Office of the Legislative Auditor State of Minnesota
Financial Audit
Public Employees Retirement Association Fiscal Year Ended June 30, 2000

DECEMBER 29, 2000 00-54

Financial Audit Division
The Office of the Legislative Auditor (OLA) is a professional, nonpartisan office in the legislative branch of Minnesota State government. Its principal responsibility is to audit and evaluate the agencies and programs of state government (the State Auditor audits local governments). OLA's Financial Audit Division annually audits the state's financial statements and, on a rotating schedule, audits agencies in the executive and judicial branches of state government, three metropolitan agencies, and several "semi-state" organizations. The division also investigates allegations that state resources have been used inappropriately. The division has a staff of approximately fifty auditors, most of whom are CPAs. The division conducts audits in accordance with standards established by the American Institute of Certified Public Accountants and the Comptroller General of the United States.

Consistent with OLA's mission, the Financial Audit Division works to:
Promote Accountability, Strengthen Legislative Oversight, and
Support Good Financial Management.

Through its Program Evaluation Division, OLA conducts several evaluations each year and one best practices review.

OLA is under the direction of the Legislative Auditor, who is appointed for a six-year term by the Legislative Audit Commission (LAC). The LAC is a bipartisan commission of Representatives and Senators. It annually selects topics for the Program Evaluation Division, but is generally not involved in scheduling financial audits.

All findings, conclusions, and recommendations in reports issued by the Office of the Legislative Auditor are solely the responsibility of the office and may not reflect the views of the LAC, its individual members, or other members of the Minnesota Legislature.

This document can be made available in alternative formats, such as large print, Braille, or audio tape, by calling 651-296-1727 (voice), or the Minnesota Relay Service at 651-297-5353 or 1-800-627-3529. All OLA reports are available at our Web Site: http:// www. auditor. leg. state. mn. us

If you have comments about our work, or you want to suggest an audit, investigation, evaluation, or best practices review, please contact us at 651-296-4708 or by e-mail at auditor@ state. mn. us

Public Employees Retirement Association
Table of Contents

Report Summary
Report on Compliance and Internal Control over Financial Reporting
Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 2

Audit Participation
The following members of the Office of the Legislative Auditor prepared this report: Claudia J Gudvangen, CPA Deputy Legislative Auditor Jim Riebe, CPA Audit Manager Scott Tjomsland, CPA Auditor-In-Charge Susan Mady Auditor

Exit Conference
We discussed this report and other issues involving the internal control structure with the following Public Employees Retirement Association staff at an exit conference on December 21, 2000:

Mary Most Vanek Executive Director
Dave DeJonge Manager of Finance
Gary Hovland Senior Accounting Supervisor

Public Employees Retirement Association
Report Summary
Audit Conclusions:
We issued an unqualified opinion on the financial statements of the Public Employees Retirement Association as of and for the year ended June 30, 2000.

We issued a Report on Compliance and Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards. We did not report any material weaknesses involving the internal control over financial reporting and its operation or noncompliance that would be required to be reported under Government Auditing Standards.

Background Information:
The Public Employees Retirement Association (PERA) administers four separate funds: the Public Employees Retirement Fund (PERF); the Public Employees Police and Fire Fund (PEPFF); the Public Employees Correctional Fund (PECF); and the Public Employees Defined Contribution Plan (PEDCP). The PERF covers employees of counties, cities and townships, and employees of schools in non-certified positions. The PEPFF covers police officers and fire-fighters. The PECF, established effective July 1, 1999, covers employees in county correctional institutions who have direct contact with inmates. The PEDCP covers elected local government officials, except elected county sheriffs, emergency medical service personnel employed by or providing service to any of the participating ambulance services, and physicians employed at public facilities.

PERA served approximately 2000 units of government and had 302,958 members in its four funds as of June 30, 2000. At June 30, 2000, PERA administered about $15.6 billion in net assets. For the year ended June 30, 2000, PERA received contributions of about $454.8 million and paid benefits and refunds of about $807.5 million.

During the fiscal year 2000 audit, our work at the Public Employees Retirement Association focused on auditing their financial statements. We reviewed the agency's internal controls and compliance with legal provisions in relation to that objective.

OFFICE OF THE LEGISLATIVE AUDITOR State of Minnesota James Nobles, Legislative Auditor Report on Compliance and Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Mr. Michael G. Schwab, President
Public Employees Retirement Association Board of Trustees

Members of the Public Employees Retirement Association Board of Trustees
Ms. Mary Most Vanek, Executive Director
Public Employees Retirement Association

We have audited the financial statements of the Public Employees Retirement Association as of and for the year ended June 30, 2000, and have issued our report thereon dated December 1, 2000. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Compliance
As part of obtaining reasonable assurance about whether the Public Employees Retirement Association's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, and contracts, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards.

Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Public Employees Retirement Association's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses.

Public Employees Retirement Association

This report is intended solely for the information and use of the Legislative Audit Commission and the Public Employees Retirement Association, and is not intended to be and should not be used by anyone other than these specified parties.

/s/ James R. Nobles /s/ Claudia J. Gudvangen James R. Nobles Claudia J. Gudvangen, CPA Legislative Auditor Deputy Legislative Auditor

End of Fieldwork: December 1, 2000
Report Signed On: December 21, 2000

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