State Board of Investment 03-04
Office of the Legislative Auditor State of Minnesota
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 legislative.auditor@state.mn.us
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
Status of Prior Audit Issues
Audit Participation
The following members of the Office of the Legislative Auditor prepared this report:
Claudia Gudvangen, CPA Deputy Legislative Auditor
Jim Riebe, CPA Audit Manager
Jack Hirschfeld, CPA Audit Director
Ching-Huei Chen Auditor
John Hakes, CPA Auditor
Pat Phillips, CPA Auditor
Alan Sasse, CPA Auditor
Connie Stein Auditor
Heather White Auditor
Exit Conference
We discussed this report and other issues involving the internal control structure with the following State Board of Investment staff at an exit conference on January 17, 2003:
Howard Bicker Executive Director
L. Michael Schmitt Administrative Director
Report Summary
Audit Conclusions
· We issued an unqualified opinion on the financial statements of the Supplemental Investment Fund and the Post Retirement Fund for the year ended June 30, 2002.
· 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 of the United States. 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 Minnesota State Board of Investment (SBI) manages the investment of retirement fund assets of the Minnesota State Retirement System, Teachers Retirement Association, and the Public Employees Retirement Association. SBI also invests funds for other state agencies, including invested treasurer's cash, which is the idle cash in state accounts. At June 30, 2002, SBI administered approximately $45 billion in state assets. SBI uses both internal staff and external money managers to fulfill its responsibilities. The external firms invest and manage the assets of the retirement funds and the assigned risk plan. SBI staff manage the other state investments.
SBI expended $2.2 million in fiscal year 2002 for administrative costs, such as professional contracts, payroll, and for other operating costs, such as rent, supplies, equipment, and travel. SBI charged back its operating costs to the funds receiving the investment services. SBI deposited the reimbursements in the General Fund as nondedicated receipts.
Report on Compliance and Internal Control Over Financial Reporting
Based on an Audit of Financial Statements Performed in Accordance with
Government Auditing Standards
Senator Ann H. Rest, Chair
Legislative Audit Commission
Members of the Legislative Audit Commission
Members of the Minnesota State Board of Investment
Howard J. Bicker, Executive Director
Minnesota State Board of Investment
We have audited the financial statements of the Supplemental Investment Fund
and the Post Retirement Investment Fund of the Minnesota State Board of Investment
as of and for the year ended June 30, 2002, and have issued our report thereon
dated December 6, 2002. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America 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 Minnesota State Board of Investment'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 Minnesota State Board
of Investment'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.
This report is intended solely for the information and use of the Legislative Audit Commission and the Minnesota State Board of Investment, and is not intended to be and should not be used by anyone other than these specified parties.
James R. Nobles Claudia J. Gudvangen, CPA
Legislative auditor Deputy Legislative auditor
End of Fieldwork: December 6, 2002
Report Signed On: January 23, 2003
Status of Prior Audit Issues
As of November 30, 2002
Most Recent Audit
January 17, 2002, Legislative Audit Report 02-02 covered the fiscal year ended June 30, 2001. The audit scope included the investment functions material to the State of Minnesota's financial statements and the Supplemental Investment Fund and the Post Retirement Investment Fund included in the Minnesota State Board of Investment's annual report. We audit SBI on an annual basis. There were no reportable issues in this report.