Audit Report on the Board of Education Retirement System’s Financial and Operating Practices and Board Governance

Audit Impact

Summary of Findings

The audit found that the Board of Education Retirement System’s (BERS) Board and standing committees maintained appropriate oversight over BERS’ investment practices. However, the audit found inadequate board governance, and poor oversight over financial and operating practices.

BERS’ Bylaws fail to outline essential aspects of governance. Additionally, BERS lacks procurement policies specific to its objective and has no written guidance regarding use of the agency’s credit card.

The audit also found that BERS violated citywide travel policies and did not perform bank reconciliations monthly.

Intended Benefits

This audit identifies areas in which BERS should improve oversight over its financial and operating practices and create a strong governance structure.

Introduction

Background

BERS is one of five New York City (City) retirement systems that provides benefits to retired members. BERS was founded in 1921 to provide retirement benefits for civil service employees permanently employed by the City and School District of New York, other than those who may retire under the provisions of other retirement laws. BERS has since expanded to include other employees, such as provisional and part-time employees of the Department of Education (DOE) and other covered employers.

The head of the retirement system is the Board of Trustees (Board). The Board establishes the policies for the pension’s business administration and transactions and for the control of funds. The Board consists of 23 Panel for Educational Policy (PEP) members, the Chancellor, the Comptroller, and two employee-members elected by the membership.

To properly execute its mission, BERS must responsibly steward City funds. This includes compliance with City regulations and applicable guidance, including Comptroller’s Directive 1 – Principles of Internal Control, Comptroller’s Directive 6 – Travel, Meals, Lodging, and Miscellaneous Agency Expenses, and Comptroller’s Directive 13 – Payroll Procedures.  Each of these directives has been issued pursuant to the Comptroller’s authority in Chapter 5 §93(h) and §93(m) of the New York City Charter.

According to the Fiscal Year (FY) 2023 Annual Comprehensive Financial Report (ACFR), BERS’ administrative expenses totaled $37,026,784, which included $18,668,568 in Personal Service (PS) expenditures and $18,358,216 in Other Than Personal Service (OTPS) expenditures.

Objectives

The objectives of this audit were to determine whether BERS has adequate and effective internal controls over its financial and operational practices and whether its Board of Trustees and standing committees maintained appropriate oversight over BERS in accordance with relevant rules, laws, regulations, and its own Bylaws.

Discussion of Audit Results with BERS

The matters covered in this report were discussed with BERS officials during and at the conclusion of this audit. An Exit Conference Summary was sent to BERS and discussed with BERS officials at an exit conference held on June 6, 2024. On July 1, 2024, we submitted a Draft Report to BERS with a request for written comments.

We received a written response from BERS on July 15, 2024. In its response, BERS reported that it implemented or planned to implement five of the report’s six recommendations. Regarding the recommendation to establish policies and procedures for the use of agency credit cards, BERS reported that it has not had an agency credit card since October 2022. Further, BERS stated that it would not have a credit card until policies and procedures are put in place.

In its response, BERS also stated that it “disagrees with the general characterization that BERS is poorly governed and administered,” citing the results of a recent administrative review,  consistently receiving the Government Finance Officers Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting, and historical  investment returns. While the audit found that BERS’ Board and standing committees maintained appropriate oversight over BERS’ investment practices, BERS had inadequate board governance, and poor oversight over financial and operating practices.

In addition, BERS stated the report did not consider documentation provided to the audit team after the exit conference. However, the audit team reviewed and considered such documentation and modified the report as necessary when sufficient, appropriate evidence was provided.

BERS’ written response has been fully considered and, where relevant, changes and comments have been added to the report.

The full text of BERS’ response is included as an addendum to this report.

Detailed Findings

The audit found that BERS’ Board and standing committees maintained appropriate oversight over BERS’ investment practices. However, the audit found inadequate board governance, and poor oversight over financial and operating practices.

Unlike the City’s other pension systems, BERS’ Bylaws fail to outline essential aspects of governance such as board duties, rules and regulations governing the pension system, and financial matters. BERS also lacks defined procurement policies and has no written guidance regarding use of the agency’s credit card.

