Commonwealth of Massachusetts | Public Employee Retirement Administration Commission
Five Middlesex Avenue, Suite 304, Somerville, MA 02145
Ph 617 666 4446 | Fax 617 628 4002 | TTY 617 591 8917 | www.mass.gov/perac
Philip Y. Brown, Esq., Chairman
Auditor Suzanne M. Bump |  Kathleen M. Fallon  |  Kate Fitzpatrick  |  James M. Machado  |  Robert B. McCarthy  |  Jennifer F. Sullivan

Joseph E. Connarton, Executive Director

October 18, 2016

Ms. Sarah M. Hayes, Chairperson
Salem Retirement Board
20 Central Street, Suite 110
Salem, MA 01970

REFERENCE: Report of the Examination of the Salem Retirement Board for the three-year period from January 1, 2010 through December 31, 2012.

Dear Ms. Hayes:

The Public Employee Retirement Administration Commission has completed a follow-up review of the findings and recommendations contained in its audit report of the Salem Retirement Board 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 examination addressed six specific findings and recommendations included in the audit report for the period referenced above. The results are as follows:

1. The Audit Report cited a finding that Regular Compensation Definition was not clear as The City of Salem had pay codes of “OT”, “Incentive”, “Detail”, “Extra”, “Clothing” and “Uniform” listed as qualified for retirement purposes.

Follow-up Result:  The Salem Retirement Board provided a document used in the Payroll Training conducted with each unit in the system.  The document clearly provided examples of types of compensation that should be included or excluded from Regular Compensation.  We reviewed the City of Salem weekly payroll report ending September 9, 2016 and searched for these specific pay codes.  We noted the OT and Detail pay were properly excluded from regular compensation for pension purposes.  We did not find any Incentive, Extra, Clothing or Uniform pay codes in use.  This finding is resolved.

2. The Audit Report cited a finding that there were issues with the calculation of the additional 2% contribution for compensation in excess of $30,000.  It was noted that five employees of the North Shore Regional Vocational High School and the City of Salem school department had new contracts that would result in their salaries exceeding $30,000 thereby triggering the additional 2% contribution but the 2% deductions were not taken.

Follow-up Result:  We tested the same five employees with errors from the prior audit using the most recent payroll reports from July and August 2016.  We found that one out of the five members did not have the correct 2% deduction taken in 2016.  This employee was part of the North Shore Agricultural School.  Per discussion with the Board, this was in error but will be corrected for the September 2016 payroll.  We also tested 10 additional members from across all units including three from North Shore Agricultural School.  We noted no calculation errors in the 10 additional test selections.  This finding is significantly resolved.

3. The Audit Report cited a finding that payroll records are not being used to calculate retiree benefits.

Follow-up Result: We performed additional testing by selecting five retiree members who retired from various units in 2015. We found that for these five members the Board did verify payroll information. This finding is resolved.

4. The Audit Report cited a finding that there were issues with the expenses of the system.  The issues included duplicate payments from duplicate invoices, duplicate payments of single invoice, payments for same vendor and same service charged to different ledger accounts, insufficient descriptions for payments, and the Board was not using a standard reimbursement form that describes the nature, purpose and justification for reimbursement.

Follow-up Result:  As a result of the audit, the Board has started using sub-accounts in the general ledger to better organize expenses by vendor and service.  We also noted the Board has started using a monthly Expenditure Report to compare Budget to Actual expenses.  This review helps identify if expenses are charged to incorrect ledger accounts or if payments are duplicated.  We reviewed the monthly warrants for 2015 and tested one expense from each month.  We did not note any duplicate payments and found the sub-account helpful to organize the vendors and services.  This finding is resolved.

5. The Audit Report cited a finding that Board staff was not delegating the calculation of unused sick time and vacation time buyback for Board staff members to an independent third party and applicable federal and state income tax were not properly withheld from staff members who previously had such buybacks completed.

Follow-up Result: At the time of the follow-up, only one Board staff member was eligible for the sick time and vacation time buyback program and that staff member does not plan to retire in the near future. This finding is not resolved due to the circumstances.

6. The Audit Report cited a finding that a Board member did not meet the seventy-five percent minimum attendance threshold.

Follow-up Result:  We reviewed the Board’s monthly minutes from 2013 through July 2016 and determined that all Board members were attending monthly meetings at or above the seventy-five percent minimum attendance threshold. This finding is resolved.

The Commission wishes to acknowledge the significant effort demonstrated by the staff of the Salem Retirement Board to correct the issues 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 fully corrected at this time.

We anticipate your continued cooperation in resolving this important matter.

Sincerely,

Joseph E. Connarton 

Executive Director