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

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, 2019 through June 30, 2021.

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 and the conclusion we reached regarding each objective.

Objective	Conclusion
Does PERAC approve members’ applications for accidental and ordinary disability within 30 days in accordance with Section 21(1)(d) of Chapter 32 of the General Laws?	Yes
Does PERAC calculate the correct amount of retirement benefits for excess earners in accordance with Section 91A of Chapter 32 of the General Laws?	Yes

 

To achieve our audit objectives, we gained an understanding of PERAC’s internal control environment related to our audit objectives by reviewing the agency’s policies, procedures, and internal control plan, as well as interviewing PERAC’s staff members and management. We evaluated the design and implementation of the internal controls related to the approval of calculations for excess earners.

To test the effectiveness of internal controls related to the approval of excess earner calculations during the audit period, we selected a sample of 50 out of the 145 individual excess earners. For each excess earner in our sample, we inspected their 91A Excess and confirmed that PERAC’s assistant deputy director signed it.

To determine whether PERAC approved members’ applications for accidental and ordinary disability within 30 days, in accordance with Section 21(1)(d) of Chapter 32 of the General Laws, we selected a nonstatistical, random sample of 60 members whose applications were approved during the audit period, from the population of 722 members. We reviewed application records to determine whether PERAC’s Legal Unit approved Disability Transmittal Requests within 30 days of receipt from the retirement board.

To determine whether PERAC calculated the correct amount of retirement benefits for excess earners in accordance with Section 91A of Chapter 32 of the General Laws, we reviewed two lists of excess earners, totaling 180 members, for calendar years 2019 and 2020. To determine who the 145 individual excess earners during our audit period were, we consolidated the two lists of excess earners and removed duplicate members who appeared on both lists. We also obtained from PERAC the Excess Earner Reports for calendar years 2019 and 2020, which display information from all financial documents submitted with members’ Statements of Earned Income and other documents used to calculate excess earnings. From the population of 145 individual excess earners, we selected a nonstatistical, random sample of 35 excess earners and recalculated the excess earnings of each based on the income information provided on the Excess Earner Reports. To determine each excess earner’s refund amount, we found the difference between each excess earner’s regular compensation, had they continued employment in the grade held by them at the time they were approved for disability retirement, plus $15,000, minus their disability retirement allowance and the excess earner’s allowable earnings, minus their reported income. We then compared our calculations to the Excess Earner Reports to ensure that PERAC calculated and determined excess earnings in accordance with Section 91A of Chapter 32 of the General Laws.

We used nonstatistical sampling methods for testing and therefore could not project the results of our testing to the populations.

Data Reliability Assessment

To determine the reliability of the data used in the procedures described above, we performed the following tests:

• We reviewed the System and Organization Control reports⁹ that covered the periods April 1, 2019 through March 31, 2020; April 1, 2020 through March 31, 2021; and October 1, 2020 through September 30, 2021. We verified that the System and Organization Control reports described testing of certain information system general controls (access controls, application controls, configuration management, contingency planning, and segregation of duties) and that they were tested without exceptions.
• We performed an application process walkthrough on the staging environment of PERAC’s retirement management system, where we observed access controls, application controls, and segregation of duties for the disability retirement application process. We had PERAC’s information technology director create a fake retiree (to represent a member with a disability) and run their application through PERAC’s test system from when it initially receives a medical examination request from the retirement board to when PERAC approves or remands the application for disability retirement.
• We tested the reliability of the data on the excess earner lists and Excess Earner Reports by ensuring that there were no duplicates or blank fields.
• We tested the accuracy of the member application data from PERAC’s retirement management system by obtaining and inspecting a list of all members (2,738)¹⁰ who applied for disability retirement during the audit period. Since only members whose applications were approved can be moved to the calculation of benefit approval process, we filtered the list to include just the 722 members whose applications were approved during the audit period. From this population of 722 members, we selected a random sample of 20 members and added their disability retirement allowance amounts to an Excel spreadsheet from PERAC’s retirement management system. We then traced the disability retirement allowance amounts back to the hardcopy Disability Transmittal Letters and the calculation worksheets from PERAC’s filing shelves for these members.

Based on the results of our data reliability assessments, we determined that the information obtained for our audit period was sufficiently reliable for the purposes of our audit objectives.

Conclusion

Our audit revealed no significant instances of noncompliance by PERAC that must be reported under generally accepted government auditing standards.

9.    A System and Organization Control report is a report on controls about a service organization’s systems relevant to security, availability, processing integrity, confidentiality, or privacy issued by an independent contractor.

10.    This list contains members whose applications were approved during (722) and after (257) the audit period and members whose applications were denied (1,759) for disability retirement during the audit period.

Date published:	June 22, 2023