Wednesday, May 09, 2012

Audit finds more problems with college savings plan

By Jamey Dunn

A state audit released today shows that problems with a state prepaid tuition program went deeper than initially thought.

After College Illinois! came under scrutiny last year, lawmakers asked Auditor General William Holland to take a comprehensive look at the program. A previous audit showed that the Illinois Student Assistance Commission, which administers College Illinois!, had not followed procurement rules when hiring financial advisers, and bending the rules may have led to $12.78 million in lost investments.

Today’s audit delved even deeper into the commission's questionable procurement practices. The probe found that former employees directly involved in choosing investment firms had personal investments tied up with the firms during the procurement process and failed to report the conflicts of interest. The commission also did not have documentation from the procurement process. Items that were missing included vendor interviews and presentations as well as evaluations of vendors. In some cases, ISAC changed the criteria for vendors after beginning the procurement process.

Auditors also found that ISAC had used misleading advertisements that could make investors think that the program was backed by the faith and credit of the state. It is not. If ISAC were to run out of money, lawmakers could vote to bail it out, but there is no guarantee that this would happen. As of February, the program was underfunded by 30 percent. Administrators say it is not in immediate danger of becoming insolvent, but without changes, College Illinois! could have trouble making payments by 2020. 

“The fast and loose operations of ISAC prior to last summer are more pervasive than we thought,” said Rep. Jim Durkin, a Western Springs Republican. However, Durkin said there were no real surprises in the audit. “What we’re reading about is history. It’s in the past, and I hope it will stay as part of the past.” Since the problems with the program were made public, Gov. Pat Quinn replaced leadership at ISAC. The program put a freeze on selling new contracts and has brought in an outside consultant to help address some of the problems. “The report does not cover the time from July 2011 to the present, during which Governor Quinn and the new commission board have taken decisive action to enhance business practices,” said a written statement from ISAC.

The commission pointed to steps taken to address the issue and says it plans to do more going forward. “It’s important to note that most of the recommendations pertain to policies, practices and procedures undertaken by former agency and program leadership. While we can’t change the past, be assured that the new Illinois Student Assistance Commission board and staff are hard at work implementing the changes necessary to stabilize and mend the program on behalf of current and future contract holders and their beneficiaries,” said a written statement addressed to contract holders and posted on ISAC’s website.

Durkin, who is a College Illinois! contract holder, said he does not expect any legislation related to the program to pass this spring. However, he said that there would be talks over the summer with legislators, ISAC and public universities. “The cost of public education is skyrocketing,” he said. Durkin said the rapidly increasing cost to students is making it difficult to sustain a prepaid tuition program such as College Illinois!.

The audit found that the cost of doing business for the program has spiked as well. “Program costs nearly tripled from $6.4 million in fiscal year 2006 to $18.1 million in fiscal year 2011 due to a substantial increase in investment management fees and increases in both direct and shared payroll expenses. Fees collected from purchasers of tuition contracts covered only 7 percent of operating costs in fiscal year 2011,” said Holland’s report. Durkin said he was “alarmed” at the increased costs of the program. “I think [ISAC] needs to go back and renegotiate the fees and the contracts with these money managers,” he said. “They’re not hitting home runs in the market, but they are being paid quite handsomely out of the fund.”


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