Government of Guam Retirement Fund

HIGHLIGHTS
Government of Guam Retirement Fund
Audited Financial Statements

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Highlights of the following reports are provided:
" Audited financial statements fiscal years 1999 and 1998
" Independent Auditors' Reports on Compliance and Internal Control
" Management Letter to the Board of Trustees.

The audits were performed by Burger and Comer in accordance with Government Auditing Standards issued by the Comptroller General of the United States.

Two major areas of concern are: 1) whether the Retirement Fund can, in the long term, meet its annuity payments to retirees and 2) the management deficiencies cited in the Report of Compliance and Management Letter.

The FY 1999 and FY1998 audits were completed at the same time. The FY 2000 audit is still in progress and its delay is an indication of operational problems with the Retirement Fund.

In the 2000 Annual Report of the Retirement Fund, Gerald S.A. Perez, the Board Chairman, stated that the government contributions are short of meeting annuity payments by $110 million annually. The Retirement Fund is only able to meet its current annuity obligations by withdrawing money from the corpus or principal of the fund. The investment portfolio of the Retirement Fund has dropped from $1.4 billion to $1.2 billion in two years.

The 1999, 1998 and 1997 audited financial statements were qualified due to an unreconciled difference between the Defined Benefit and Defined Contribution Plans, which is now down to $421,000. This discrepancy occurred back in 1996 when the Fund began administering the DC plan.

In the Report of Compliance, the independent auditors identified 21 findings of internal control weaknesses and in the Management Letter another 11 areas of control deficiencies. Among the findings are:

1. Dual participation of an elected official in both the Defined Benefit and the Defined Contribution plans (Finding No.
2. Verification of annuitants residing off island has not been made resulting in overpayments to retirees and their beneficiaries. In one case, the overpayment exceeded $100,000 (Finding No. 16.).
3. Service credits improperly calculated (Finding No. 9.).
4. Delay in the remittance of contributions by government agencies has resulted in lost earnings (Finding No. 13.).
5. The collectibility of receivables was not evaluated and now an $8 million reserve has had to be set aside because of the doubtfulness that the sum will be paid by Guam Memorial Hospital Authority (Finding No. 19).
6. The Fund does not employ a Controller who would oversee the day-to-day accounting, accounting for investments, contributions, supervising personnel and the preparation of monthly financial statements (Management Letter).

As required by 1 GCA 1909(f), suggestions for changes in the laws pertaining to the Retirement Fund will be developed by this office and transmitted to the Governor and the Speaker.