Joseph E. Connarton, Executive Director
April 21, 2011
Mr. E. Mark Zielinski, Chair man
Barnstable County Retirement Board
750 Attucks Lane
Hyannis , MA 02601
REFERENCE: Report of the Examination of the Barnstable County Retirement Board for the three-year period from January 1, 2005 through December 31, 2007
Dear Mr. Zielinski:
The Public Employee Retirement Administration Commission has completed a follow-up review of the findings and recommendations contained in the audit report of the Barnstable County Retirement Board prepared by Sullivan, Rogers & Company, LLC for the period referenced above. We conduct these visits as a regular part of the oversight process. They are designed to ensure the timely implementation of corrective action for the recommendations cited in that report. The management letter addressed four specific findings and recommendations included in the management letter and one deficiency cited in the Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters for the period referenced above. The results are as follows:
1. The Management Letter cited a finding that the system did not properly document its process for confirming the authenticity of the affidavits returned by its members receiving benefits.
Follow-up Result: The PERAC auditor thoroughly reviewed the current affidavit process. The system currently has mailed affidavits to approximately 65% of the persons receiving benefits in the current cycle. Approximately 97.5% have complied and returned the form verifying their status. The system initiated confirmation steps by comparing signatures to documents on file for approximately 6.5% of these returns. The auditor selected several returns to independently confirm by comparison to documents on file. The current affidavit process is expected to be completed within a brief interval. The next cycle is scheduled for the following year. It is expected to comprise the retirees not included in the current mailing as well as the classifications included in the annual mailings. This finding is considered to be resolved.
2. The Audit Report cited a finding that the review of the regularly completed bank reconciliations could be documented more completely.
Follow-up Result: The PERAC auditor reviewed in detail several recent bank reconciliations for different bank accounts maintained by the system. Both the preparer as well as the supervisory reviewer could be easily identified on the various documents inspected. This finding is resolved.
3. The Audit Report cited a finding that more formal documentation or a manual of current policies and procedures would aid the supervisory functions of the system and improve internal evaluation of the system.
Follow-up Result: The PERAC auditor reviewed the contents of several binders containing the progress made in compiling the specific steps and tasks associated with completing salient tasks necessary to the administration of the retirement system. These include but are not limited to: Retiree payroll; Make-ups and re-deposits; Refunds; Member’s deductions; and Estimates of Benefits. These manuals were of high quality and reflected a considerable effort by the staff to document the normal process for administration of the system. This finding is considered to be resolved.
4. The Audit Report cited a finding that there is perceived merit in developing a comprehensive Disaster Recovery Program. This would assist the continuing operations of the system on the occasion of unforeseen events that may preclude normal operations from the established location.
Follow-up Result: The system responded to this recommendation as an issue that would most likely not be attainable at this time. They cited budgetary constraints and the contents of contracts that provide some level of protection relating to the recovery of essential records. These and similar corresponding controls comprise the bulk of the current plan in the event of a disaster of the magnitude contemplated by this finding. The Auditor noted there was a plan in the event that the retiree payroll process was disrupted. An off site location was available to complete this task. This finding is not considered to be resolved.
5. The Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters cited a finding that the accounting method used to reflect Pension Fund Appropriations was not adequate for full accrual recognition of the amounts owed.
Follow-up Result: The system is constantly evaluating its financial reporting obligations in an effort to comply and be consistent with its statutory and public fiduciary responsibilities. The auditor inspected records related to this issue and determined that the system had satisfied and
addressed the accounting issue cited. No material or significant distortions of the obligations reflected and disclosed in the various records inspected were identified. This finding is considered to be resolved.
6. The Public Employee Retirement Administration Commission (PERAC) performed a review of the audit referenced in this letter for the purpose of evaluating the quality of the field work. We also supplemented this review with certain limited procedures designed to provide assurance of compliance with the standards and regulations established for this purpose. This process identified an on-going audit issue concerning the effort to recover funds pertaining to a specific 91A retiree.
Follow-up Result: The Barnstable County Retirement System has not adequately addressed its responsibilities pertaining to a specific retiree in conforming to G.L. c. 32, § 91A. Retired persons who receive benefits based on accidental and ordinary disability status are restricted in the amount of income they can earn and must annually complete and file a statement disclosing their earnings from sources other than retirement. If such earnings exceed an amount which, when added to the member’s retirement allowance, is greater than the amount of regular compensation which would have been payable to such member if such member had continued in service in the grade held by him at the time he was retired, plus the sum of five thousand dollars, said member shall refund the portion of his retirement allowance for the preceding year equal to such excess and until such refund is made, his pension or retirement allowance shall be held as security. Prior to any termination or reduction of benefits pursuant to this section, the member shall be given a written notice and an opportunity to be heard by the retirement board and, upon such termination or reduction of benefits, shall have the right to appeal such action to the Contributory Retirement Appeal Board.
A retiree who has exhausted his right to appeal was determined to have $174,734.00 in excess earnings and to owe the board a refund of $98,475.76 based on a Barnstable Superior Court ruling issued on February 16, 2010. Such decision became final on April 19, 2010, as neither the board nor the retiree sought any further appeal from the Barnstable Superior Court’s ruling. The follow up revealed that the retiree is not receiving his pension benefit beyond that required to maintain health insurance coverage. The Board is essentially recovering funds from this arrangement based on the accumulated benefit waived. Following the Superior Court ruling, PERAC instructed the Board in two separate letters dated July 27, 2010 and August 12, 2010 to collect the excess earnings from this retiree. The Board’s Legal Counsel responded by letter dated September 13, 2010. Such letter did not specifically address the process by which the Board would recoup monies owed to the system pursuant to the Superior Court ruling. This finding is not considered to be resolved.
Recommendation: Recovery of excess earnings by payment or payroll adjustments must be fully documented. A formal financial agreement should be initiated for any periodic payment arrangements agreed to by the Board. The terms should be specific and include the signatures of both the retiree and a representative of the Board. A running balance of the unpaid obligation should be easily determined using a spreadsheet record. A copy of the payment and support for any deposit of a payment should be available.
The Commission wishes to acknowledge the significant effort demonstrated by the staff of the Barnstable County Retirement Board to correct many of the deficiencies cited in the most recent examination of the system. PERAC auditors may conduct an additional follow-up visit to ensure appropriate progress is being made in those areas that have not been corrected adequately at this time.
We anticipate your continued cooperation in resolving this important matter.Sincerely,
Joseph E. Connarton
Executive Director