REPORT DIGEST OFFICE OF THE TREASURER, FISCAL OFFICER RESPONSIBILITIES FINANCIAL AUDIT AND COMPLIANCE EXAMINATION FOR THE YEAR ENDED JUNE 30, 2017 Release Date: March 6, 2018 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 1 -- 0 -- 1 Category 3: 0 -- 0 -- 0 TOTAL: 1 -- 0 -- 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 SYNOPSIS • (17-1) The Illinois Office of the Treasurer’s notes to the financial statements required adjustments for Government Accounting Standard Board Statement No. 72 Fair Value Measurement and Application. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INTERNAL CONTROLS OVER FINANCIAL STATEMENT REPORTING NEEDS IMPROVEMENT The Illinois Office of the Treasurer’s (Treasurer’s Office) notes to the financial statements required adjustments for Government Accounting Standard Board Statement No. 72 Fair Value Measurement and Application (GASB 72). The Treasurer’s Office did not fully analyze the pricing sources and methods used to determine the fair value of investments and, as a result, reported certain investments in debt securities, totaling $5.1 billion, as Level 1 investments. Following auditor inquiry, those investments were subsequently reported as Level 2. Level 1 investments are investments whose fair value is determined based on quoted prices in an active markets. Level 2 investments are investments whose fair value is determined based on observable inputs other than quoted prices in an active market. In the prior year, which was when GASB 72 was first implemented, auditors accepted the Treasurer’s Office’s disclosure of debt securities under the GASB 72 level hierarchy as Level 1. After the auditors in the current year noted that the fair value of debt securities was determined by the Treasurer’s Office’s pricing service using matrix pricing models based on observable inputs, a Level 2 pricing methodology under GASB 72, the Treasurer’s Office in consultation with the staff of the Government Accounting Standards Board changed its fair value disclosures for debt securities to Level 2 for both fiscal years 2017 and 2016. (Finding 1, pages 11-12) We recommended the Treasurer’s Office more carefully research new GASB pronouncements when they are implemented to ensure the financial statements and note disclosures are properly prepared in accordance with those standards. In addition, we recommended the Treasurer’s Office fully analyze the pricing sources and methods used to value investments to ensure the financial statement note disclosures properly categorize investments within the fair value hierarchy established by GASB 72. Treasurer’s Office officials accepted the auditor’s recommendation. AUDITOR’S OPINION The auditors stated the financial statements of the Office of the Treasurer, Fiscal Officer Responsibilities as of and for the year ended June 30, 2017 are fairly stated in all material respects. The auditors noted the financial statements have been prepared by the Treasurer on the basis of the financial reporting provisions determined by the Office of the State Comptroller, which is a basis of accounting other than accounting principles general accepted in the United States of America, to meet the requirements of the State of Illinois. The auditor’s opinion was not modified with respect to this matter. ACCOUNTANT’S OPINION The accountants conducted a compliance examination of the Office of the Treasurer, Fiscal Officer Responsibilities for the year ended June 30, 2017, as required by the Illinois State Auditing Act. The accountants stated the Treasurer complied, in all material respects, with the requirements described in the report. This financial audit and State compliance examination were conducted by Crowe Horwath LLP. JANE CLARK Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:JAF