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Acceptance of SamCERA's Response to the 6/30/2001 Audits Management
Letter. The Committee and staff, including audit staff used a list
of written questions submitted by Mr. Lewis to work its way through
the Management Letter and management's responses. The questions were
aimed at clarity concerning items referred to in the letter. A copy
of the Management Letter and Management's response follows:
I. Prior Audit Recommendations
1997 Recommendation 1 - Policies & Procedures Manual
An audit recommendation resulted in the Association's preparation
of the new Policies and Procedures Manual. While we would like to
commend the Association for their significant efforts in compiling
and organizing the extensive information available in the manual,
we would also like to suggest that the Association include detailed
work procedures for each of the retirement staff positions. This is
necessary in order to document the proper work procedures and related
internal controls associated with each position. As such, this would
enhance the staff's understanding of their position within the Association,
and also simplify the employee training process.
Status of Implementation
The policies and procedures manual was scheduled for completion by
December 31, 1998, but other priorities have delayed the completion
of the manual. We understand that the manual is being worked on and
will be completed during fiscal year 2002.
SamCERA's Response
Desk manuals have been completed for six of SamCERA's nine
positions. The remaining three manuals for the Senior Accountant,
Investment & Finance Manager and Chief Executive Officer
should be completed during the next quarter. Final editing,
integration of forms and cross-referencing should be completed
by the end of the fiscal year.
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1998 Recommendation 1- Reconciliation of Member
Reserves
The Association should periodically prepare a timely reconciliation
of member reserves and promptly investigate and clear all reconciling
items on said reconciliation. Timely periodic reconciliations are
necessary in order to detect errors which may ultimately affect financial
statement disclosure.
Status of Implementation
The Association has experienced difficulty reconciling member reserves
utilizing the PensionGold system. During the audit for the fiscal
year ended June 30, 2000, conversion errors were corrected by the
Information Systems Manager, with assistance provided by the systems
vendor. Staffing issues have prevented the implementation of a regular
reconciliation process, however in fiscal year 2001, a senior accountant
was hired and took on this responsibility.
We continue to recommend that member reserves per PensionGold be
reconciled to member reserves per the general ledger on a timely basis
to minimize risk of errors in member accounts and the general ledger
balance.
SamCERA's Response
Monthly reconciliation of member reserves has been initiated
utilizing improved procedures and reports developed by Ms.
Wong. Staff has determined that individual account balances
are accurate. The last remaining step is to complete the documentation
for the recording of outstanding discrepancies that resulted
during the transition to and refinement of PensionGold.
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1999 Recommendation No. 3 - Disaster Recovery Plan
We recommend that the Association document a formal disaster recovery
plan.
Status of Implementation
Much progress has been made in the formulation of a disaster recovery
plan in the way of discussions with other counties and the PensionGold
vendor, planning sessions, performance of backup procedures and testing
of the dedicated file server. However, the actual plan has not yet
been documented.
We continue to recommend that the Association document a formal plan.
SamCERA's Response
The Information Technology Manager's Manual serves as SamCERA's
Interim Disaster Recovery Plan, in that it contains the procedures
to be followed in response to an array of business disruptions.
The preparation of the Emergency Response Manual and the completion
of the individual desk manuals should be completed by the
end of the fiscal year. In addition, staff will continue to
work on the development of mutual aid pacts with our peers.
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II. Comments and Recommendations Arising From This Audit
1. Reconciliation between State Street Investments and Investment
Managers' Records.
During our audit, we noted that the year-end accounting records provided
by the global custodian, State Street Investments, were not timely
reconciled to the year-end records provided by investment managers
Deutsche Asset Management Inc. and INVESCO Realty Advisors. Section
3 of the contract between State Street and the Association requires
State Street to provide the Association with itemized statements of
transactions and balances that are reconciled to the appropriate investment
manager's reports.
Recommendation 1
Reconciliation of individual investment manager's records to the global
custodian's records enhances the accuracy of investment information
presented to the Board during the fiscal year and made available for
audit after fiscal year-end. The Association should enforce the requirements
of its contract with State Street Investments that requires State
Street to timely provide reports that have been reconciled to investment
managers' reports.
SamCERA's Response
The Investment Committee has worked with the custodian and
managers to assure that there is full cooperation in the reconciliation
process. As the Board is aware, there have been issues related
to the different pricing sources utilized by State Street
and Deutsche Asset Management. Those differences are reconciled
to the point that the differences are understood, but absolute
reconciliation is not required until the point of sale of
a security. INVESCO now provides State Street with online
reports that allow for the reconciliation of funds for which
State Street is not the custodian. Staff is of the opinion
that this issue has been resolved.
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2. Noncompliance with Laws/Regulations & Office Policy.
We noted instances of noncompliance with laws/regulations and office
policy as follows:
a) Government Code Section 31628 requires that if a retiring member
"does not file the proper application, the board shall send to
the member, not more than 90 days after termination of service, at
his or her last known address, a registered or certified letter, return
receipt requested, stating that he or she has money to his or her
credit on the books of the retirement system and that if he or she
does not claim the money" within a specified period, the money
will be deposited in the current pension reserve fund. There is no
evidence of compliance with the above as the Association does not
retain copies of the certified letters mailed to inactive members
under GC §31628.
b) Member's change of membership status forms (nine out of twenty
five tested) were not in the member's file, as required by GC §31628.
c) In four out of fifteen new enrollments tested, new members had
not returned the required beneficiary designation forms. The Association's
office policy requires its staff to follow-up on instances where members
do not return beneficiary designation forms in a timely manner. There
was no evidence of follow-up procedures in the members' files.
d) On six out of fifteen new enrollments tested, there was no evidence
of review of birth dates for accuracy, as required by office policy.