The audit also found that BERS violated citywide travel policies and performed bank reconciliations only once a year instead of monthly, contrary to what it reported in its Directive 1 filing.

These issues are detailed below in the following sections.

BERS Is Poorly Governed

Inadequate Bylaws

BERS’ Bylaws do not sufficiently outline Board responsibilities for governing the pension system. The auditors compared BERS’ Bylaws to the bylaws of the City’s four other pension systems and found they do not provide guidance in key areas, such as a list of trustees and officers, duties of the Board, rules and regulations governing the pension system, and financial matters.

As best practice, bylaws should serve as an internal operating manual for effective board governance. Based on the auditors’ comparisons of BERS’ Bylaws to those of the City’s other four pension systems, BERS’ Bylaws should include, among other things: (1) rules and regulations governing the pension system; (2) membership/appointment to the Board; (3) duties of the Board; (4) appointment and duties of committee members (i.e., fiscal and investment); (5) authority to hire an executive director and other executive members; (6) order of business; (7) financial matters; (8) rules defining conflicts of interest; and (9) the number of members required to constitute a quorum.

However, BERS’ Bylaws do not include this comprehensive framework for governance; the Bylaws are silent on all 9 of the areas listed above, and cover only the location, date, and approximate time of Board meetings and the methods by which the Board’s Chairman and Vice Chairman are elected. BERS’ Board does not have clear direction to fulfill its fiduciary responsibilities to the members of the pension system. Without defined duties, the members of the Board and BERS’ executives are operating without adequate guidance and without accountability.

In its written response, BERS officials stated that BERS trustees receive instructions and training, and that new trustees are provided with an onboarding package which includes the duties of the BERS Board of Trustees. BERS provided the auditors with rules and regulations which cover items 1 through 3, and 9, above. BERS did not provide any documentation that addresses items 4 through 8, and the existence of such materials does not obviate the need for these to be codified and adopted in bylaws. As previously stated, as best practice, bylaws should serve as an internal operating manual for effective board governance. The recommendation that BERS include the abovementioned items in its bylaws, stands.

No Internal Procurement Policies and Procedures

The auditors found that BERS does not have internal procurement policies specific to its operations. According to BERS officials, the agency follows a combination of the Procurement Policy Board (PPB) and DOE procurement regulations, but there is no written guidance to specify what the rules and regulations require and how they are applied within BERS.

A 2022 internal audit cited BERS’ fiscal unit for the lack of set procurement policies and procedures. The report recommended that BERS “prioritize the development and implementation of a procurement framework with formal policies and procedures.” According to BERS officials, internal procurement policies and procedures were being developed and should have been completed by June 2023; however, a year later, BERS has no internal procurement policies and procedures specific to its operations.

BERS officials may receive procurement guidance from both the PPB and DOE procurement regulations. However, the purpose of internal policies and procedures is generally to ensure that agencies have a plan for ensuring rules and regulations are consistently followed and that certain steps are always taken. Without such internal guidance, BERS is at risk of missing key steps in the process and is unable to ensure consistent interpretation and application of the rules within the agency. Additionally, the lack of policies and procedures may lead to issues in timeliness and cost when procuring goods and services.

Violations of Citywide Travel Policy

The audit found that BERS administrators—specifically the Executive Director and Deputy Executive Director—paid for Uber trips, multiple long-distance conferences, and hotel stays using BERS’ credit card, passing on costs to BERS members, in direct violation of New York City’s allowable travel policies as they appear in Comptroller’s Directive 6. The New York City Charter Chapter 5, §93 gives the Office of the New York City Comptroller the authority to establish directives and memoranda regarding accounting and reporting requirements for all City agencies. The purpose of this is to establish uniform standards that ensure the efficient and effective operation of City agencies and the appropriate use of public funds.

