REPORT DIGEST

OFFICE OF THE TREASURER

CHANGE OVER AUDIT

FINANCIAL AUDITS AND AGREED-UPON PROCEDURES

July 1, 2006 through opening of business January 8, 2007

Release Date:

May 24, 2007

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 the Full Report are also available on

the worldwide web at

http://www.auditor.illinois.gov

INTRODUCTION

      The Illinois State Auditing Act (30 ILCS 5/3-2.1) requires the Office of the Auditor General to “conduct a change over audit of the State Treasurer’s accounts at the conclusion of each term of office of the State Treasurer or, in the case of successive terms by a State Treasurer, at the conclusion of that State Treasurer’s time in office.” 

      This digest presents our financial audits for the Office of the Treasurer Fiscal Officer Responsibilities, Illinois Funds, and College Savings Program for the period July 1, 2006 through opening of business January 8, 2007.

      In addition, Agreed-Upon Procedures covering insurance, fixed assets, unclaimed property, locally held funds, and unexpended appropriations were performed for the period July 1, 2007 through opening of business January 8, 2007.

AUDITORS’ OPINION

      The auditors stated the State Treasurer’s financial statements as of the opening of business on January 8, 2007 are fairly presented in all material respects.  

                  ___________________________________

                  WILLIAM G. HOLLAND, Auditor General

WGH:JSC:pp

SPECIAL ASSISTANT AUDITORS

      Our special assistant auditors on this audit were Crowe Chizek and Company LLC.

        {Expenditures and Activity Measures are summarized on the following pages}

STATEMENTS OF FIDUCIARY NET ASSETS

JULY 1, 2006 THROUGH OPENING OF BUSINESS JANUARY 8, 2007

Money Market Mutual Funds.................................................

Repurchase Agreements........................................................

Commercial Paper.................................................................

Certificates of Deposit...........................................................

U.S. Agency Obligations:

-          Federal Home Loan Bank Debentures………………

-          Federal Home Loan Mortgage Corporation Interest Bearing Notes………………………………………..

Accrued Interest Receivable..................................................

            Total Assets..............................................................

Bank Custodial Fees Payable.................................................

State Management Fees Payable............................................

Accrued Dividends Payable...................................................

             Total Liabilities.........................................................

Net Assets Available to Participants.......................................

$  382,794,629

5,167,243,562

259,604,835

122,611,637

13,999,748

4,000,000

        988,921

$5,951,243,332

$         40,815

67,961

          5,843,453

$         5,952,229

$5,945,291,103

STATE TREASURER

During Audit Period:  Honorable Judy Baar Topinka (July1, 2006 – January 8, 2007), Honorable                           Alexi Giannoulias (effective January 8, 2007)

Currently:  Honorable Alexi Giannoulias

STATEMENTS OF FIDUCIARY NET ASSETS

JULY 1, 2006 THROUGH OPENING OF BUSINESS JANUARY 8, 2007

STATEMENT OF FIDUCIARY NET ASSETS

Cash and Cash Equivalents.............................................................

Dividends Receivable.....................................................................

Mutual Funds................................................................................

            Total Assets......................................................................

Payable for Securities Purchased.....................................................

Insurance Fees..............................................................................

Advisory Fees...............................................................................

12-b1 Fees...................................................................................

             Total Liabilities.................................................................

Net Assets....................................................................................

            Total Liabilities and Net Assets............................................

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

Operations

   Investment Earnings...................................................................

   Gain (Loss) on Sale of Securities.................................................

   Net Change in Fair Value of Investments (Unrealized)                     

   Insurance Fees...........................................................................

   12b-1 Fees................................................................................

   Bank Custodial Fees....................................................................

            Net Investment Earnings....................................................

Distribution to Shareholders – Net Investment Income......................

Participant Transactions

   Program Contributions................................................................

   Program Distributions.................................................................

   Distributions Reinvested..............................................................

            Net Changes in Net Assets.................................................

Net Increase in Net Assets.............................................................

Net Assets, July 1, 2006................................................................

Net Assets, opening of business January 8, 2007..............................

$32,819,797

43,302,701

 2,160,320,445

$2,236,442,943

$24,518,122

51,155

1,041,575

             33,323

25,644,175

 2,210,798,768

$2,236,442,943

$28,337,303

80,943,007

72,527,534

(51,222)

(116,072)

(3,256,673)

178,383,877

(40,211)

529,837,452

(339,685,822)

          40,211

190,191,841

368,535,507

1,842,263,261

$2,210,798,768

STATE TREASURER

During Audit Period:  Honorable Judy Baar Topinka (July1, 2006 – January 8, 2007), Honorable                           Alexi Giannoulias (effective January 8, 2007)

Currently:  Honorable Alexi Giannoulias

OTHER DISCLOSURES

FISCAL OFFICER RESPONSIBILITIES

ILLINOIS INSURED MORTGAGE PILOT PROGRAM TRUST                                    

      At the opening of business January 8, 2007, there were two properties in the Illinois Insured Mortgage Pilot Program Trust (Trust).  The Trust held the mortgage loans on the properties as underlying collateral for the State’s investment in the program.  The two properties are hotels, the Abraham Lincoln Hotel and Conference Center (formerly the Renaissance) in Springfield and the Holiday Inn in Collinsville.

