Pension system audit finds rule violations

Working on problems, new chief says

— The Arkansas Teacher Retirement System paid for services before entering into contracts, apparently violating state regulations, contract law and sound business practices, according to an audit released late Monday.

The state Division of Legislative Audit also reported finding that the system failed to deposit checks in a timely manner, extended mortgages without proper approval, and lacked proper computer security. The audit covered fiscal 2008 when the system's executive director was Paul Doane, who resigned last year after complaints by legislators over his travel expenses.

George Hopkins, the former state senator from Malvern who replaced Doane, said he's been working to correct the problems found in the audit.

"In virtually every case those audit findings were first discovered by ATRS staff after I arrived," Hopkins said.

Hopkins said he's never talked to Doane, who kept a home in Harwich, Mass., while working in Arkansas. Hopkins said he doesn't know how to reach Doane. A message left at a number listed in Doane's name in Harwich wasn't returned late Monday.

According to the audit:

Franklin Park Associates LLC, an investment consultant, was paid for $100,000 of work performed before its contract was executed Nov. 25, 2007. The firm told auditors that system staff "instructed the firm to leave out dates on the first invoice in an effort to avoid confusion." Arkansas Code Annotated 19-11-1011 "states no payment shall be made for services rendered prior to the execution of a contract," auditors said.

In a similar situation, Ennis, Knupp and Associates, an investment manager, provided invoices for $93,000 for work performed before the execution date, which was also Nov. 25, 2007.

DLA Piper LLC, a law firm, was hired without seeking board approval or obtaining approval from the attorney general's office. The firm submitted bills for $28,000.

One hundred and nineteen checks from school districts weren't deposited for at least seven days after being received by the system. The checks totaled $9.4 million. Four checks were held for 41 days. Some checks were placed in the wrong files.

Doane signed mortgage modifications for three loans without proper review or approval from the system board's investment committee.

Computer passwords didn't adhere to the state's standard requiring them to be changed every 90 days and be a mixture of numbers and letters.

Hopkins said checks are now being deposited multiple times each day and there are more electronic transfers eliminating the need to take many checks to the bank.

He said nearly all of the system's computer passwords have been changed and he's doing his best to make sure all real estate issues are reported to the board. But he acknowledged one case in which one was not reported to the board under his watch.

"I've tried to report all failures of ATRS including my own," he said.

The system includes about 69,000 working members and about 25,000 retirees who are paid annual retirement benefits of about $480 million.

Doane was director from April 2007 to October 2008. Auditors last year found his outof-state travel totaled $34,000. He traveled out of state on 115 of 246 workdays over 13 months and received reimbursement for 18 trips to Boston and three to New Mexico.

Northwest Arkansas, Pages 7, 12 on 09/22/2009

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