Comptroller’s Directive 6 states that expenditures for employee travel, agency provided meals, and refreshments are often targets of abuse and should be the subject of careful agency scrutiny. However, in the below-mentioned instances, BERS paid for employees’ travel expenditures without the scrutiny prescribed by the Comptroller’s Directive 6, resulting in an uneconomical use of public funds.

Transportation Guidelines

Comptroller’s Directive 6 – Travel, Meals, Lodging, and Miscellaneous Agency Expenses states that employees “must make every effort to use Public Mass Transit or the most efficient and economical alternate means of travel for transportation purposes” whether they are traveling locally or long-distance. Alternate means of transportation may be appropriate in limited circumstances “when travel is required outside the normal operating hours of Public Mass Transit […] or when any employee, either managerial or non-managerial, is required to work three hours or more of overtime and the Workday, including the overtime, ends after their official working hours and this results in travel between 8:00 p.m. and 6:00 a.m.” Further, all long-distance travel must be approved and generally subjected to a higher level of scrutiny.

The audit found that BERS administrators paid for Uber trips and purchased business class train tickets using BERS’ credit cards—instead of using public transportation for their local travel and general seating on Amtrak as required by Comptroller’s Directive 6. Further, BERS did not preapprove long-distance travel, and in fact, BERS lacks a mechanism for approval of travel expenditures made by the Executive Director and Deputy Executive Director. This effectively means they are able to travel, at members’ expense, as they desire.

BERS’ Executive Director and Deputy Executive Director made 58 Uber and Amtrak trips incurring expenses totaling $2,528 which were paid for by the pension fund in FY 2022. These expenditures included, among other transactions, the following:

• 54 Uber trips from personal home addresses to the airport, the airport to hotel lodging for conferences, and from the airport to personal home addresses, totaling $1,974. If public mass transportation was considered and used for those 54 Uber trips, it would have cost BERS an estimated $312, saving BERS $1,662; and
• 4 round-trip business class Amtrak tickets for BERS’ Executive Director, totaling $554. Comptroller’s Directive 6 requires that all travel arrangements must be booked at the most economical pricing.

Separately, a business class Amtrak ticket was purchased using BERS’ credit card for a Board member. Although this expense is allowable, it does not reflect economical travel. Comptroller’s Directive 6 § 2.8 states that “when an agency pays costs for individuals providing pro bono services or who otherwise incur costs on behalf of the City, the Directive’s rates should be followed.” These require general seating.

In FY 2023, BERS’ Executive Director and Deputy Executive Director made 25 Uber and Amtrak trips incurring expenses totaling $1,474 which were paid for by the pension fund. These expenditures included, among other transactions, the following:

• 22 Uber trips from personal home addresses to the airport, the airport to hotel lodging for conferences, and from the airport to personal home addresses, totaling $1,036. If public mass transportation was considered and used for those 22 Uber trips, it would have cost BERS an estimated $145, saving BERS $890; and
• 3 round-trip business class Amtrak tickets for BERS’ Executive Director, totaling $438.

In addition to using BERS’ credit card for Uber trips to and from a home address and the airport, BERS’ Executive Director and Deputy Executive Director also purchased business class Amtrak tickets for Board members. Pursuant to Directive 6, if more economical means of transportation were available, these charges should have been disallowed.

In its response, BERS stated that Directive 6 permits the use of taxis/rideshare services in certain circumstances, including when employees must transport heavy or bulky items and for “transportation to or from an airport or transportation hub or other transit station or connection, when Public Mass Transit, courtesy transportation, or other more economical means is deemed to be inappropriate or is unavailable.” BERS also stated that business class tickets “were purchased in very limited circumstances where no Coach fare was available, and it was not practicable to take the next train where a Coach fare was available.” Further, BERS stated that such travel expenditures were reviewed and approved.

As previously stated, Directive 6 states that when traveling, “employees must make every effort” to use mass transit or the most efficient and economical alternate means of travel. Further, when mass transit is not practical, “the use of alternate means of transportation must be authorized in writing by the employee’s supervisor.” However, BERS did not use mass transit or available courtesy transportation in connection with any long-distance travel. Based on available documentation, courtesy transportation to and from the hotel was offered but not used for at least three of the 22 cited instances. In addition, BERS did not provide written authorizations for alternate transportation for any of the cited trips.

