The Association of Public Pension Fund
Auditors started
in 1991 after several audit professionals like yourself, got together
to discuss audit concerns relative to
their public employee retirement systems. They quickly realized that
sharing ideas, audit programs and audit techniques unique to their
environment would make them more productive, effective, and save them time
and money.
The formal Bylaws of the organization identify four major purposes:
Basically, growth has been by word of mouth. The quality of our programs and exchange of information among our members has been enough to help us grow to over 40 member organizations, including most of the largest public employee retirement systems in the country. For the most part, our members represent several different types of public employee retirement systems, including cities, counties, teacher, and combined statewide plans.
For $300 per year, your organization will participate in association that delivers:
Our next professional development conference is scheduled soon! As a bonus for joining, you will receive one free conference registration. Please take this opportunity to become a member of an organization that will be very valuable to both you and your staff. If you have questions, please give us a call.
While they quietly work behind the scenes at many of America's largest public pension operations, the funds they monitor have a loud impact on the financial marketplace. Members of the Association of Public Pension Fund Auditors (APPFA), though small in number, collectively are responsible for internal auditing more than $725 billion (3/4 of a $Trillion) of public pension funds.
'It's a lot of responsibility," acknowledges Steve Harding, one of the association's founders and APPFA's first president. 'In many cases, our members are auditing the largest financial institutions in their state, and among us, we may represent the single largest pool of money in the country.' Harding is principal internal auditor for New York State's pension fund, the second largest in the country after California.
'Most of the training available isn't adequate for the special needs of internal auditors,' adds immediate past-president, David Maurek, Internal Audit Director with the Public Employees Retirement Association of Colorado. 'That's why "PFA is so important. It helps make sure the people auditing these huge funds are constantly sharpening their skills.'
As their roles continue to evolve, internal auditors of public funds describe themselves as everything from watchdogs to teachers. Yet, despite this breadth of perspective on what they do, most share a common view of their unique position.
"We achieve a level of detail in examining pension funds that external auditors are not concerned with," says Harding.
'This is no slight against external auditors, mind you, it's just that they have different responsibilities and thresholds of involvement.' Harding likens the difference to two people examining a large ship. 'The external auditors take the ship out for a cruise, walk the decks, and knock on the hull to be sure it won't sink. We, the internal auditors, go down below and take apart the engine to make sure all the pistons are firing correctly. They look at the big picture, we look at the details."
Expanding on Mr. Harding's analogy, Tom Britting, Chief, Office of Audit Services for California Public Employees Retirement System (CALPERS) says, 'We have to be creative about what we do. If we looked at the engine last year and it seems to be running fine, then we take apart the rudder this year. The single most important skill for an internal auditor is being able to identify which part of a fund to spend your time and energy examining.'
CALPERS is the largest single public pension fund in the country, including management of supplemental fringe benefit programs such as annuitant health care. With an audit universe that includes over 1200 contributing employers, in addition to managing the investment and payment activities, Britting says '... allocating limited audit resources is a full time activity, especially when new audit and accounting issues surface. To do this, we must be creative in our audit planning and in how we work with audit clientele. One of our most recent initiatives is to develop the means to train and work with audit clientele to do Control Self Assessment (CSA). If successful, we believe this will accent our audit coverage in a very positive way.
Another major difference between internal and external auditors is their relationship to the organization being audited.
"By definition, external auditors come in from the outside to look at the pension fund whereas we audit from within the organization we work for,' says Bob Schaefer, current APPFA President, Director of Internal Audit for the State of Wisconsin - Department Employe Trust Funds. "External auditors report to legislators and, indirectly, the members of the fund. We generally report to management and the trustees."
In directly reporting to upper-level management and fund trustees, internal auditors advise decision-makers about potential problems and the ways to correct them.
"This is where APPFA can be so valuable,' points out Brad Feaster, an internal auditor for the Public Employees' Retirement System of Mississippi and APPFA treasurer. "Through the exchange of ideas, all of us can share in the most up-to-date auditing programs and techniques. When I have a question about the best way to accomplish something, I just have to pick up the phone and call another member. If they haven't dealt with a similar question, then at least they know enough about my situation to offer good suggestions."
Schaefer agrees, citing a recently completed audit report, program, and various audit checklists which Frank Berry, Director of Internal Audit for Virginia Retirement System (VRS) has shared with him. "Virginia is one the country's leaders in use of image technology, having installed it several years ago, whereas Wisconsin is just embarking on this major initiative. The Virginia experience, now capsulized in a report, will be invaluable to us. To have an audit program already prepared will save us tremendously."
Steve Hayward, Internal Auditor for State Universities Retirement System of Illinois and APPFA Treasurer, says that sharing audit programs is one of the best benefits of belonging to the organization citing the sharing of ideas on efficient record 'death matches", a process whereby people who have died are purged from the benefit system.
"It may sound kind of morbid," he says, " but it doesn't reflect well on the management of our fund if we're paying retirement benefits to people who are no longer alive. Knowing how other APPFA members in the various large public retirement systems deal with this problem is extremely valuable."
"The highly specialized nature of the group is what makes it so worthwhile," says Linda Henry, Director of Internal Audit for Teacher Retirement System of Texas. "Internal auditing is in itself, a unique form of accountancy - internal auditing of public pension funds is even more specialized, and internal auditing of public pension funds with assets in excess of $1 billion makes it about as specialized an organization as you might ever find."
