SBA Dec. 12 Audit Committee Report

 

On December 12, 2007, the Florida State Board of Administration’s (“SBA’s”) Audit Committee, which consists of three members appointed by the trustees of the SBA, met for the first time to develop an auditing methodology for the Local Government Invest Pool (“LGIP”), which is administered by the SBA. 

The members of the Committee are as follows:  Melinda Miguel, Chief Inspector General (Appointed by Governor Crist); Doug Darling, Accounting and Auditing Division Director (Appointed by CFO Sink); and Kimberly Ferrell, Chief Auditor Medicaid Fraud Control Unit (Appointed by General McCollum).

The meeting was called to order by Chair Miguel who reviewed the charter and relevant Sunshine Laws, making sure that interested parties were aware that the Committee intends to operate in the public domain. 

Noting recent events surrounding the SBA, including the resignation of Executive Director Coleman Stepanovich, Chair Miguel acknowledged the time-sensitive nature of this meeting and the impending audit. 

It is important to note there were less than 10 attendees at today’s meeting.

The meeting essentially followed an agenda that focused on a letter from CFO Sink dated December 10 in which she identified several areas of concern she felt the Committee should investigate in its audit.  To view the letter, click here.

Mr. Darling felt, and the other members agreed, that the CFO has a “special interest” in the audit committee’s proceedings because it is required by statute to report annually on the status of all SBA investments.  This report is due on January 31.

It is important to note that Mr. Darling stated there is a “strong possibility” that an outside auditor may have to be hired to carry out a good portion of the Committee’s charge because of the SBA Office of Internal Audit’s limited staff resources. 

Committee staff also outlined requests made by CFO Sink and the method by which the Committee has asked staff to carry out the investigation. 

The CFO’s requests were:

• What are the LGIP’s investment guidelines and were assets acquired below those guidelines? 
• Who sold the SBA the “distressed assets” in Fund B, when were they purchased, and what were their ratings at the time of purchase?
• When were the “distressed assets” downgraded, and what were the SBA’s actions following these downgrades?
• What are the SBA’s disclosure requirements and policies regarding downgraded assets, and what actions were taken to inform investors?
• How frequently was the SBA communicating with investors, and how much detail was provided to the public about the pool’s investments?
• Was the LGIP investing in riskier assets than communicated to investors or than the pool’s stated objective? 
• What other funds managed by the SBA include these type of investments?
• If other funds do include these “distressed assets”, what actions, if any, are recommended/planned by the SBA?

The final portion of the meeting was devoted to testimony by Linda South, Secretary of the Department of Management Services, who requested that the Committee expand its audit to include the Florida Retirement System’s (“FRS”) Pension Fund.  As the administrator for the program, Secretary South would like to make sure that the FRS’s pension fund is not relying on questionable investments.  The committee agreed with this request, adding that when they were completed looking at the LGIP they would likely be auditing all SBA investment pools including the FRS.

Prior to adjournment, a second meeting was scheduled for December 18, 2007 at 1:30 pm.  To view a copy of the agenda, click here.

 

Should you have any comments or questions, please do not hesitate to contact this office.