Regarding rail travel, Directive 6 states that coach service should generally be used and that other service “is only permitted when it is the only scheduled train that would enable travelers to arrive in time for the start of meetings” or when another business or financial benefit to the City can be demonstrated. However, BERS officials did not provide evidence that coach fares were not available, and that business class travel was necessary to arrive on time or demonstrate another benefit to the City. BERS also did not provide approvals for business class travel.

Limits on Long-Distance Conference Attendance

Comptroller’s Directive 6 states that individual employees may not attend more than two discretionary conferences that require long-distance travel each year. The purpose of the limitation is to reduce the number of times employees engage in long-distance travel each year.

However, the Executive Director, Deputy Executive Director, and a single (unnamed) BERS employee collectively attended 20 conferences in FY 2022, at a total cost to the pension fund of $39,172, as shown in Table I below.[1]

Table I: FY 2022 Long-Distance Conference Costs

BERS did not have adequate controls over its long-distance conference travel in FY 2022, including basic ones such as obtaining preapprovals and documenting justifications for such travel. Moreover, attendance documentation (i.e., conference registration; agenda) was provided for only 11 of the 17 conferences; no proof of attendance was provided for the remaining six, other than Uber receipts for rides BERS claimed were associated with conferences.

Similarly, in FY 2023 the above-mentioned individuals collectively attended 10 conferences, at a total cost to the Fund of $21,858, as shown in Table II below.

Table II: FY 2023 Long-Distance Conference Costs

The auditors obtained attendance documentation (i.e., conference registration; agenda) for eight of the ten conferences; no proof of attendance was provided for the remaining two, other than Uber receipts for rides BERS claimed were associated with conferences.

As there is no preapproval process, there is no documented justification for attending any of the conferences, and an open question therefore remains as to what extent these were directly related to the individuals’ core functions, to what extent BERS or the City would benefit from their attendance, and whether these were necessary and prudent expenditures.

In its response, BERS stated that while most BERS staff do not attend more than two conferences per year, certain officials, such as trustees and executive management, may attend more conferences because they may require continuous education regarding responsibilities, trends, and industry practices. In addition, those officials may meet and engage with other government officials and source diverse investment managers at conferences.

BERS also stated that “[l]ong-distance conference travel was pre-approved via the BERS budget,”  and that BERS implemented a Post-Conference reporting form to document how conference topics relate to employees’ daily functions.

As previously stated, Directive 6 states that, generally, “employees may not attend more than two discretionary conferences that require long-distance travel each year.” Directive 6 provides only limited exclusions for general business meetings, non-discretionary conferences, and trips that do not require City expenditure, and does not provide exclusions based on employees’ titles or roles.[3]  Each of the cited conferences was discretionary and therefore subject to conference limits.

Furthermore, approval of the BERS budget and line items for conferences and travel does not constitute approval of individual employees’ travel requests. Additionally, BERS did not require employees to submit post attendance reports until January 2023.

Long-Distance Accommodation Requirements

In FY 2022, BERS’ Executive Director and the Deputy Executive Director booked nine hotel accommodations for 14 conferences, totaling $7,849 using the BERS credit card. Auditors expected to find lodging expenditures for the remaining five long-distance conferences attended, but BERS did not provide any. Without any proof of hotel accommodations, this raises concern whether the Executive Director and the Deputy Executive Director in fact attended these conferences. Another four accommodations totaling $4,775 were booked for BERS board members without any preapproval documentation or justification for these reservations.

Similar issues were found in BERS’ FY 2023 long-distance travel accommodations. The Executive Director and Deputy Executive Director booked four hotel accommodations for six conferences, totaling $2,644, using the BERS credit card. One of the six conferences occurred virtually; therefore, a hotel accommodation was not necessary. For the remaining conferences, BERS did not provide any documentation for lodging expenditures. Again, without any proof of hotel accommodations, this raises concern about whether the Executive Director and the Deputy Executive Director in fact attended these conferences.

