Illinois finally releases its 2023 audited financials; challenges remain

Illinois has finally released its 2023 Annual Comprehensive Financial Report, with Auditor General Frank Mautino saying the long delay was due largely to a $1.2 billion error by the Department of Healthcare and Family Services. The error needed to be corrected, but fiscal problems remain, analysts said.

Mautino told The Bond Buyer there was a misunderstanding at HFS over which drugs were eligible for rebate payments under Medicare Part D. 

The state was in a race to the bottom with Nevada for slowest audit time on record as both states struggled to produce their 2023 ACFRs. Nevada still has not released its 2023 ACFR.

“Nevada is going to hit the record books of shame,” said Richard Ciccarone, president emeritus of Merritt Research Services, an Investortools company. “(Illinois is) making progress, and even though this is a look-back period, their achievements should be recognized. They were putting some money away.”

During the fiscal year, Illinois saw its combined net position increase $16.862 billion, or 9.3%, driven mostly by an increase in business-type activities.

The state’s general funds budgetary fund balance ended 2023 with a positive balance for the first time in 22 years. It stood at $2.226 billion on June 30, 2023, versus a $63.61 million deficit on June 30, 2022. 

Illinois’ liabilities decreased by $25.12 billion, to $222.82 billion by June 30, 2023, from $247.94 billion on June 30, 2022. 

In fiscal 2023, the state’s general fund revenues grew by $624 million, to $73.828 billion. Its general fund expenditures grew by $6.572 billion, to $68.662 billion. The growth in expenditures stemmed mainly from increased spending on health and social services programs of $5.828 billion, according to the ACFR.

According to the ACFR, which covers the fiscal year ended June 30, 2023, HFS “identified an information technology system error that impacted invoices for drug claims identified as Medicare Part D for the Medicare Medicaid Alignment Initiative (MMAI).” These claims, which originated during fiscal years 2020 through 2024, were included in “data ultimately transmitted to facilitate drug rebate invoicing and resulted in HFS charging drugmakers for Medicare Part D drug rebates they shouldn’t have, according to the ACFR.

HFS realized its mistake in October 2024, and it was corrected in June 2025, according to the ACFR. 

“It took basically nine and a half months to get the data, to get comfortable in understanding how they came up with that number, which had to be adjusted within our balances,” Mautino said. Some issues were addressed in May, he said, but in June, “we uncovered an additional set of data which was missing (from the original estimate) … that required us to do additional testing.” 

Mautino said he and his staff have added internal controls to prevent this from happening again. They are also shifting from department-level and fund-level audits to a statewide approach, he said.

Under the old approach, “any one agency has the ability to slow (things) down if there is a problem with their financials,” he said. For the 2023 ACFR, “there were four to five agencies that we worked with the governor’s office, our external auditors, and the agencies to get accurate audits from them. So that was a factor,” as well.

The restructured ACFR will take effect for fiscal year 2025, he said.

“Last year we met with the comptroller’s office and the governor’s office,” he said. “It was becoming more and more difficult to do the departmental and fund level audit, (so) we moved toward doing a statewide ACFR. It looks promising.”

The state still faces fiscal challenges.

“There’s no question that the gains that (Illinois) received during that period from the federal government could all be taken away by changes in aid that are coming their way in the ensuing budget period,” Ciccarone said. “It’s very important that they make sure that they are ready for tightening their belts here.”

Ciccarone pointed to the state’s history of being a year behind in paying bills. “They’d have lapsed spending bills that they’d end up paying in the following year’s fiscal year,” he said. “It looks like in 2023, they brought that down to zero, finally. That was pretty significant. For years, if not decades, that would stand out as the state tried to legitimize that as a way to balance their books, and it shouldn’t be.”

The ACFR includes qualified opinions for business-type activities and the unemployment compensation trust fund, and unmodified opinions for the six other units.

The qualified opinions were used when audit evidence was insufficient to rule out material misstatements in business-type activities, and due to material weaknesses of internal controls in an outsourced unemployment benefit claims processing service.

“It’s pretty obvious that they’re getting hit hard by health and social services costs,” Ciccarone said. “This is the third time since 2019 that they’re going to get at or near double-digit growth in their expenses, and that’s huge.”

For 2023, the health and social services number is more than twice the education number, he noted. In years past, education was always the top expense.

“Medicaid is the item that is of most concern right now,” he said. “If you’re already going to double-digit growth in those expenses … you know how hard it is going to be for the state to come up with extra money to finance a wish list” in the face of changes from the federal government.

The state’s unrestricted net position improved by $13 billion in 2023, the second year in a row Illinois has managed to improve that number.

Ciccarone said he’d want to know “how much of that is due to improvement in the pension and OPEB numbers … [and] how much of that is better because of an improvement in asset position.”

As of June 30, 2023, the state’s net pension liability made up $145.552 billion of its total long-term liabilities, with other postemployment benefits accounting for $20.385 billion, and bonds and notes payable totaling $30.306 billion.

“They held down debt, that’s a good thing,” Ciccarone said. “But they’ve got a long way to go when it comes to the pension problem.

“Pensions and healthcare costs — that’s where the spotlight is right now,” he added. “Fortunately, they made some strides on the bad habits.”

Ciccarone said the state ended 2023 mostly headed in the right direction, but whether it can stay the course remains to be seen. Its unassigned fund balance was still negative, and “that still is a number which we would prefer to go to a positive position,” he said.

Illinois showed some improvement in its long-term liabilities in 2023, Ciccarone said. But given the heavy liabilities on its books, the state needs to rebuild investor trust by releasing more timely audits, and that requires collective action by state leadership, he said, noting that 45 out of 56 states, territories and the District of Columbia have already reported their fiscal 2024 audit results.

“The markets are pleased that they’re making supplemental (pension) payments, but there’s a long way to go before everyone can relax, including the state government and the taxpayers, as well as investors,” he said.

Illinois’ general obligation bonds are rated A3 with a positive outlook by Moody’s Ratings and A-minus with a stable outlook by Fitch Ratings and S&P Global Ratings. KBRA rates the state’s Build Illinois Bonds AA-plus with a stable outlook.

Spokespeople for the Department of Healthcare and Family Services and Comptroller Susana Mendoza did not respond to requests for comment.