State Retirement Systems' of Illinois Audit & Compliance Committee met April 25.
Here is the minutes as provided by the committee:
Members Present:
David Morris, Vice Chairperson
Renee Friedman, Appointed Trustee
Loren Iglarsh, SERS Retiree
Others in attendance:
Tim Blair, Executive Secretary
Casey Evans, Chief Internal Auditor
Staceyann Cabey-Kaufmann, Internal Auditor
The Audit and Compliance Committee convened on Tuesday, April 25, 2017 at 9:00 a.m. in the System’s
Springfield office with a videoconference location at the Bilandic Building in Chicago. A quorum of the
committee members was present. Seeing that there were no public comments, the Committee moved to
approve the minutes from the January 10, 2017 Audit and Compliance Committee meeting. CIA Evans
began the meeting first discussing recent internal audit reports and projects.
A recently completed audit of optional service purchases and member contribution refunds was discussed.
Internal Audit sampled 40 optional service purchases and 60 member contribution refunds occurring in
Fiscal Year 2017 through February 1, 2017. The objectives of the audit included reviewing the accuracy
and internal controls related to service purchases and refunds while also examining the business continuity,
succession planning, and member education efforts.
From the audit work performed, three findings were drafted. Internal audit noted weaknesses in optional
service purchases finding errors in 2 of the 40 (5%) of the transactions tested which resulted in the member
underpaying the system for optional service purchases. In addition, internal audit noted that membership
service transfers for downstate police resulted in the member’s contributions being understated on the
member’s account due to staff calculation errors, and in one instance a member should have been billed for
contributions and interest owed to the System but was not. Management stated that staff would review
optional service purchases and membership transfers and bill members for any contributions or interest due
from optional service purchases.
The audit also pointed to the need for the Service and Refunds Division to exercise good business continuity
efforts to ensure that staff is capable of performing all job functions, procedures are well documented, and
that rotation of job duties resumes. This finding stemmed from inquiries with staff in which it was found
procedures were at times lacking and that certain staff had become specialized in their job functions. CIA
Evans explained that it was necessary to encourage these practices to ensure staff is well-rounded and can
complete certain job functions when separations, retirements, or extended staff leaves occur.
Finally, the third finding related to current policy which did not require members to submit photo
identifications to receive termination refunds that were of high dollar value. Per current policy, photo
identification was only being requested from the member in instances when he or she was separated from
State payroll for more than one year and the refund was more than $5,000. Internal Audit recommended
the Division set a dollar threshold in which all refunds applicants, regardless of time since separation from
the State, would have to have their refund application notarized to substantiate the member’s identity. This
appears to be a similar practice used by peer public pension funds. Management agreed with the
recommendation and would work towards implementation.
The Committee began discussion of a released internal audit covering the Systems’ purchasing and
procurement function covering fiscal years FY2016 to FY2017. The purpose of the audit was to determine
the Systems complied with the internal and external compliance requirements while exercising good fiscal
responsibility in the procurement of goods and services. Internal Audit sampled nearly 17% of the entire
contractual service expenditures and over $4.4 million in contracts during this time period for testing. No
findings were drafted for this audit but recommendations were provided for management’s consideration.
CIA Evans noted one recommendation pertained to the need to ensure all data sharing agreements in place
contain provisions to reflect changes to the State’s Personal Information Protection Act. In addition, Internal
Audit also suggested management review the fiduciary insurance policy held by the System for possible
adjustment of coverage. These recommendations have been given attention by staff and are in the process
of being implemented.
CIA Evans noted that as a follow-up from previous discussion, staff has begun processing the forced
member refunds to provide assurance that the System fully complies with the IRS’ required minimum
distribution provisions. This was important because it not only helps ensure the Systems’ compliance with
the Internal Revenue Code, but it also aids in maintenance of inactive member accounts, potentially
decreases some liability related to inactive members, and may help ensure monies do not go unclaimed by
these members.
In discussing upcoming work, the Committee inquired as to upcoming or current IT projects with Internal
Audit’s involvement. CIA Evans noted that both he and Stacey were actively testing the Judges’ and
General Assembly Retirement Systems’ benefit setup module which would be a starting point for the
eventual build out of the similar benefit setup module for SERS. Throughout this process, the internal
auditors have been involved in several meetings while providing feedback and consultation. Internal audit
is reviewing current internal controls and access rights in the benefit setup module and is also working
sample retirement cases provided by the IT Division. JRS and GARS staff is also performing similar user
acceptance testing to ensure the system will operate as intended. CIA Evans noted that during the July
meeting an update would be provided on this development and future IT developments that will be
reviewed.
Internal Audit will also be working on two larger projects during the spring and summer of 2017, including
audits of survivor and death benefits and an audit of cash receipts and accounts receivables. It was noted
that the survivor benefits audit would include recalculations of the retirement annuity and survivor annuity
amounts to substantiate the accuracy of the benefits being provided. The audit of cash receipt and accounts
receivables would examine the accuracy and record keeping of these asset accounts. In addition, a focus
would be placed on reviewing accounts that may be delinquent or should be considered for write-off based
on the inability to collect on these bad debts.
SERS has not received any recent allegations of disability fraud or abuse, however the Disability Section
did notify Internal Audit that the Illinois Department of Transportation and the Attorney General are
currently reviewing one disability recipient for possible gainful employment while on disability. From
discussion with the disability supervisor, it appears that future subpoenas or requests may be forthcoming
for the member to produce documentation. SERS disability will continue to monitor this case and will be
informed by these other State agencies of action taken.
CIA Evans noted the external auditors would be beginning their work on the FY2017 external financial
audit and compliance examination. Preliminary discussions and meetings have been held and the auditors
are expected to be onsite beginning in the month of May. Updates on the external audit will be provided to
the Committee during each meeting throughout the fiscal year.
Seeing that there was no new business or old business for discussion, the Audit and Compliance Committee
adjourned at 10 a.m. to begin the scheduled Board of Trustees meeting. The next scheduled meeting of the
committee will be Tuesday, July 25, 2017 at 9:00 a.m.
https://www.srs.illinois.gov/PDFILES/Minutes/Audit_Compliance/17april_acc_min.pdf
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