BERS lacks assurance that these expenditures served a City business purpose and that they did not constitute prohibited personal purchases. Questions remain as to what extent these conferences were directly related to the individuals’ core functions, to what extent BERS or the City would benefit from their attendance, and whether these were necessary and prudent expenditures.

Approval of an expense by the designated agency official is supposed to validate the necessity and reasonableness of the expense and the availability of the funds. Conversely, payments made and expenses incurred without the required approval or with an approval granted after the fact reflect poor internal controls and expose the agency to a heightened risk of misuse of City funds.

In its response, BERS stated that evidence of conference attendance was provided. BERS also stated that, in certain cases, hotel costs were billed by the conference host and therefore there were no reimbursement requests from the attendee. In another case, there were no hotel costs because “the US Government paid for lodging.”

However, BERS did not provide sufficient, appropriate evidence of conference attendance and did not provide documentation to show that hotel costs were billed by conference hosts or covered by the federal government.

In addition, BERS did not provide documentation to show that it complied with the City’s conflict of interest law and rules related to accepting travel and travel related expenses from third parties. Employees may accept such expenses only if each of the following conditions are met: (1) the trip is for a City purpose, (2) travel arrangements are appropriate to that purpose, (3) the trip is no longer than necessary to accomplish that purpose, (4) the employee submitted a detailed itinerary which documents the business purpose and received approval in advance, and (5) solicitation and reporting of expenses comply with the Conflict of Interest Board Rules.

Reimbursements for Long-Distance Travel

Comptroller’s Directive 6 states that to obtain reimbursement for travel costs, employees “must submit a claim reimbursement form […] submit reimbursement requests within ten business days after the later of incurring the expenditure or returning from a trip, [and] file a post attendance report.” However, BERS did not have adequate internal controls over its reimbursement process and did not fully comply with the requirements set forth in Comptroller’s Directive 6 §18.

The auditors found that during FY 2022, 17 BERS employees and Board members attended 22 long-distance conferences. In 3 of the 22 instances, employees and Board members did not submit a reimbursement request in a timely manner, and in 16 instances employees and Board members did not provide a post attendance report as required. Despite not having all the required documentation, BERS still approved the reimbursement requests it received.

After the auditors discussed the findings with BERS, officials stated that it did not require employees to submit post attendance reports until January 2023. However, pursuant to Comptroller’s Directive 6, BERS should have always required employees and Board members to submit the post attendance report in order to obtain reimbursement.

Similarly, in FY 2023, 23 employees and Board members attended 21 long-distance conferences. In 9 of the 21 instances, reimbursement requests were submitted late, and employees and Board members did not provide a post attendance report as required.

BERS should not pay or incur any expenses, including for travel and conferences, without receiving all necessary documents required to approve a reimbursement claim. Furthermore, approving expenses incurred and making payments for those expenses without the required proof reflect poor internal control and expose the agency to a heightened risk of misuse of City funds.

No Policies and Procedures Regarding the Use of BERS’ Credit Card and Reimbursement Practices for Long-Distance Travel Expenses

According to the Citywide P-Card policies and guidelines, while travel is an allowable expense, a separate card should be issued specifically for travel. However, BERS does not have a separate travel P-Card. Instead, cardholders use the agency-issued credit card for travel and other transactions. There is no written guidance pertaining to its use or storage of these credit cards.

As detailed above, BERS did not adequately monitor or approve travel expenses charged to the credit card; it did not ensure compliance with all City and agency purchasing guidelines and policies—it did not provide written approval to cardholders prior to purchases, ensure that cardholders provided supporting documentation for all transactions, or ensure that travel conformed to fiscal policy.

Due to BERS’ lack of internal policies and procedures for travel and credit card usage, there was little to no oversight or restrictions on expenses incurred on the agency’s credit card during travel by the Executive Director and Deputy Executive Director. Therefore, BERS cannot be assured that its credit cards are used appropriately and in accordance with Comptroller’s Directive 6. Heightened risk of fraud is also a concern when there is no designated managerial-level employee or Board member to approve travel requests and expenditures.

