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MSRB Did Not Verify the Accuracy of Randomly Sampled Benefit Verification Forms.

MSRB did not audit a random sample of at least 5% of BVFs received.

Table of Contents

Overview

In our prior audit, we found that MSRB had not audited at least 5% of the Benefit Verification Forms (BVFs) it received from its members every two years as required by PERAC regulations. During our current audit period, this issue had not been fully resolved. During its last BVF process, initiated in 2018, MSRB did not audit a random sample of at least 5% of BVFs received. Without random verifications, there is inadequate assurance that all the information reported by members, which MSRB uses to determine their continued eligibility for pension benefits, is complete and accurate.

Authoritative Guidance

Section 15.01(3) of Title 840 of the Code of Massachusetts Regulations (CMR) requires MSRB to collect BVFs from all its benefit recipients at least every two years and then audit a random sample of at least 5% of the BVFs received.

Reasons for Lack of Verification

MSRB management told us it could not comply with the 5% requirement because of the volume of documents involved. For the 2018 BVF process, more than 62,400 BVFs were returned, and MSRB would have needed to audit approximately 3,100 affidavits. According to management, this review would have required more personnel than were available at the time.

Further, because of its high number of retirees and beneficiaries, MSRB uses a third-party vendor to administer the initial BVF mailings. The vendor is responsible for confirming that each returned BVF is complete, properly executed, and notarized and that no changes to demographic or beneficiary information have been submitted. If any of the foregoing occurs, the vendor notifies MSRB of the BVF in question so that MSRB’s staff can follow up with the member and update the agency’s records. Taking into account these procedures completed by its vendor, coupled with its regular electronic data matches of its entire benefit recipient database, MSRB considers the random 5% audit required by 840 CMR 15.01(3) excessive and unnecessary and pointed out that the language of 840 CMR 15.01(3) predates some of the practices MSRB can now perform: 840 CMR 15 dates back to at least September 1984, and MSRB management told us they had conducted regular electronic data matches of the agency’s entire benefit recipient database since at least as long ago as July 2005.

In response to our prior audit, MSRB corresponded with PERAC, seeking clarity on whether PERAC believed the above process complied with the regulation’s intent. In February 2017, PERAC clarified that the third-party vendor’s review did not meet the regulatory audit requirement. In PERAC’s opinion, MSRB is only auditing the BVFs that have been flagged by the vendor as incomplete, improperly executed or notarized, or containing changes to the beneficiary’s demographic information, rather than a random sample of at least 5% of BVFs received, as the regulation requires.

Recommendations

  1. MSRB should perform random reviews and verifications of biennial BVFs received to determine the accuracy of information reported and stored in its database, as currently required by PERAC regulations.
  2. MSRB should collaborate with PERAC to evaluate the benefit (if any) derived from conducting the biennial verification process, given its current death match process.

Auditee’s Response

During the 2018 BVF process, the vendor sent the MSRB 9,364 file records that had some type of member data correction or update. There were also 1,817 file records that had an attachment (Power of Attorney, Conservator or Guardianship documents). In addition, 2,151 file records were reported as rejected. All these BVF’s would have required individual review by the MSRB for member data changes, vendor accuracy, and would have required direct inquiry and follow up by MSRB staff with the affected retirees and beneficiaries. The above BVF’s whose deficiencies were addressed individually by MSRB staff, represent more 23% of the benefit recipients (approximately 57,000).

The above BVF’s reviewed by the MSRB which contained a correction, attachment or were rejected were significantly more than the 5% requirement of the BVF’s received. Moreover, the MSRB reviewed a separate 5% sampling of BVF’s after the vendor had returned all the 2018 BVFs and completed their [Statement of Work] obligations.

In October 2018, there were approximately 800 BVFs that remained outstanding, and after a decision made by the MSRB Board, payments were withheld from each benefit recipient. MSRB staff thereafter made follow-up attempts to obtain signed BVFs; and upon receipt then issued eligible payments.

By Feb 2019, MSRB terminated payments of 179 individuals who did not submit and complete their BVF by the close of the pension warrant on February 21, 2019.

We would agree with the OSA in so far as there remains a continuing need to assess whether the issuance and processing of BVF’s as currently required provides value and is effective given the more frequent and regular electronic data matches carried out by the MSERS and other boards, or whether perhaps there could be an administrative exemption allowed by PERAC given these measures. Otherwise, it would be instructive for PERAC to issue additional guidance on criteria to be followed describing an expected audit, or to re-assess and amend the current regulation so as to take into consideration some the described practices.

With regard to the specific finding, it should be noted that 840 CMR 15.01(3) does not define nor has it been amended to describe what steps are required to “audit” the verification statements that are received. Additionally, although not required by the regulations, the MSRB requires its BVF’s through the audit period to be independently notarized as part of the verification process to substantiate continued eligibility for benefits.

In our estimation, by a reasonable definition of “audit” as found in §15.01(3), the actions taken by the MSRB with regard [to] its BVF efforts in 2018 satisfy the requirement of the regulations. . . .

Based on the foregoing, and on the particular circumstances related to our operations, the MSRB believes the process followed by the Board complies with [840] CMR §15.01(3).

Nonetheless, with the 2020 BVF process, the MSRB has performed the following audit of BVF’s:

  • Reviewed [vendor PBI Research Services’] monthly data to make sure all benefit recipients were properly on initial mailing list;
  • The MSRB’s vendor was directed to randomly pre-select 5% of the BVFs before sending out the first mailing so the MSRB could later verify:
    -The BVF has been reviewed by vendor
    -The BVF was approved/rejected appropriately
    -For those . . . deemed rejected, incomplete, require additional follow-ups or changed demographic information, MSRB staff reviewed and followed up appropriately
    -For those benefit recipients to have been found in the death match from vendor and where the MSRB had not received death certificates, further review of the BVFs to double confirm the death match result.

Auditor’s Reply

As noted above, during its last BVF process, initiated in 2018, MSRB did not audit a random sample of at least 5% of BVFs received. In its response, MSRB delineates extensive verification procedures it performs on these records. However, as stated above, PERAC has determined that MSRB’s verification process does not satisfy the requirement of 840 CMR 15.01(3) that MSRB audit a random sample of at least 5% of BVFs received.

Based on its response, MSRB has taken measures to comply with 840 CMR 15.01(3) for its 2020 BVF process. We urge MSRB to implement our recommendation regarding collaborating with PERAC to evaluate the continuing value of the biennial verification process, given its current death match process.

Date published: January 6, 2021

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