General Assembly Retirement System. Financial Audit for the Year Ended June 30, 2011

              Office of the Auditor General, Iles Park Plaza, 740 E. Ash St., Springfield, IL 62703 • Tel: 217-782-6046 or TTY 888-261-2887
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GENERAL ASSEMBLY RETIREMENT SYSTEM OF ILLINOIS
FINANCIAL AUDIT
For the Year Ended: June 30, 2011 Summary of Findings:
Total this audit: Total last audit:
Repeated from last audit:
1
0
R 0 elease Date: February 21, 2012
INTRODUCTION
This digest covers our financial audit of the General Assembly Retirement System, State of Illinois (System) for the year ended June 30, 2011. A compliance examination report covering the year ending June 30, 2011 will be issued separately.
FUNDED RATIO
The actuarial accrued liability was valued at $298.4 million at June 30, 2011. The actuarial value of assets (at smoothed value) totaled approximately $63.2 million at June 30, 2011. The method for determining the actuarial value of the assets was changed beginning with the June 30, 2009 valuation. The method was changed 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 $235.2 million reflects the
unfunded liability of the System at June 30, 2011. The System had a funded ratio (at smoothed value) of 21.2% at June
30, 2011. When using the market value, the System would have had a funded ratio of 20.2% at June 30, 2011. SYNOPSIS
• The General Assembly Retirement System does not have a policy or procedure for the review of financial journal entries or journal entry reconciliations by a person independent of the person that initiates them. LEGISLATIVE CHANGE TO PENSION CODE
Public Act 96-0889, which was signed into law April 2010, adds a new section to the Pension Code that applies different benefits to anyone first hired in a position covered by the System on or after January 1, 2011. Changes in the pension law include initiating a cap on the salaries used to calculate retirement benefits, raising the minimum eligibility to draw a retirement benefit to age 67 with at least 8 years of service or age 62 with at least 8 years of service credit with a reduced annuity, and limiting cost-of-living annuity adjustments to the lesser of 3% or the annual increase in the
Consumer Price Index, whichever is less. The pension law changes do not apply to anyone who has System service prior to January 1, 2011. {Financial Statement information is summarized on the reverse page}ii
STATEMENT OF CHANGES IN PLAN NET ASSETS
ADDITIONS: Contributions - Participants....................................................
2,006,200$
1,680,603$
Contributions - Employer / Appropriations..........................
11,433,614
10,411,274
Total Contributions..............................................................
13,439,814$
12,091,877$
Increase / (Decrease) in Fair Value of Investments..............
9,098,602
3,590,964
Investment Income - Net of Management Expenses.............
1,171,910
1,157,595
Interest Earned on Cash Balances.........................................
20,869
21,974
Miscellaneous........................................................................
10,000
-
Total Revenues / (Loss).......................................................
23,741,195$
16,862,410$
DEDUCTIONS: Benefits..............................................................................
17,676,851$
16,769,032$
Refunds..............................................................................
61,476
222,094
Administrative Expenses....................................................
299,116
272,253
Total Expenses.................................................................
18,037,443$
17,263,379$
Net Increase (Decrease)...........................................................
5,703,752$
(400,969)$
INVESTMENT SUMMARY - (All investments held in the Illinois State Board of Investment commingled fund at fair value)
June 30, 2011
June 30, 2010
Government and Agency Obligations.............................................................
1,367,098,751$
810,739,312$
Foreign Obligations.........................................................................................
37,951,769
44,409,906
Corporate Obligations.....................................................................................
762,833,382
925,668,388
Common Stock & Equity Funds (including Commingled Funds)..................
3,637,016,232
3,127,655,201
Preferred Stock................................................................................................
40,032
697,600
Foreign Equity Securities................................................................................
2,195,201,185
1,733,177,670
Hedge Funds....................................................................................................
1,075,584,754
917,854,201
Real Estate Investments...................................................................................
819,053,366
750,210,957
Private Equity...................................................................................................
629,256,286
542,441,291
Money Market Instruments..............................................................................
303,501,465
270,231,935
Infrastructure Funds.........................................................................................
417,267,415
320,293,041
Bank Loans......................................................................................................
253,447,070
222,623,999
Forward Foreign Currency Contracts..............................................................
(353)
(266,410)
Total Investment Portfolio..........................................................................
11,498,251,354$
9,665,737,091$
Other ISBI Assets Less Liabilities...................................................................
29,373,670
12,966,711
ISBI Net Assets...........................................................................................
11,527,625,024$
9,678,703,802$
Investments owned by other retirement systems, SERS & JRS......................
(11,470,278,582)
(9,627,065,216)
General Assembly Retirement System Investments...................................
57,346,442$
51,638,586$
ADMINISTRATIVE EXPENSES
FY 2011
FY 2010
Personal Services.............................................................................................
131,342$
119,330$
Contractual Services........................................................................................
84,630
76,439
Retirement, Insurance & Social Security........................................................
74,535
67,938
Change in Accrued Compensated Absences...................................................
2,528
963
Printing.............................................................................................................
1,660
1,670
Telecommunication.........................................................................................
1,155
1,169
Electronic Data Processing..............................................................................
1,087
2,390
Operation of Automotive Equipment..............................................................
848
521
Travel...............................................................................................................
565
1,255
Depreciation.....................................................................................................
444
386
Commodities....................................................................................................
322
192
Total Administrative Expenses...................................................................
299,116$
272,253$
FUNDING PROGRESS - at smoothed value
June 30, 2011
June 30, 2010
Actuarial Accrued Liability.............................................................................
298,408,371$
251,764,834$
Actuarial Value of Assets................................................................................
63,161,047
66,212,244
Unfunded Actuarial Accrued Liability............................................................
235,247,324$
185,552,590$
Funded Ratio....................................................................................................
21.2%
26.3%
During Engagement Period: Timothy B. Blair
Currently: Timothy B. Blair
GENERAL ASSEMBLY RETIREMENT SYSTEM, STATE OF ILLINOIS
FINANCIAL AUDIT
For The Year Ended June 30, 2011
EXECUTIVE SECRETARY
FY 2010
FY 2011iii
System has no policy for review of financial journal entries or journal entry reconciliations
System officials indicated it lacked appropriate personnel to perform a meaningful review
System officials accepted our recommendation
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
JOURNAL ENTRY REVIEW
The General Assembly Retirement System (System) does not have a policy or procedure for the review of financial journal entries or journal entry reconciliations by a person independent of the person that initiates them.
During our audit testing, we noted the same individual prepares and records the financial journal entries without an independent review by another individual. It was also noted the monthly journal entry reconciliations are prepared by the same individual who records the entries.
System officials indicated the management staff preparing the journal entries are not involved in the preparation and/or processing of the underlying transactions. Due to the relatively small size of the Accounting Division, however, there has been a lack of appropriate personnel to perform a meaningful review of financial journal entries and reconciliations. (Finding #1, page 28)
We recommended the System develop a policy and procedure for someone independent of the individual preparing and recording financial journal entries and reconciliations to document their review of the financial journal entries, reconciliations and related supporting documentation.
System officials indicated that the System would reallocate the review function of financial journal entries to other management staff which are independent of the person that initiates them.
AUDITORS’ OPINION
The auditors stated the financial statements of the General Assembly Retirement System of Illinois as of June 30, 2011, and for the year then ended, are fairly stated in all material respects.
______________________________
WILLIAM G. HOLLAND Auditor General
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SPECIAL ASSISTANT AUDITORS
Our special assistant auditors for this audit were BKD LLP.