Bank Reconciliations Are Not Performed in a Timely Manner

Comptroller’s Directive 11 – Cash Accountability and Control states that bank reconciliations must be performed, signed, and dated by the preparer each month. In its Directive 1 filing, BERS reported that the agency’s bank accounts are reconciled within 30 days of the statement date. However, the auditors found that reconciliations for five of BERS’ bank accounts were conducted only once at the end of each fiscal year.

BERS officials acknowledged that reconciliations were not completed monthly and stated that staffing issues impacted their ability to do so on a consistent basis. However, without monthly reconciliations, BERS cannot ensure that the City’s/Pension’s revenues and expenditures are properly accounted for. The lack of monthly reconciliation also increases the risk of misappropriation.

Recommendations

To address the abovementioned findings, the auditors propose that BERS:

1. Update its Bylaws and include, among other things: (1) rules and regulations governing the pension system; (2) membership/appointment to the Board; (3) duties of the Board; (4) appointment and duties of committee members (i.e., fiscal and investment); (5) authority to hire an executive director and other executive members; (6) order of business; (7) financial matters; and (8) rules defining conflicts of interest.

BERS Response: BERS agreed with this recommendation and stated that “Management will propose revisions to the Board’s bylaws in Q2 of FY25.”

2. Create internal procurement policies and procedures specific to its operations. Those policies and procedures should include the recommendations cited in BERS’ 2022 Internal Audit Report.

BERS Response: BERS agreed with this recommendation and stated that “BERS management will have a draft of BERS-specific procurement rules prepared for review and approval in Q3 of FY25.”

3. Establish internal policies and procedures regarding the use of agency credit cards.

BERS Response: BERS agreed with this recommendation and stated that “BERS has not had a credit card available for agency use since October 2022. BERS does not have an agency credit card and will not have an agency credit card until policies and procedures regarding the usage of such card have been put in place.”

4. Create an internal travel policy that outlines the process for requesting, approving, funding, and reimbursing travel expenses in compliance with Comptroller’s Directive 6.

BERS Response: BERS agreed with this recommendation and stated that “BERS issued a Long-Distance Travel Policy and Long-Distance Travel Request form in June 2024.”

5. Designate an agency-approved, executive managerial-level employee to pre-approve travel requests made by the Executive and Deputy Executive Directors.

BERS Response: BERS agreed with this recommendation and stated that “BERS has appointed the General Counsel to review and pre-approve travel requests made by the Executive and Deputy Executive Directors. In addition, such requests will be reviewed and approved by the Director of Contracts and Procurement and Director of Fiscal Operations.”

6. Perform bank reconciliations each month.

BERS Response: BERS agreed with this recommendation and stated, “We have recently onboarded an employee whose responsibilities will include performing detailed bank reconciliations in Q1 of FY25.”

Recommendations Follow-up

Follow-up will be conducted periodically to determine the implementation status of each recommendation contained in this report. Agency reported status updates are included in the Audit Recommendations Tracker available here: https://comptroller.nyc.gov/services/for-the-public/audit/audit-recommendations-tracker/

Scope and Methodology

We conducted this performance audit in accordance with Generally Accepted Government Auditing Standards (GAGAS). GAGAS requires that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions within the context of our audit objective(s). This audit was conducted in accordance with the audit responsibilities of the City Comptroller as set forth in Chapter 5, §93, of the New York City Charter.

The Comptroller is one of the 27 Board of Trustees members by virtue of his office. The Comptroller sits on the BERS Board through a designated representative. Neither the Comptroller nor his representative on the BERS Board was involved in the audit process.

The scope of this audit was July 1, 2021 through June 30, 2022.

To achieve the audit objectives, the auditors evaluated BERS’ internal controls and reviewed the recommendations made in prior internal audit reports. Auditors documented the results through narrative memoranda and used these items to determine the areas that required further testing.