Joe Vet, Audit, Director of Internal Audit for New York State Teachers' Retirement System, APPFA Vice-President says "Public pension funds are fairly unique because of their complexity. "Their size and diversity of benefit programs and investments makes it tremendously difficult to monitor all their parts. Thus, the process of allocating audit resources is an incredibly selective one. Through our collective experience, we are able to identify microcosms of risk on which internal audit teams should be focussed."
In addition, with cash-strapped governments increasingly looking for "creative" ways to close budget gaps, fund managers and trustees are finding their work garnering more and more attention both from elected officials and the public at large. The APPFA network allows internal auditors to share new ways to help educate their fund managers and trustees.
"The more we educate management about their fiduciary responsibilities for internal controls, the better off we all are," says Mr. Harding. "Fund members, managers, and auditors all benefit from a better directed fund. In fact, as this organization matures, I see us getting more involved in the development of accounting and auditing standards. After all, we are experts on auditing, accounting, and reporting standards for public pension funds." Harding, like many of the internal auditors in APPFA, is a Certified Public Accountant.
APPFA also offers members help in dealing with inter-organizational problems.
While management increasingly views the internal audit function as a highly effective management tool, others in the organization view it as some sort of policing tactic. Changing this paradigm is a top priority for all audit managers. This really has to do with communication and changing perceptions says Mr. Vet.
"The more people understand what we do, the less paranoid they'll feel about having us around,' he says. "In fact, we have changed the way our reports are presented, not to be finger pointers, but advocates for change. What were formerly findings and recommendations are now presented as observations and plans of action, where we work with our audit clientele in coming up with effective solutions." This can be very useful for a department that's been unsuccessfully petitioning management for a change, such as improved computer systems to enhance efficiency. Many times, this stamp of approval from the internal audit department will be helpful."
Mr. Vet notes that while fellow workers used to seldom view auditors without suspicion, this has changed and our organization now accepts the internal audit function as an integral part of the management team. His experience in changing the audit paradigm is one Mr. Vet has shared with fellow APPFA members.
David Maurek has a similar perspective on educating those he is auditing. "In business, people don't like surprises," says Mr. Maurek. "So I let people know up front that it's my job to help eliminate those surprises, or at least identify them and correct them early. People from my fund appreciate this, to the point where they'll suggest areas for me to look at. This openness makes for great internal dynamics." In fact, recently Mr. Maurek showed this by overseeing a major project to assist PERA in planning and refocusing major re-engineering efforts that are currently underway. This is not a traditional audit role, but because of Internal Audit's experience in all aspects of the organization, Mr. Maurek was uniquely qualified. "We must recognize that the audit role will not always follow traditional patterns and be prepared to assist our organizations to move forward in rapidly changing environments. Balancing the need for objectivity and independence is not easy, but if done with an eye for the good of the organization, it can be accomplished.
As well as serving as a clearing house for information, APPFA presents seminars at semiannual meetings in May and November, allowing members to earn required continuing education credits at very low cost. Typical topics include audits of fixed income investments, auditing advisors, client-server audit approach, derivatives best practices, electronic funds transactions, equity real estate audits, federal and state updates on audits and legislation, audits of disability offsets, and topics on the changing role of auditors such as internal controls education for management using control self assessment techniques.
APPFA currently has a membership of 41 from the United States and Canada, over half of which are listed among the top 50 funds in the U.S. Though a majority of members favor steady growth of the organization, most are unwilling to give up the highly specialized requirements of admission.
'There are a number of accounting associations I could belong to,' says Mr. Feaster, "what makes this one so special is that we all face such similar challenges and problems. It's sort of like running into someone from your hometown when you're visiting another country - the connection goes much deeper than just meeting someone who speaks the same language. If we weren't so specific about the makeup of APPFA, I think we'd lose that unique connection."
Founded in May of 1991, as of August, 1996, members included representatives from the following funds and retirement systems: State of Alaska Division of Retirements and Benefits; Arizona Public Employees' Retirement System; California Public Employees Retirement System (CALPERS); California State Teachers Retirement System; Los Angeles County Employees Retirement Association; Public Employees' Retirement Association of Colorado; Illinois Municipal Retirement Fund; Teachers Retirement of Illinois; State Universities Retirement System of Illinois; State Employees Retirement System of Illinois; Public School Teacher's Pension and Retirement Fund of Chicago; Louisiana State Employees' Retirement System; Teachers Retirement System of Louisiana; Maryland State Retirement and Pension System; Massachusetts State Teachers' and Employees Retirement System Trust; Public Employees' Retirement System of Mississippi; Missouri State Employees' Retirement System; New York State Retirement System; New York State Teachers' Retirement System; North Dakota Public Employees Retirement System; North Dakota Retirement and Investment Office; Ohio Public Employees' Retirement System; State Teachers Retirement System of Ohio; Oklahoma Public Employees' Retirement System; Oregon Public Employees' Retirement System; Hospitals of Ontario Pension Plan; Pennsylvania State Employees' Retirement System; Pennsylvania Public School Employees Retirement System; South Carolina Retirement Systems; South Dakota Retirement System; Teacher Retirement System of Texas; Employees Retirement System of Texas; Houston Municipal Employees' Pension System; Utah Retirement Systems; Virginia Retirement System; Washington Department of Retirement Systems; Wisconsin Retirement System - Department of Employe Trust Funds. Associate members, with interest in pension system auditing are California State Controller's Office; Stanford Management Company; Jones Lang Wooton Realty Advisors; Texas State Auditor's Office.