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Audit of the Public Employee Retirement Administration Commission Objectives, Scope, and Methodology

An overview of the purpose and process of auditing the Public Employee Retirement Administration Commission

Table of Contents

Overview

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of certain activities of the Public Employee Retirement Administration Commission (PERAC) for the period July 1, 2015 through June 30, 2017.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in the audit findings.

Objective

Conclusion

  1. Did PERAC effectively administer various aspects of the disability retirement application process? Specifically,

 

a. Did PERAC process medical evaluations for disability retirement applicants in accordance with Section 6 of Chapter 32 of the General Laws?

Yes

b. Did PERAC review and approve decisions to grant disability retirement benefits made by local retirement boards as required by Section 21(1)(d) of Chapter 32 of the General Laws?

Yes

c. Did PERAC ensure that disability retirement benefit payments were accurately calculated by local retirement boards as required by Section 21(3)(a) of Chapter 32 of the General Laws?

No; see Finding 1

To achieve our audit objectives, we gained an understanding of the internal control environment related to our audit objectives and tested the operating effectiveness of controls over oversight of medical evaluations of applicants seeking disability retirement benefits and approval of retirement boards’ decisions to grant disability retirement. We also conducted further audit testing as follows:

  • To gain an understanding of PERAC’s process for scheduling and monitoring medical panel examinations, we reviewed the agency’s internal control plan (ICP) and related policies and procedures. We also interviewed the manager of Medical Services, the general counsel and deputy director, and other staff members who were responsible for monitoring and evaluating the medical panel process.
    • We obtained a data extract consisting of all 1,147 disability retirement cases finalized during our audit period from PERAC’s disability database. Using data analysis tools, we identified all disability retirement cases ultimately approved by PERAC during the audit period. We selected a nonstatistical random sample of 35 of the 945 approved cases and reviewed supporting documentation (such as retirement applications, medical records, and physician information from the Massachusetts Board of Registration in Medicine website) to determine whether the physicians chosen by PERAC to evaluate applicants were of the appropriate specialties and appeared not to have previously treated or examined the applicants.
    • We reviewed applicant case files to determine whether medical panel certificates and narrative reports were properly completed, signed by physicians, and sent by PERAC to the retirement boards within five days as required by state regulations.
  • To gain an understanding of PERAC’s process for reviewing and approving retirement boards’ decisions to grant disability retirement benefits, we reviewed its ICP and related policies and procedures. We also interviewed the general counsel and deputy director, the deputy executive director, and other staff members who were involved in approving disability retirement benefit applications.
    • We selected a nonstatistical random sample of 35 of the 945 cases approved during our audit period and reviewed applicant case files to verify that that all required documentation (such as completed disability retirement applications, statements of facts found by retirement boards, certificates and narrative reports of regional medical panels, injury reports, statements from the applicants’ employers, and descriptions of applicants’ essential job duties) was received from retirement boards and that boards’ decisions were approved by PERAC’s executive director within 30 days.
  • To gain an understanding of PERAC’s process for approving retirement boards’ disability retirement benefit calculations, we reviewed PERAC’s ICP and related policies and procedures and interviewed the senior actuarial associate and the benefit calculation specialist.
    • Because of the absence of adequate internal controls to verify that all calculations from retirement boards were received and performed correctly, we tested a nonstatistical random sample of 60 out of 671 cases approved during our audit period and reviewed supporting documentation to determine whether all required documentation was received from the retirement boards; approval letters signed by PERAC’s executive director were on file to certify PERAC’s final approval; and benefit amounts were calculated correctly.
    • Based on the results of the above testing, we selected an additional nonstatistical random sample of 60 cases approved during our audit period for testing. We then summarized the results of the two samples and performed additional testing on one retirement board.

Data Reliability

During our audit period, the disability retirement process solely involved hardcopy documentation. All of the information PERAC receives comes from local retirement boards by mail. This information is then entered in PERAC’s disability database, the system of record for monitoring the disability retirement application process, by PERAC’s staff. We relied on hardcopy source documents, interviews, and other non-computer-processed data for supporting documentation. We determined the reliability of data obtained from PERAC’s disability database by performing validity and integrity tests, including (1) testing for missing data and (2) scanning for duplicate records. We also traced electronic data to original source documents to ensure that the data were accurate and could be relied on. We determined that the data were sufficiently reliable for the purposes of audit testing.

Whenever sampling was used, we applied a nonstatistical approach, and as a result, we were not able to project our results to the entire populations.

Date published: June 28, 2018

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