Verifying birth date to county payroll records is critical, as errors
in birth dates will result in incorrect contributions and related
data.
Recommendation 2
The Association should comply with the requirements of GC §31628
and office policy as stated.
SamCERA's Response
a & b) Terminating Members
Notice to Terminating Members: Staff sends a form to
each terminating member via U.S. mail. If the terminating
member does not respond within 90-days, staff sends a certified
letter as follow-up. As part of our effort to reduce the use
of paper records, these terminating member transactions are
tracked on an Excel spreadsheet, rather than being filed individually.
In fact, members of Plan 4 do not have individual member files.
Plan 4 member's critical enrollment, beneficiary and refund
documents are filed alphabetically. However, the record of
delivery of certified correspondence is kept with the other
records of delivery. If nine out of twenty-five forms were
not located, they probably have not been returned. This could
be verified by checking the Excel spreadsheet. Staff does
not believe that there needs to be a change to these procedures.
Escheat of Non-vested Terminated Member's Contributions
& Interest: Staff corresponds from time to time with
terminated non-vested members. At the end of five years, GC§31628
provides for the escheat of the member's funds. However, GC§31629
authorizes the Board to issue a check to the individual for
the balance of their account if we are able to ascertain their
correct address. For the past several years, we have tried
various ways to encourage terminated members to take a refund
of their contributions and interest. This correspondence is
by certified letter and the record of delivery is retained
with the records of delivery.
Staff will bring a proposed Regulation to the Board in the
Spring to formalize the Board's policy for treatment of these
accounts.
c) New Member Enrollments
Staff mails a new member packet to new members when they appear
on the County payroll system. If they do not respond within
30 days, a reminder is sent. Effective with the start of this
fiscal year, Mr. McCausland sends a letter to department directors
once each quarter with a list of delinquent members, along
with beneficiary forms for the member to complete. Each of
these steps is monitored on an Excel spreadsheet. As noted
above, Plan 4 members do not have individual files. Effective
immediately, if the member has failed to respond to the request
sent through the department director, we will call the member's
supervisor and inform them that the delinquent member must
be sent to our office for a counseling session to complete
the beneficiary form. Staff believes that current procedures
are adequate and appropriate.
d) Verification of Birth Dates
Personal data for each member is downloaded by PIPS to PensionGold.
The data in PIPS is input by each department's payroll clerks.
SamCERA's staff checks the Social Security Number, birthdate
and SamCERA Plan that the member provides on our enrollment
form against the data in PensionGold to assure that the payroll
clerk entered it correctly. This is done for each new member.
Staff believes the current procedures are adequate and appropriate.
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3. Timely journal entry postings.
During the audit we noted that monthly journal entries and interest
crediting entries were not approved and posted to Great Plains on
a timely basis. Great Plains software is an essential tool for management
and staff in analyzing and reporting on the Association's accounting
activity, therefore Great Plains' records should be timely updated.
We also noted that monthly financial reports presented to the Board
are based on reports provided by the global custodian of investment
portfolio. A sound information system that provides timely accurate
information to the decision makers and other stakeholders is an integral
part of a good internal control system. With the implementation of
the Great Plains accounting software Association staff can now produce
monthly comprehensive financial reports for presentation to the Board
that includes information on contributions, benefits and administrative
expenses. Monthly financial reporting procedures should also shorten
and simplify fiscal year-end close procedures. Currently the Association's
books are effectively closed only once, at fiscal year-end. We compliment
the Association's staff for helping us meet our CAFR timeliness goals
for this year and look forward next year to achieving both timeliness
and accuracy through advance planning and continued cooperation.
Recommendation 3a
The Association's staff to timely approve and post journal entries
and close fiscal year on a timely basis.
SamCERA's Response
Ms. Wong has been completing the monthly journal entries,
but Mr. Clifton has deferred approving them for posting to
the general ledger until completion of the audit. Going forward
staff will post and close Great Plains each month.
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Recommendation 3b
The Association staff should consider producing complete monthly financial
reports for presentation to the Board.
SamCERA's Response
Staff concurs with the recommendation and will seek to implement
it within the next quarter.
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4. Interest crediting for member contributions.
During the audit we noted that the interest-crediting button on PensionGold's
Participant Entry/ Update screen for one out of the fifteen members
tested was blank when it should have been checked. The interest button
should remain blank only for Plan 3 members and Extra Help employees
who do not contribute into the Pension Plan. The member selected converted
to Regular employee status in August 2000, a contributory position.
This change was not reflected on PensionGold. Therefore, this member
was owed interest for August 2000 through June 2001, which subsequently
has been credited to the member.
Recommendation 4
Association staff should verify that the appropriate changes have
been correctly made on PensionGold when members change from a non-contributory
position, such as Extra Help, to a contributory position.
SamCERA's Response
It is standard operating procedure to click on the interest
crediting box when an extra help employee subsequently becomes
a permanent employee with SamCERA membership. We will look
for ways to insure that this oversight does not happen in
the future as part of the interest crediting reconciliation
process.
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The items identified by the auditors during their fieldwork indicate
that staff can do more to make certain that we adhere to SamCERA's internal
controls. The procedures are in place or the projects are underway to
manage each of the issues identified by the auditors. What is left to
do is to make certain that we do what we set out to do. That is best
achieved by fastidious adherence to our internal control procedures.
Action: Motion by Ms. Salas, seconded by Ms. Stewart, carried unanimously
to recommend to the Board that it accepts the Audited Financial Statements
as amended.
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