Audit report, Georgia Firefighters' Pension Fund, fiscal year ended June 30, 2013

Audit Report
Georgia Firefighters' Pension Fund
Fiscal Year Ended June 30, 2013
Prepared by: State Accounting Office
"Thunder Clouds over Atlanta", Photograph by John Mason, Mableton, Georgia

The artwork on the cover was created by Georgia artist, John Mason, and was selected to hang in the Office of the Governor as part of a rotating exhibit "The Art of Georgia". For more information about the exhibit, the artists and their work, visit www.gaarts.org.

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)

- TABLE OF CONTENTS Page
SECTION I - FINANCIAL

Independent Auditor's Report

1

Basic Financial Statements

Statement of Fiduciary Net Position

6

Statement of Changes in Fiduciary Net Position

7

Notes to the Financial Statements

8

Required Supplementary Information (Unaudited)

Schedule of Funding Progress

20

Schedule of Contributions from the Employer and Other Contributing Entities

21

SECTION II - REPORT ON INTERNAL CONTROL OVER FINANCIAL

REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN

AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS

25

SECTION III - SCHEDULE OF FINDINGS AND QUESTIONED COSTS

29

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SECTION I - FINANCIAL

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Greg S. Griffin
STATE AUDITOR (404) 656-2180

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1.156 Atlanta, Georgia 30334-8400

Independent Auditor's Report
The Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the Georgia Firefighters' Pension Fund
and Mr. C. Morgan Wurst, Executive Director
Report on the Financial Statements
We have audited the accompanying financial statements of the Georgia Firefighters' Pension Fund, a component unit of the State of Georgia, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the Georgia Firefighters' Pension Fund's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opmion on these financial statements based on our audit. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net position of the Georgia Firefighters' Pension Fund, as of June 30, 2013, and the changes in fiduciary net position for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As described in Note 2 to the financial statements, in 2013, Georgia Firefighters' Pension Fund implemented new accounting principles GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Schedule of Funding Progress and Schedule of Contributions from the Employer and Other Contributing Entities information on pages 20 and 21 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with evidence sufficient to express an opinion or provide any assurance.
2

Management has omitted the Management's Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated July 23, 2014 on our consideration of the Georgia Firefighters' Pension Fund's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Georgia Firefighters' Pension Fund's internal control over financial reporting and compliance.
Respectfully submitted,

July 23,2014 GSG:ad

~/>.~
Greg S. Griffin State Auditor

3

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BASIC FINANCIAL STATEMENTS

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Statement of Fiduciary Net Position
June 30, 2013

Assets: Cash and cash equivalents
Receivables: Interest and dividends Due from brokers Other Total receivables
Investments, at fair value: Mutual funds Municipals and U.S. Government obligations Corporate bonds/notes/debentures Asset-backed securities Stocks Mortgage investments Real estate investment trusts Total investments
Capital assets: Land Buildings Machinery and equipment Works of art and collections Accumulated depreciation Total capital assets
Other assets
Total Assets
Liabilities: Accounts payable and other accruals Due to brokers for securities purchased Compensated absences payable
Total liabilities
Net position restricted for pensions
See accompanying notes to financial statements.

$

38,508,316

$

1,533,868

27,232,229

15,799

28,781,896

163,637,999 51,271,169 80,655,701 3,028,857
226,285,724 77,709,488 27,370,702

629,959,640

84,882 1,534,994
165,142 113,972 (448,414)

1,450,576 2,388
698,702,816

1,647,011 42,370,186
55,271
44,072,468

$ 654,630,348

6

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Statement of Changes in Fiduciary Net Position
Year ended June 30, 2013

Additions: Contributions: Members Insurance premium taxes
Interest and other investment income: Dividends and interest Net increase in fair value of investments Less investment expense Net investment income
Miscellaneous
Total additions
Deductions: General and administrative expenses Benefits Refund of member contributions
Total deductions
Net increase in net position
Net position restricted for pensions:
Beginning of year
End of year
See accompanying notes to financial statements.

