System at June 30, 2012.  The System had a funded ratio (at smoothed value) of 34.7% at June 30, 2012.  When using the market value, the System would have had a funded ratio of 33.1% at June 30, 2012. SYNOPSIS • The State Employees’ Retirement System was not in compliance with the Fiscal Control and Internal Auditing Act. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS NONCOMPLIANCE WITH THE FISCAL CONTROL AND INTERNAL AUDITING ACT The State Employees’ Retirement System (System) was not in compliance with the Fiscal Control and Internal Auditing Act (the Act). The Internal Auditor position became vacant during January 2012 and a new internal auditor was not hired until the first quarter of fiscal year 2013.  As a result of the vacancy only one of the eight internal audits planned for fiscal year 2012 under the Systems current two-year plan for fiscal years 2011-2012 was completed. The System is also required to prepare and transmit to the Auditor General a certification that the systems of internal fiscal and administrative controls of the System comply or do not comply with the requirements of the Act.  This certification is required by May 1 of each year, and the System did not transmit their certification until August 29, 2012, 120 days late. According to System officials the System was not able to fill the internal audit position as quickly as they had hoped because of difficulty in finding an appropriate candidate to fill the position. (Finding #1, page 34) We recommended System management develop a plan to ensure the internal audit function continues in the event the position is left vacant for a period of time. System officials accepted our finding and recommendation. AUDITORS’ OPINION The auditors stated the financial statements of the State Employees’ Retirement System of Illinois as of June 30, 2012, and for the year then ended, are fairly stated in all material respects. WILLIAM G. HOLLAND Auditor General WGH:JAF:rt SPECIAL ASSISTANT AUDITORS Our special assistant auditors for this audit were BKD LLP.