STATE OF ILLINOIS DEPARTMENT OF

CENTRAL MANAGEMENT SERVICES

FINANCIAL AUDIT

For the Year Ended June 30, 2005

Performed as Special Assistant Auditors for The Auditor General, State of Illinois

STATE OF ILLINOIS DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

FINANCIAL AUDIT

For the Year Ended June 30, 2005

TABLE OF CONTENTS PAGE AGENCY OFFICIALS ......................................................................................................... 1 FINANCIAL STATEMENT REPORT

Summary ................................................................................................................... 2

Independent Auditor’s Report ................................................................................... 3

BASIC FINANCIAL STATEMENTS

Government-wide Financial Statements

Statement of Net Assets ..................................................................................... 6 Statement of Activities ....................................................................................... 7

Governmental Funds Financial Statements

Balance Sheet.................................................................................................... 8 Reconciliation of Governmental Funds Balance Sheet to Statement of Net Assets............................................................................. 9 Statement of Revenues, Expenditures and Changes in Fund Balances ............ 10 Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to Statement of

Activities........................................................................................................ 11 Proprietary Fund Financial Statements

Statement of Net Assets .................................................................................... 12 Statement of Revenues, Expenses and Changes in Fund Net Assets ............... 13 Statement of Cash Flows .................................................................................. 14

Fiduciary Funds Financial Statements

Statement of Fiduciary Net Assets.................................................................... 15 Statement of Changes in Fiduciary Net Assets................................................. 16

Notes to Financial Statements................................................................................. 17

STATE OF ILLINOIS DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

FINANCIAL AUDIT

For the Year Ended June 30, 2005

TABLE OF CONTENTS (continued) PAGE

Required Supplementary Information

Schedule I: Local Government Health Insurance Reserve Fund –

Schedule of Claims for the Ten Years Ended June 30, 2005......................... 45

Schedule II: Teacher Health Insurance Security Fund – Schedule of Claims for the Ten Years Ended June 30, 2005......................... 46

Schedule III: Community College Health Insurance Security Fund –

Schedule of Claims for the Seven Years Ended June 30, 2005..................... 47 Combining and Individual Fund Financial Statements

General Fund

Combining Schedule of Accounts ........................................................... 48 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balance ................................................................................... 49

Non-major Governmental Funds

Combining Balance Sheet........................................................................ 50 Combining Statement of Revenues, Expenditures and Changes in Fund Balance ................................................................................... 52

Non-major Proprietary Funds

Combining Statement of Net Assets ........................................................ 54

Combining Statement of Revenues, Expenses, and Changes in Net Assets ............................................................................................ 55

Combining Statement of Cash Flows ...................................................... 56

Internal Service Funds

Combining Statement of Net Assets ........................................................ 57

Combining Statement of Revenues, Expenses, and Changes in Net Assets ............................................................................................ 58

Combining Statement of Cash Flows ...................................................... 59

STATE OF ILLINOIS DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

FINANCIAL AUDIT

For the Year Ended June 30, 2005

TABLE OF CONTENTS (continued) PAGE

Agency Funds

Combining Statement of Fiduciary Net Assets........................................ 60

Combining Statement of Changes in Assets and Liabilities.................... 61

NOTE: The Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards is issued under separate cover in the Compliance Report.

1

STATE OF ILLINOIS DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

AGENCY OFFICIALS

Director Mr. Michael M. Rumman (Effective through June 1, 2005) Mr. Paul J. Campbell (Acting, effective June 2, 2005) Assistant Director Mr. Paul J. Campbell (Effective through June 1, 2005) Assistant Director Mr. N. Keith Chambers Chief Operating Officer Mr. Brian Chapman Chief Fiscal Officer Mr. Ronald Banks (Effective through December 9, 2005) Ms. Marcia Armstrong (Acting, effective December 12, 2005) Chief Administrative Officer / General Counsel Mr. H. Edward Wynn (Effective through July 31, 2005) General Counsel Ms. Letitia Dominici (Acting, effective August 1, 2005) Chief Internal Auditor Mr. John Cressman (Illinois Office of Internal Audit) Department offices are located at:

Stratton Office Building 401 South Spring Street Springfield, Illinois 62706

2

STATE OF ILLINOIS DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

FINANCIAL STATEMENT REPORT SUMMARY

The audit of the accompanying financial statements of the State of Illinois, Department of Central Management Services (Department) as of June 30, 2005 and for the year then ended, was performed by Sikich, LLP as Special Assistant Auditors to the Auditor General, State of Illinois.

Based on their audit, the auditors expressed an unqualified opinion on the Department’s basic financial statements.

4

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the State of Illinois, Department of Central Management Services as of June 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated January 18, 2006 on our consideration of the State of Illinois, Department of Central Management Services’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, and contracts. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Local Government Health Insurance Reserve Fund - Schedule of Claims for the Ten Years Ended June 30, 2005, Teacher Health Insurance Security Fund – Schedule of Claims for the Ten Years Ended June 30, 2005, and Community College Health Insurance Security Fund – Schedule of Claims for the Seven Years Ended June 30, 2005 on pages 45 through 47 are not required parts of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. The State of Illinois, Department of Central Management Services has not presented a management’s discussion and analysis and budgetary comparison information that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not required to be part of, the basic financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the State of Illinois, Department of Central Management Services’ basic financial statements. The combining fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining fund financial statements have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

BASIC FINANCIAL STATEMENTS

17

STATE OF ILLINOIS DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

Notes to Financial Statements

June 30, 2005

INDEX OF NOTES TO THE FINANCIAL STATEMENTS

PAGE Note 1 Organization.................................................................................................... 18 Note 2 Summary of Significant Accounting Policies................................................. 18 Note 3 Deposits and Investments ............................................................................... 26 Note 4 Interfund Balances and Activity ..................................................................... 29 Note 5 Capital Assets ................................................................................................. 33 Note 6 Long-Term Obligations .................................................................................. 34 Note 7 Risk Management ........................................................................................... 36 Note 8 Pension Plan.................................................................................................... 37 Note 9 Post-employment Benefits .............................................................................. 38 Note 10 Fund Deficits................................................................................................... 38 Note 11 Commitments and Contingencies ................................................................... 38 Note 12 Local Government Health Insurance Reserve Fund Risk Pool Disclosure .... 39 Note 13 Teacher Health Insurance Security Fund Risk Pool Disclosure ..................... 41 Note 14 Community College Health Insurance Security Fund Risk Pool Disclosure . 42 Note 15 State Employees’ Deferred Compensation Plan General Description............ 43 Note 16 Subsequent Event............................................................................................ 44 Note 17 Recharacterization of Funds ........................................................................... 44