Retirement Services:
Interim Report on the Alignment of Controls Between the City and the Office of Retirement Services
A Report from the City Auditor
Issued October 2023
http://www.sanjoseca.gov/auditor
1 Background
2 $0
$100
$200
$300
$400
$500
Contributions ($millions)
Employer
contributions
Employee
contributions
T otal Annual Contributions for Pension
and Retiree Health and Dental Benefits• The City has two retirement plans: Federated and Police & Fire.
• T wo independent boards oversee
the plans with fiduciary duties.
• The Office of Retirement Services
(ORS) administers the plans.
• The City is the plan sponsor and
contributes to the plans.
Audit Direction
3 Direct the City Auditor to prioritize an audit of the Office of Retirement Services in his workplan. This audit should cover, at minimum, the following areas:
1. Identifying internal process controls for financial activities such as accounting, purchasing and contracting;
2. Identifying policies and procedures around information systems and security;
3. Compliance with City policies for financial activities, information systems and security, and other relevant administrative functions;
4. A comparison of the governance structures of other pension plans, including board oversight of management's administrative functions and responsibilities.
Finding I: Alignment of ORS and City Policies Would
Strengthen Internal Controls over ORS Operations
4 • ORS staff are City employees, and the
boards adopted the City’s Code of
Ethics.
• There is not clear agreement between
the City and ORS on whether ORS staff
should follow all administrative policies
and procedures.
• Many ORS internal procedures back to
the 1990’s or 2000’s and staff in some
cases were unaware of them.
ORS relies on the City for:
• information systems, such as
financial management and payroll
systems along with email.
• support services, such as Finance,
HR, and ITD, for payroll, paying
invoices, employee benefits, and
maintaining information systems.
Finding I: Alignment of ORS and City Policies Would
Strengthen Internal Controls over ORS Operations
5 RECOMMENDATION:
T o strengthen its internal control
system, ORS and the Retirement
Boards should work with the City to
either:
• Adopt City policies and
procedures related to information
technology, procurement, and
other administrative functions, or
• Develop a set of internal policies
and procedures that align with the
City’s in these areas.
• Not having clear direction or up-to-
date procedures is an internal control
weakness.
• This could expose the retirement
system and the City to unnecessary
risks.
• Other retirement systems in California
are similarly staffed by employees of
the plan sponsor, and staff generally
follow the administrative policies of
the sponsor or their own stricter
policies.
Conclusion
This report has one recommendations to align controls between the City and the Office of Retirement Services.
We would like to thank the Office of Retirement Services, the City Manager’s Office, the City Attorney’s Office, the Information T echnology Department, the Finance Department, and the Office of Employee Relations for their time and insight during the audit process.
The audit report is available at www.sanjoseca.gov/auditor Audit staff: Alison Pauly, Michael O’Connell Jr., and Maria Valle 6