How do I prepare for a PERAC audit?

The audit process will proceed at a faster pace if you have the following records available for the auditors when they arrive:

  1. Copies of the last 3 annual statements
  2. Copies of the last 3 supplemental schedules
  3. Copies of bank statements and reconciliation’s from the ending date of the last audit through the most current month
  4. Cash books, trials, and journal entries for the past three years
  5. Appropriation letters, funding schedules, and actuarial valuations
  6. Minutes of Board Meetings

This is not intended to be a complete list but it will help you avoid a rush to find these documents.

Do I need to record every investment transaction in my cash book?

No! You may utilize the summary information provided by your custodian and enter on the cash book the total buys, sells, gain, or loss and income by investment category.

Who is responsible for reconciling the bank accounts?

In accordance with G.L. c.32(23)(2), the treasurer is custodian of the system. The treasurer, as custodian, is responsible for reconciling all cash accounts on a monthly basis. The treasurer must present a copy of the reconciliation to the board each month listing any items that are in transit or outstanding.

What is a pooled fund and what accounting entries need to be made?

Any investment that is comprised of more than one underlying individual security is considered a pooled fund. Examples include mutual funds, commingled funds, index funds, venture capital, real estate, international equity, and international and fixed income funds.

To record a purchase:

Debit: Investment Pooled Funds
Credit: Cash

To record income for the period:

Two entries are required (Gross Income before fees are to be deducted).
Included in Gross Income will be any realized or unrealized gains or losses.

Debit: Cash
Credit: Investment Income

Debit: Investment Pooled Funds
Credit: Cash

To record fees (Two entries are required):

Debit: Management Fees
Credit: Cash

Debit: Cash
Credit: Investment Pooled Funds

To record a sale or distribution:

Debit: Cash
Credit: Investment Pooled Funds

What steps should be taken when making a change in custodian?

An RFP should be prepared wherein exactly the services that you need are specified. The RFP must include all the PERAC reporting requirements. You should also try to schedule the change in custodian to occur on December 31st.

What am I required to do each month to insure that my custodian report is correct?

Each month you should match the individual confirms of the purchase and sales of investments to insure that each transaction has been properly recorded by the custodian.

Am I required to continue to keep investment cards?

If you have a computerized program with the same information that is on the manual card, you do not have to continue to keep the cards manually. Also, if you have a custodian bank that has the same information on its statements, you may utilize the statements rather than keep individual cards.

How do I record a merger or other change in the name of the equity that I own?

Record a sale of the stock in the cash receipts page at $0 with the gain being the current book value. You then purchase the new stock by entering in the cash disbursements page at a cost of $0. The value of the stock will be increased to market at the end of the year. Any cash received should be recorded as investment income.

When do you transfer money to the Expense Fund in order pay for expenses paid?

At the end of the year, when you make the closing entries, you will transfer from Investment Income the exact amount that was expended during the past year for expenses. Please note that for the 1997 calendar year the amount transferred from investment income will be less the amount of the balance of the Expense Fund as of January 1, 1997. The Expense Fund each December 31st from 1997 forward must equal zero.