To obtain an understanding of the policies, procedures, and regulations governing BERS, the auditors reviewed and used as criteria the following documents:

• New York State Retirement and Social Security Law
• The New York Consolidated Laws, Education Law, EDN § 2575
• Chapter 503 of the NYS Laws of 1920
• Bylaws of the Board of Education Retirement System
• Panel for Educational Policy (PEP) Bylaws
• Comptroller’s Prequalified List of Auditors
• Comptroller’s Directive 1, Principles of Internal Control
• Comptroller’s Directive 6, Travel, Meals, Lodging, and Miscellaneous Agency Expenses
• Comptroller’s Directive 11, Cash Accountability and Control
• Comptroller’s Directive 13, Payroll Procedures
• Board of Education Retirement System Terms and Conditions

To gain a general understanding of BERS’ internal controls and financial and operating practices, the auditors conducted interviews with the Director of Internal Audit, Director and Deputy Director of Fiscal Ops, Supervisor of Disbursements & Accounts Payable, Supervisor of Financial Reporting, Supervisor of Accounting and Banking Services, and the Director and Deputy Director of Investment Strategy.

To obtain an understanding of the policies, procedures, regulations, and duties of the Board, the auditors conducted an interview with Board members and reviewed the Bylaws, BERS’ rules and regulations, internal audit reports, organizational charts, financial statements, board meeting minutes, meeting agendas, YouTube recordings of board meetings, and committee documentation.

To gain an understanding of the financial record keeping practices, the auditors interviewed the Deputy Director of Fiscal Operations, Supervisor of Accounting & Banking Services, Supervisor of Financial Reporting, and Supervisor of Disbursements & Accounts Payable. The auditors also conducted a meeting with the Fiscal Unit to observe how the recordkeeping software (NetSuite) was used to process (1) Cash Receipts (City funds only) and (2) Cash disbursements.

To determine the reliability of its accounting management software, NetSuite, the auditors obtained BERS’ general ledger and trial balance in Excel format and traced all transactions and accounts on the general ledger to the trial balance to ensure completeness and accuracy.

To further obtain an understanding of BERS’ finances and ensure that its external auditor was on the Comptroller’s Prequalified List of Auditors, as required, the auditors obtained and examined the audited financial statements and audit reports produced by Baker Tilly Virchow Krause, LLP, BERS’ internal audit consultants.

To determine whether BERS’ Bylaws were adequate and provided sufficient guidance to the Board, the audit team obtained and reviewed the bylaws from the Teacher’s Retirement system, Police Pension Fund, Fire Pension Fund, and the New York City Employee Retirement system. The audit team compared the system’s Bylaws to determine the guidance provided in each Bylaw to the system’s Board.

To ensure that BERS’ Board and standing committees maintained proper oversight of BERS, the auditors requested all subcommittee meeting documentation, including minutes and attendance records. The auditors verified that meetings were held at their pre-determined times and that those meetings contained a quorum of board members present.

To ensure that BERS complied with Comptroller’s Directive 6 – Travel, Meals, Lodging, and Miscellaneous Agency Expenses, the auditors requested, obtained, and reviewed all credit card and office reimbursements expenditures, receipts, and statements related to conferences, travel, meals, and lodging. The auditors reviewed all travel expenditures and reimbursement requests related to airfare, Amtrak tickets, hotel invoices, Uber, taxi rides, and meals to ensure that all expenditures fell within the purview of Comptroller’s Directive 6. The auditors also reviewed BERS’ employee conference attendance during FY 2022 and FY 2023 to determine whether employees complied with Comptroller’s Directive 6 § 7 – Long-Distance Travel Restrictions and Limitations requirements.

