A lack of internal controls on Arizona’s Public Safety Personnel Retirement System was publicized during a recent revelation brought to the attention of the pension’s board on January 8.
“It appears that some of the previous staff may have failed to adequately communicate information to the Board as it related to the financial books and records of the System as well as the systems to manage and maintain those records,” said the report, authored by the pension’s board.
“The Board was also unaware of what appears to be substantial differences in the internal controls for those records at the system,” the report added.
The lack of internal controls led to overstated employer contributions and understated employee contributions. This was caused in part by large turnover numbers in key positions, a change in financial reporting databased, manual entry of data, and a lack of documented policies and procedures for month-end and year-end closing,
“These are very troubling issues, and we felt disclosure was needed,” said PSPRS board member Harry Papp, according to Arizona Central.
Other issues included an overstatement of the pension’s net appreciation in fair value and investment expenses, cash and short-term investments being reported as other receivables. There were also investment fees related to the subsequent fiscal year being paid and recorded as investment expenses in the current fiscal year.
The system was recommended to “design and implement effective internal control procedures to ensure the financial statements are free from misstatements and consistent with accounting policies; additionally, the system should allocate the necessary staffing and information technology resources to implement and maintain controls and procedures for month-end and year-end closing,” the report said.
Management of the pension agreed with the recommendations and said they’ve already taken numerous steps to correct those issues. “The staff members that may have been involved with these duties and responsibilities are no longer employed by the system or have been placed on administrative leave,” the board said in a letter.
They’ve also hired a new qualified administrator, realigned the reporting structure, and hired another firm to provide a greater level of review. They established a separate audit committee to “identify and resolve as soon as possible perceived deficiencies with financial record-keeping and internal controls.”
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