REPORT DIGEST

STATE UNIVERSITIES RETIREMENT SYSTEM
COMPLIANCE AUDIT

For the Year Ended:
June 30, 1999

Summary of Findings:

Total this audit 6
Total last audit 5
Repeated from last audit 2

Release Date:

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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
Attn: Records Manager
Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703

(217)782-6046 or TDD (217) 524-4646

This Report Digest is also available on
the worldwide web at
http://www.state.il.us/audito

SYNOPSIS

 

 

  • The internal audit department of the State Universities Retirement System (SURS) had not performed all required testing in the investment area.
  • SURS did not have sufficient documentation to support certain benefit and refund calculations.
  • SURS did not have formal documented procedures for making computer program changes.

 

 

 

 

 

 

 

 

 

 

 

{Financial Information and Activity Measures are summarized on the reverse page.}

STATE UNIVERSITIES RETIREMENT SYSTEM

INFORMATION FROM FINANCIAL AND COMPLIANCE AUDITS

Two Years Ended June 30, 1999

FINANCIAL OPERATIONS

FY 1999

FY 1998

Additions

Contributions

Participants

Employer

Total Contributions

Investment Income

Net appreciation in fair market value

Interest

Dividends

Other

Less: Investment expense

Total Investment Income

Total Additions

Deductions

Total benefits

Other expenses

Total Deductions

Net Increase

 

$219,675,072

244,307,504

$463,982,576

$924,335,988

135,613,846

57,071,338

1,778,173

14,249,419

$1,104,549,926

$1,568,532,502

$525,966,160

43,215,106

$569,181,266

$999,351,236

$1,417,330, $1,417,330,579

 

$221,769,326

227,798,626

$449,567,952

$1,318,526,073

113,753,599

54,520,698

1,055,193

13,265,935

$1,474,589,628

$1,924,157,580

$466,508,747

40,318,254

$506,827,001

$1,417,330,579

INVESTMENT PORTFOLIO ANALYSIS

(Fair Market Value)

JUNE 30, 1999

JUNE 30, 1998

Total equities

Total fixed income securities

Cash and short-term investments

Real estate investments

Self-Managed Plan Funds

Accrued investment income

Total Investments at Fair Market Value

$7,680,799,360

2,964,729,349

319,260,567

59,883,071

29,438,232

20,968,780

$11,075,079,359

$6,852,903,345

2,660,031,036

460,282,838

134,492,069

1,581,208

27,736,948

$10,137,027,444

ADMINISTRATIVE EXPENSES

FY 1999

FY 1998

Personal services

Other professional fees and services

Depreciation

Postage

Equipment repair and rental

Printing and copying services

Building operations expenses

Other expenses

Total Administrative Expenses

$4,861,317

2,009,427

1,373,103

557,026

129,415

429,513

175,111

456,310

$9,991,222

$3,777,555

2,198,519

1,290,287

611,189

231,418

778,697

176,174

364,455

$9,428,294

SELECTED ACCOUNT BALANCES

JUNE 30, 1999

JUNE 30, 1998

Investments at Market Value

Securities lending collateral

Cash & short term investments

Pending investment sales

Accrued investment income receivable

Other assets

Total assets

Securities lending collateral

Payable to brokers for unsettled trades

Other payables

Total liabilities

Net assets held in trust for pension benefits

$10,734,850,012

651,738,947

319,260,567

121,072,974

20,968,780

29,427,851

$11,877,319,131

$651,738,947

399,280,115

33,270,951

$1,084,290,013

$10,793,029,118

$9,649,007,658

506,584,024

460,282,838

126,243,506

27,736,948

33,673,038

$10,803,528,012

$506,584,024

473,418,203

29,847,903

$1,009,850,130

$9,793,677,882

SUPPLEMENTARY INFORMATION

FY 1999

FY 1998

Total investment administrative expenses

Return on investments (unaudited)

Average number of employees

Number of active members

Number of inactive members

Number of retirement benefit recipients

Number of survivors benefit recipients

Number of disabilities benefit recipients

$14,249,419

11.5%

95

78,406

41,814

22,652

5,374

1,255

$13,265,935

17.8%

89

78,001

38,054

21,623

5,152

1,257

EXECUTIVE DIRECTOR
During Audit Period and Currently: Mr. James M. Hacking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Internal audits of investment areas were not extensive

 

 

 

 

 

 

 

Adequate audit trails and supporting documentation did not always exist

 

 

 

Controls over changes to computer programs not formalized

INTRODUCTION

 

This digest covers our State compliance audit of the State Universities Retirement System (SURS) for the year ended June 30, 1999. A financial audit covering the year ending June 30, 1999 is being issued separately.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INTERNAL AUDIT OF INVESTMENTS

The internal audit department of SURS had not performed all required testing in the investment department as required by the Fiscal Control and Internal Auditing Act (FCIAA).

We noted that the internal audit department did not include any testing of investment valuation or extensive testing of compliance with investment policies and procedures. Since investments are a significant part of SURS’ operations, an independent review should be performed periodically. SURS’ staff stated that the investment department believes it has sufficient controls in place to monitor the activities of the custodial banks and investment managers to mitigate any significant risks to its investment portfolio. Also, with limited internal audit personnel and the significant risks for Y2K and new system implementation, the investment department was deemed low risk compared to other departments. (Finding 99-4, page 14)

SURS officials concurred with the finding and stated they will add reviews of policy compliance to its mandatory two year internal audit plan.

CONTROLS OVER BENEFITS AND REFUNDS

Documentation of SURS benefits and refunds calculations was insufficient to substantiate certain amounts. We noted that adequate audit trails and supporting documentation did not exist for the on-line claims system or in the members’ image files. The calculation of benefits is crucial to SURS, and therefore, prudent business practices require an adequate audit trail for calculating benefits be maintained. (Finding 99-5, page 15)

We recommended SURS strengthen or revise its controls over benefits and refunds to ensure all documentation is complete and claim calculations are properly documented.

SURS officials concurred with our recommendation and stated they are working to identify system enhancements which will provide the documentation. They expect these enhancements will be completed during fiscal year 2000.

 

INFORMATION SYSTEMS PROCEDURES

The System did not have adequate procedures and processes in place to ensure the integrity of data and computer programs. We noted that the formalized procedures that document the process of making controlled changes to a computer application were not in place. This increases the risk of inconsistent procedures and lack of continuity in control over computer program changes. (Finding 99-6, page 16)

We recommended SURS design and implement formal program change control procedures by documenting the process of making controlled changes to a computer application.

SURS officials concurred with our recommendation and stated they plan to implement change management software in January, 2000. They stated the delay in implementation was due to the need to prevent any conflict with their new Pay Benefits Application which was needed to avoid any Year 2000 problems.

 

OTHER FINDINGS

The remaining findings are less significant, and SURS’ responses indicate it is addressing the conditions. We will review progress toward implementing these recommendations in our next audit.

 

Mr. Steve Hayward, Internal Auditor at SURS provided responses to our recommendations.

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KMA:pp

 

SPECIAL ASSISTANT AUDITORS

Arthur Andersen LLP were our special assistant auditors for this audit.