REPORT DIGEST

DEPARTMENT OF CENTRAL MANAGEMENT SERVICES -
TEACHERS RETIREMENT INSURANCE PROGRAM

FINANCIAL AUDIT – SCHEDULE OF ALLOCATION
FOR THE YEAR ENDED JUNE 30, 2018

Release Date:  July 23, 2019

FINDINGS THIS AUDIT:  1

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 0 -- 1
Category 2:  0 -- 0 -- 0
Category 3:  0 -- 0 -- 0
TOTAL:  1 -- 0 -- 1

FINDINGS LAST AUDIT: 0

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

• (18-01) The Department of Central
Management Services did not accurately
calculate the changes in the proportionate
share for the Teachers Retirement Insurance
Program for the deferred outflow of
resources, deferred inflow of resources,
and the Other Post Employment Benefits
expense.

INTRODUCTION

This digest covers the Financial Audit of
the Schedule of Employer Allocations for
the Teachers’ Health Insurance Security
Fund as of and for the years ended June 30,
2018 and the related notes to the
Schedules.  In addition, the digest also
covers the Financial Audit of the total for
all entities of the columns titled
beginning total Other Post Employment
Benefit (OPEB) liability, ending total OPEB
liability, total deferred outflows of
resources, total deferred inflows of
resources, and total Employer OPEB expense
subject to allocation (specified column
totals) in the Schedule of OPEB Amounts by
Employer of the State of Illinois,
Department of Central Management Services
as of and for the year ended June 30, 2018.
We previously released a separate Financial
Audit of the Fund’s financial statements
(released April 25, 2019) as of and for the
year ending June 30, 2018.

The Department, along with the Teacher’
Retirement System (TRS), is the
administrator of a cost-sharing, multiple-
employer defined benefit postemployment
benefit plan.  The plan was established to
provide health insurance for TRS annuitants
and dependent beneficiaries.  Certain
contributions are statutorily required to
be made to the plan by employees, employers
and the State of Illinois (State), which
would be considered a non-employer
contributing entity.  The Governmental
Accounting Standards Board (GASB) Statement
75, Accounting and Financial Reporting for
Postemployment Benefits Other Than Pensions
requires the participating employers and
non-employer that prepare financial
statements in accordance with Generally
Accepted Accounting Principles (GAAP) to
recognize their proportionate share of
certain collective OPEB amounts in their
financial statements, which includes the
net OPEB liability.

Within a cost sharing plan like the Fund,
the OPEB obligation to the employees of
more than one employer are pooled and Plan
assets can be used to pay the benefits of
the employees of any employer that is a
member of the Plan.  Prior to the
implementation of GASB Statement 75, the
portion of the Plan’s liability not covered
by assets was not allocated among the
employers or State for financial reporting
purposes.  GASB Statement 75 changed
previously followed financial reporting
requirements and as a result employers and
the State are required to report their
portion of the collective OPEB amounts in
their GAAP basis financial statements.

Due to employers and the State of Illinois
needing to report their proportionate share
of the collective OPEB amounts in their
financial statements prepared in accordance
with GAAP, the Department has prepared the
Schedule of Employer Allocations and the
Schedule of OPEB Amounts by Employer which
provide the necessary financial information
for each employer and the State to report
their proportionate share of the collective
pension amounts in their financial
statements.  By having these Schedules
audited it also provides the employer’s and
the State’s auditors an Independent
Auditor’s Opinion on the allocations and
collective OPEB amounts reported in the
Schedules.

The Plan’s net OPEB liability at June 30,
2017 was $25.9 billion.  At June 30, 2018,
the Plan’s net OPEB liability was $26.3
billion, of which $15.1 billion (57.3%) was
allocated to the State of Illinois as its
portion of the net OPEB liability.  The
remaining amount, $11.2 billion, was
allocated to the other 978 employers.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INACCURATE CALCULATION OF CHANGES IN
PROPORTION FOR THE DEFERRED OUTFLOW OF
RESOURCES, DEFERRED INFLOW OF RESOURCES AND
THE OTHER POST EMPLOYMENT BENEFITS EXPENSE

The Department of Central Management
Services did not accurately calculate the
changes in the proportionate share for the
Teachers Retirement Insurance Program for
the deferred outflow of resources, deferred
inflow of resources and the Other Post
Employment Benefits expense.

During testing of the Schedule of Other
Post Employment Benefit Amounts by Employer
(Schedule), we noted the Department
excluded the changes in proportion for the
net effect of the change in the employer’s
proportionate shares of the collective
deferred outflows of resources and deferred
inflows of resources related to OPEB. This
resulted in an incorrect allocation of the
deferred outflow of resources, deferred
inflow of resources and the OPEB expense to
the school districts and State.  The
Department revised the Schedule for this
error.  (Finding 2018-001, pages 16-17)

We recommended the Department review the
Schedules prepared by the Actuary for
accuracy to ensure the requirements of GASB
Statement No. 75 are appropriately met.

The Department agreed with the finding and
recommendation and stated they will
continue to review all schedules prepared
by the Actuary for compliance with
applicable accounting standards.

AUDITOR’S OPINION

Our auditors stated the Schedule of
Employer Allocations for the year ended
June 30, 2018, and the total beginning OPEB
liability, total ending OPEB liability,
total deferred outflows of resources, total
deferred inflows of resources, and total
OPEB expense for the total of all
participating community colleges in the
Teachers’ Health Insurance Security Fund as
of and for the year ended June 30, 2018,
and the related notes to the Schedules, are
fairly stated in all material respects.

This financial audit was conducted by
Sikich 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:SKM