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California Office of Controller Report: CalSTRS Pension Controls and Mechanisms Lax (September, 2012)

California Office of Controller Report: CalSTRS Pension Controls and Mechanisms Lax (September, 2012)

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Published by wmartin46
The SCO also independently reviewed five school districts for the period of July 1, 2006, through June 30, 2011, to determine whether the districts had controls in place to provide reasonable assurance that pension spiking could be prevented or detected.

The SCO identified the following concerns:
 CalSTRS did not provide adequate oversight of the reporting entities it monitors. For example, at the rate at which audits currently are being performed, each district would be audited only once every 48 years. In addition, CalSTRS’ audit process should have been more effective in detecting pension spiking at its member school districts.

 CalSTRS missed opportunities to increase school district accountability by reducing instances of suspicious or unjustified salary increases (i.e., pension spiking). Our independent review of the San Francisco Unified School District and the San Diego Unified School District concluded that these districts lacked the level of transparency and the necessary controls over
management pay increases that a public entity should exercise on behalf of its constituents. As a result, pension spiking may be occurring at these districts.

 Our review disclosed that CalSTRS did not review or verify the results of electronic edits it put in place to specifically identify potential pension spiking, except when there was an occasional inquiry from other CalSTRS divisions. CalSTRS could better analyze and use electronic information and coordinate its auditing efforts with its newly formed Compensation Review Unit so that audits are focused on higher-risk school districts.
The SCO also independently reviewed five school districts for the period of July 1, 2006, through June 30, 2011, to determine whether the districts had controls in place to provide reasonable assurance that pension spiking could be prevented or detected.

The SCO identified the following concerns:
 CalSTRS did not provide adequate oversight of the reporting entities it monitors. For example, at the rate at which audits currently are being performed, each district would be audited only once every 48 years. In addition, CalSTRS’ audit process should have been more effective in detecting pension spiking at its member school districts.

 CalSTRS missed opportunities to increase school district accountability by reducing instances of suspicious or unjustified salary increases (i.e., pension spiking). Our independent review of the San Francisco Unified School District and the San Diego Unified School District concluded that these districts lacked the level of transparency and the necessary controls over
management pay increases that a public entity should exercise on behalf of its constituents. As a result, pension spiking may be occurring at these districts.

 Our review disclosed that CalSTRS did not review or verify the results of electronic edits it put in place to specifically identify potential pension spiking, except when there was an occasional inquiry from other CalSTRS divisions. CalSTRS could better analyze and use electronic information and coordinate its auditing efforts with its newly formed Compensation Review Unit so that audits are focused on higher-risk school districts.

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Published by: wmartin46 on Sep 06, 2012
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09/06/2012

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CALIFORNIA STATE TEACHERS
 RETIREMENT SYSTEM
Review Report
PENSION CONTROLS AND MECHANISMS
 July 1, 2009, through June 30, 2011
 
J
OHN
C
HIANG
California State Controller
September 2012
 
 
 J
OHN
C
HIANG
California State Controller
September 5, 2012Jack Ehnes, Chief Executive Officer
California State Teachers’ Retirement System
 100 Waterfront PlaceWest Sacramento, CA 95605Dear Mr. Ehnes:The State
Controller’s Office (SCO) reviewed the California State Teachers’ Retirement System
(CalSTRS) for the period of July 1, 2009, through June 30, 2011. The purpose of the review wasto determine whether controls are in place to detect and prevent pension payments based onunusually large or excessive final compensation amounts, commonly known as pension spiking.The SCO specifically reviewed the electronic methods used to identify pension spiking, the auditprocesses used by CalSTRS to oversee its member school districts, and the efforts conducted byits newly formed Compensation Review Unit.The SCO also independently reviewed five school districts for the period of July 1, 2006,through June 30, 2011, to determine whether the districts had controls in place to providereasonable assurance that pension spiking could be prevented or detected.The SCO identified the following concerns:
 
CalSTRS did not provide adequate oversight of the reporting entities it monitors. Forexample, at the rate at which audits currently are being performed, each district would beaudited only once every 48 years. In addition,
CalSTRS’
audit process should have been moreeffective in detecting pension spiking at its member school districts.
 
CalSTRS missed opportunities to increase school district accountability by reducing instancesof suspicious or unjustified salary increases (i.e., pension spiking). Our independent review of the San Francisco Unified School District and the San Diego Unified School Districtconcluded that these districts lacked the level of transparency and the necessary controls overmanagement pay increases that a public entity should exercise on behalf of its constituents. Asa result, pension spiking may be occurring at these districts.
 
Our review disclosed that CalSTRS did not review or verify the results of electronic edits itput in place to specifically identify potential pension spiking, except when there was anoccasional inquiry from other CalSTRS divisions. CalSTRS could better analyze and useelectronic information and coordinate its auditing efforts with its newly formed CompensationReview Unit so that audits are focused on higher-risk school districts.
 
 Jack Ehnes, Chief Executive Officer -2- September 5, 2012If you have any questions, please call Mr. Finlayson at (916) 324-6310, or e-mail him atafinlayson@sco.ca.gov.Sincerely,
Original signed by
JEFFREY V. BROWNFIELDChief, Division of AuditsJVB/mpEnclosurecc: Chris Ford, Chief of Staff California State Teachers
Retirement SystemMaryAnn Campbell-Smith, Chief AuditorCalifornia State Teachers
Retirement System

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