Lax oversight of financial reporting could pose significant problems for the Kentucky Retirement Systems, Auditor Adam Edelen said in a report released Wednesday.
The audit — mandatory once every five years as part of a pension reform bill passed in 2010 — uncovered 19 significant deficiencies in KRS’ internal controls, ranging from erroneous data used to prepare the agency’s financial statement to monitoring contracts.
In a news release, Edelen called the findings “concerning” and said he hoped KRS would heed the audit’s recommendations.
Auditors, who requested 12 contracts to review, found KRS had paid $171,197 to two medical examiners without contracts after the agreements expired in fiscal year 2012. KRS’ accounting department pays contract invoices but does not review the contracts to ensure they are appropriate, according to the release.
“It is inappropriate for a $15 billion agency to not monitor contracts,” Edelen said in the release. “Retirees, state employees and taxpayers need to have confidence that expenditures to outside vendors are proper.”
Many of the recommendations in the audit center on strengthening oversight of financial reporting and segregating job duties.
In one instance, auditors found one KRS employee in charge of all fixed income accounts. That employee had authority to buy, sell and send trade information to KRS’ custodian bank and reconcile the agency’s fixed income accounts.
“In short, errors could occur and not be detected,” the audit reads. “Also, without additional employees responsible for portions of the fixed income investment process, KRS could have problems if the responsible employee resigns or makes an error which could have been prevented by segregating duties.”
KRS agreed with the audit’s recommendations and submitted an action plan moving forward.