Auditors: More miscues managing CT teachers’ retirement system

The state agency that oversees benefits for 32,000 retired Connecticut teachers and their beneficiaries came under fire again Thursday from the state auditors.

While Auditors Robert M. Ward and John C. Geragosian expanded concerns they raised earlier about the Teachers’ Retirement Board’s struggles to deliver benefits, they also criticized the TRB for failing to:

• Reclaim benefits in dozens of cases where money was paid out improperly to the deceased.
• Keep track of $50 million owed to a retirement health care program throughout most of 2012 and 2013.

“The lack of internal controls and accounting procedures is shocking,” Ward told The Mirror. “For an agency that is responsible for $14 billion in assets and over $1.6 billion in receipts and in expenditures, to have the deficiencies they have is really shocking.”

The auditors had sent a letter to Gov. Dannel P. Malloy in late May complaining about the TRB’s chronic failure to collect adequate contact information about beneficiaries. Retired teachers can designate a spouse or other individual to receive their benefits, under certain conditions, after the retiree’s death.

In one instance, the board had not even attempted to search for five years for a beneficiary owed $192,000, the auditors noted in the letter to Malloy.

More than $1.5 billion in total was paid out last year to more than 32,000 retired teachers or their beneficiaries.

TRB Executive Director Darlene Perez responded to the governor on June 6, writing that – despite the one big miss – her agency had failed to deliver teacher pension funds over the past decade in just 15 of more than 7,800 cases involving deaths – a failure rate of less than one-fifth of 1 percent. Those pending cases represent about $1.2 million in undelivered benefits.

A bigger problem

But the auditors’ latest report suggests the scope of the problem was larger.

State Auditors Robert Ward and John Geragosian.

The new audit reports that “as of April 2014, there were a total of 83 deceased retiree member cases under review in the (TRB’s) benefits division in which the board owed money to beneficiaries. Our review of 11 of these cases disclosed a total of $520,203 in unrecorded liabilities.”

Perez said Thursday that most of these additional cases cropped up after the auditors began reviewing her agency, and that the numbers she reported to Malloy covered a decade before the audit period, which began last spring.

Perez told the Mirror back in late May that her agency’s resources, “are at an extreme low,” and the agency is particularly in need of updated software – concerns she reaffirmed on Thursday.

The Teachers’ Retirement Board is one of the smallest agencies, both in terms of funding and staffing, in state government.

Though this year’s board budget technically is just over $1 billion, most of those funds involve benefits for members. The agency has an operations budget of just under $2.3 million with 27 full-time positions, 21 of which currently are filled.

A second concern raised in the latest audit involves 51 cases that the board had under review, as of April 2014, involving $434,709 in benefits improperly paid out after retirees’ deaths.

In 47 of the 51 cases, the auditors wrote, no collection effort had been made in the prior 10 months.

The TRB wrote in its formal response to the auditors that “the identification of a decedent is a difficult issue for pension systems.”

Some families report deaths to the board, which also receives notifications in some cases from the federal government. The TRB also employs a death identification service provider.

Still, “efforts are underway to reorganize the function within the accounting division,” the agency wrote.

$53 million due

The final major concern raised by the auditors involves the premium retired teachers pay for their health care – a fee that is deducted from their regular pension payments.

The board, in turn, must deposit those premiums into the retiree health fund.

But Ward and Geragosian wrote that those premiums were not transferred into the retiree health fund from February 2012 “until the (TRB) was notified by our staff in November 2013.”

At one point, more than $53 million was due to the health fund, the auditors wrote.

Eventually the matter was reconciled and the full amount was transferred out of the pension program and into the health fund.

But state legislators and the governor build the state budget – including contributions for both components of the teachers’ retirement benefits system – based on the balances reported by the TRB.

The board is in violation of state accounting manual requirements “as well as those of reasonable business practice regarding the proper identification and recording” of funds owed to system, the auditors wrote.

Perez said Thursday that her agency had kept track of the health-care premiums on an internal system, but failed to record the funds properly on the central statewide accounting network.