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
Domenic J. F. Russo, Chairman | A. Joseph DeNucci, Vice Chairman
Mary Ann Bradley | Paul V. Doane | Kenneth J. Donnelly | James M. Machado | Donald R. Marquis
Joseph E. Connarton, Executive Director
May 15, 2008
Mr. Russell J McNiff, Chairman
Holyoke Retirement Board
20 Korean Veterans Plaza
Room 207
Holyoke, MA 01040
REFERENCE: Report of the Examination of the Holyoke Retirement Board for the three-year period from January 1, 2003 through December 31, 2005.
Dear Mr. McNiff:
The Public Employee Retirement Administration Commission has completed a follow-up review of the findings and recommendations contained in its audit report of the Holyoke Retirement Board for the most recent 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 two 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 the Holyoke Retirement Board funded two investments with Lazard Asset Management, LLC and Fidelity Management Trust Company prior to receiving notice from PERAC’s Investment Director that all required documents were submitted.
Follow-up Result: The Board believes this is an isolated issue due to timing and that they have always been in compliance with PERAC’s Investment Regulations, 840 CMR 16.08 which states in part that “the selection and hiring of investment managers, consultants,, custodian banks and other investment related service providers by all retirement boards shall be subject to a competitive process…” This issue has been resolved.
2. The Audit Report cited issues with cash reconciliations by the Holyoke Treasurer’s Office. Specifically, the Treasurer’s Office did not provide a complete reconciliation to the retiree payroll and the Treasurer’s Office did not respond in a timely manner for requests to explain adjustments to the payroll account.
Follow-up Result: The retiree payroll reconciliation presented by the Treasurer’s Office for the period ending December 31, 2007 has not been conducted in compliance with state statutory requirements or Generally Accepted Accounting Principals (GAAP). Adjustments dating back to CY 2004 are unexplained and reoccurring; outstanding check balances do not tie and interest revenue recorded as adjustments dating back to July, 2006 should not be a reconciling item because the interest is already included in the monthly bank statements as ‘Ending Bank Balances’. It is important to note that the Treasurer’s Office employee who has been reconciling the retiree payroll bank statements recently resigned from his position with the Treasurer.
The retiree payroll account used by the Treasurer’s Office is also known as a “Zero-Balance Account (ZBA)”. The ZBA is a checking account that maintains a zero balance. Just the necessary funds are transferred to cover checks to be paid. Funds are moved into and out of ZBA daily and at the close of a business day, the ZBA account is zero. And, at any given day, the Retirement System has a zero balance in their financial reports because all the funds are accounted for. However, adjustments such as outstanding checks, voided checks, fees, etc. must be analyzed and must be included in cash reconciliations.
Because adjustments and reconciling items in the retiree payroll reconciliation are not adequately explained, we recommend that the Holyoke Retirement Board hire an independent consultant, reporting directly to the Retirement Board, to review cash starting with December 31, 2003 and report the results to the Board and to PERAC. This issue is not resolved.
The Commission wishes to acknowledge the significant effort demonstrated by the staff of the Holyoke 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