To determine the appropriateness and accuracy of payments made to Vitech for BERS’ subscription to the new enterprise resource management system, the auditors reviewed the License Agreement and Service Agreement to ensure payments to Vitech were in accordance with its agreement. The auditors requested and obtained any necessary source documents, invoices, and other support documentation. The auditors then created a detailed schedule from the source documentations, detailing all funds paid to Vitech during FY22. The auditors were successfully able to trace the payment amounts to the General Ledger. After finding irregularities with the number of support hours purchased by BERS, the auditors then determined the appropriateness of the amount of service hours purchased by reviewing all invoices, change orders, and work orders from FYs 2021 through 2023. The auditors used the invoices, change orders, and work orders to calculate the total number of service hours BERS purchased and compared them to the total number of hours in a year and the total number of hours during their contractually-stipulated time periods to provide service – Monday through Friday from 9:00 am to 7:00 pm.

To ensure that V3locity was functioning properly, the auditors conducted walkthrough meetings with the Director and Deputy Director of IT, the Director and Deputy Director of Fiscal Operations, the Supervisor of Accounting and Banking Services, the Supervisor of Disbursements and Accounts Payable, and the Supervisor of Financial Reporting officials on the uses, functions, data handling, and error resolution and support aspects of the system.

To determine whether BERS followed up on the findings of the Special Commissioner for Investigation (SCI) report pertaining to the Deputy Executive Director’s inappropriate salary raise, the auditors reviewed the SCI report as well as a news article claiming that the Deputy Executive Director’s salary was reverted to its previous level. The auditors then requested and obtained the City Human Resources Management System (CHRMS) reports for BERS’ Executive Director and Deputy Executive Director. Those reports detail pay rate changes as well as current executive and employee salaries. The auditors examined the CHRMS report and created a schedule detailing the amounts paid to both employees. The auditors then compared those results to the general ledger to ensure that the correct amounts were being paid. Through those reports and testing, the auditors confirmed that the salary for the Deputy Executive Director was reduced to the prior salary level.

To ensure that employee personnel files were maintained in accordance with Directive 11, the auditors judgmentally sampled 15 BERS employees. This was a randomized sample using ACL conducted on a subset of employees in each employment category, in this case full time and temporary employees. The auditors determined that a 10% sample would be appropriate for each category. Sampling was conducted to review BERS’ personnel and timekeeping practices. The auditors conducted a walkthrough with the Human Resources & Payroll Coordinator and a field visit to BERS location to obtain and review the sampled personnel records for review.

To ensure that BERS had qualified investment professionals making appropriate financial decisions, the auditors used publicly available sources to determine the finance-related professional qualifications of the seven employees in the Investment Strategy Unit. To acquire data verifying or indicating the professional certifications held by the investment staff at BERS, the auditors gathered qualification data from the U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and LinkedIn. Of the seven employees in BERS’ Investment Strategy Unit, the Director and Deputy Director of Investment Strategy both are CFA chartered in addition to having other finance related qualifications. The auditors also met with BERS’ Investment Strategy Unit and obtained and reviewed the investment packets prepared by the unit. Additionally, the auditors conducted a walkthrough with the Assistant Comptroller for Pensions and confirmed that BERS did not make investment decisions that were contrary to the advice of the Comptroller’s Office during the audit scope period. The auditors also compared the investment outcomes of the five City pension funds from Fiscal Years 2019 through 2023 and determined that BERS had the highest rates of return on its investments compared to the other pension funds during that period.

The results of the above tests, though not projectable to their respective populations, provided a reasonable basis for auditors to evaluate whether BERS had adequate and effective internal controls over its financial and operational practices and whether its Board maintained appropriate oversight over BERS.

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Endnotes

[1] The number of conferences attended by the Executive Director, Deputy Executive Director, and the BERS employee reflect conferences that they each attended either alone or together. The Executive Director, Deputy Executive Director, and the BERS employee attended 17 unique conferences.

[2] Transportation methods include Uber, Lyft, taxi, metro, or valet parking.

[3] Directive 6 states that the need for Essential Training may justify Long-Distance Travel if there is no alternative in-City or local option available. Further, Directive 6 defines Essential Training as “training that agencies require for a specific, immediate need or purpose, or to comply with a mandated requirement, statute, or regulation, including in the case of changes in laws, regulations, or standards directly applicable to an agency’s mission.”