      The recorded value for these investments was $6,440,000 as of opening of business January 8, 2007, and the loan balance was $29,299,000. 

        The mortgage loans on the two properties are considered nonperforming assets.  Accrued interest receivable at the opening of business January 8, 2007 for the nonperforming assets approximated $30,134,000.  Interest on nonperforming assets is recognized when collected, and therefore has not been recorded on the financial statements.

      Since the initial lawsuit, a series of lawsuits have evolved concerning the properties.  This on-going litigation is described in the Treasurer’s Fiscal Officer Responsibilities financial statement note disclosures (Note E, pages 23-29).   

      On January 2, 2007, the Trustee filed foreclosure complaints against both the Collinsville Hotel Venture and the President Lincoln Hotel Venture.  The Collinsville hotel foreclosure compliant was filed in the Madison County Circuit Court following (a) the entry of a judgment order in June 2006 by a Cook County circuit judge declaring the Hotel to be in default of its loan, and also entering a judgment in the amount of $1.5 million against two individuals who partially guaranteed the loan; and (b) the entry of an order in the same court denying the Hotel’s motion to reconsider the ruling.  The foreclosure complaint also requested the court appoint a receiver to operate the Hotel during foreclosure proceedings, and on January 12, 2007, an order appointing a receiver was entered.  The receiver assumed management of the property that day.  The Trustee is, concurrently, pursuing collection proceedings with respect to the judgment it obtained against the guarantors, and it has filed a lawsuit in the United States District Court for the Northern District of Illinois against Regions Bank to seek payment on four letters of credit, totaling $1.65 million, that were additional collateral for the loan.

      The President Lincoln Hotel foreclosure complaint was filed in the Sangamon County Circuit Court following a ruling in December 2006 by a Cook County circuit judge declaring the Hotel to be in default of its loan.  The compliant also requested the court appoint a receiver to operate the Hotel during foreclosure proceedings.  On March 1, 2007, a court-appointed receiver formally took over operations of the President Lincoln Hotel. 

      Although a favorable outcome is expected, the Illinois Office of the Treasurer does not believe the effect on financial position resulting from these proceedings can be determined at this time.  

THE ILLINOIS FUNDS

      The Illinois Funds was established under the name Illinois Public Treasurers' Investment Pool ("IPTIP") in 1976 to supplement and enhance the investment opportunities available to custodians of public agency funds throughout the State of Illinois.  The management, custodianship and operation of The Illinois Funds are under the supervision of the Office of the Treasurer - State of Illinois.

      To administer The Illinois Funds, the Treasurer has established a division entitled "The Illinois Funds Administrative Office".  The revenues and expenditures of the Division were recorded in a fund maintained by the Treasurer entitled The Illinois Funds Administrative Trust Fund.

      An investment trust fund was used to account for assets held by The Illinois Funds in a trustee capacity for public treasurers throughout the State of Illinois.  The custodian for this fund was U.S. Bank of Illinois. 

COLLEGE SAVINGS PROGRAM

      The College Savings Program (Program) was established in March 2000 pursuant to P.A. 91-0607 which authorized the State Treasurer to establish and administer a "qualified state tuition program" under Section 529 of the Internal Revenue Code of 1986, as amended.  Participants of the Program have a choice of two Section 529 investment programs, the Bright Start College Savings Program, which commenced operations on March 27, 2000, and the Bright Directions College Savings Program, which commenced operations on November 18, 2005.  The State Treasurer selected an investment firm (Manager), one for Bright Start and one for Bright Directions, to advise the office on the investment of the Trust assets, to administer the Trust assets, and to provide other services relating to the Program.  As such, the Managers act as agents of the Treasurer, and as trustees of the Trust.  The Treasurer, however, retains ultimate authority to manage the investments of the Trust. 

      To administer the Program, the Treasurer has established a division entitled "The College Savings Program Division”.  The revenues and expenditures of the Division are recorded in a fund maintained by the Treasurer entitled College Savings Program Administrative Trust Fund, which is classified as an enterprise fund.  

      An investment trust fund was used to account for assets held by the Program in a trustee capacity or as agent for individuals throughout the United States.