$

2,617,129

28,441,739

$

14,561,469

78,288,436

(3,338,527)

89,511,378 406,436
120,976,682

1,352,149 35,919,081
622,340
37,893,570
83,083,112

571,547,236 $ 654,630,348

7

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013

NOTE 1 - PLAN DESCRIPTION

ORGANIZATION AND PLAN DESCRIPTION The Georgia Firefighters' Pension Fund is a cost-sharing multiple-employer defined benefit pension plan established in 1955 by the General Assembly of Georgia for the purpose of paying retirement benefits to firefighters of the State of Georgia. The Board of Trustees of the Pension Fund is comprised of five members and consists of the Governor or his designee, the Commissioner of Insurance or his designee, two active members of the Pension Fund appointed by the Governor and one retired beneficiary of the Pension Fund appointed by the Governor. The Georgia Firefighters' Pension Fund, a component unit of the State of Georgia, is included within the State of Georgia's basic financial statements as fiduciary funds of the primary government.

Any person employed as a full-time firefighter or enrolled as a volunteer firefighter within the State of Georgia and any regular employee of the Pension Fund is eligible for membership. The Pension Fund is funded through a combination of member contributions paid by the affected firefighters and a tax imposed on gross insurance premiums written by insurance companies, corporations or associations for fire, inland marine or allied lines, lightning, extended coverage, and windstorm policies covering property within the State of Georgia.

CURRENT MEMBERSHIP As of June 30, 2013, participation in the Pension Fund is as follows:

Retirees and beneficiaries currently receiving benefits For disability For retirement For survivorship

June 30, 2013
37 3,945
359

Terminated members entitled to, but not yet receiving benefits

57

Total

4,398

Number of active members

13,073

PARTICIPATING EMPLOYERS AND OTHER CONTRIBUTING ENTITIES The number of participating employers of the Pension Fund as of June 30, 2013 was 431. The number of other contributing entities of the Pension Fund as of June 30, 2013 was 568.
BENEFITS The Georgia Firefighters' Pension Fund provides retirement as well as disability and death benefits. Benefit provisions and vesting requirements are established by statute and may be amended only by the General Assembly of Georgia. A description of plan benefits and vesting requirements is as follows:

8

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013
NOTE 1 - PLAN DESCRIPTION (continued)
(A) RETIREMENT CONDITIONS: A member shall be eligible to receive retirement benefits at age 55 provided the member has 25 years of service. A member may be eligible to receive a pro rata share of benefits, at the latter of age 55 or at the member's termination as a firefighter or volunteer firefighter, after at least 15 years of service (amount received to be the maximum benefit amount times a ratio of years of service to 25 years). At age 50, a member may elect to receive a percentage of benefits to which the member would have been eligible to receive at age 55. A member must have terminated his or her service as a firefighter or volunteer firefighter to receive benefits.
(B) RETIREMENT BENEFITS: The maximum retirement benefit at June 30, 2013 is $882 per month for the life of the member. The Board of Trustees is authorized to provide for increases effective as of January 1 and July 1 of each year up to 1 percent of the maximum retirement benefit then in effect. Members retiring after July 1, 1984 with service in excess of 25 years are entitled to an additional one percent of the maximum benefit in effect at the time of retirement for each additional full year of service. Members retiring after July 1, 2002 with service in excess of 25 years are entitled to an additional two percent of the maximum benefit in effect at the time of retirement for each additional full year of service.
(C) OPTIONAL BENEFITS: Members may elect, as an alternate to the benefit described above, to receive an actuarially reduced benefit payable during the joint lifetime of the member and the member's spouse, continuing after the death of the member during the lifetime of the spouse or a ten years' certain and life option where an actuarially reduced benefit is received during the member's lifetime and, in the event of the member's death within 10 years of retirement, the same monthly benefits shall be payable to the member's selected beneficiary for the balance of the 10 year period.
(D) DISABILITY BENEFITS: Subject to the approval of the Board of Trustees, any firefighter or volunteer firefighter who was an active member, became totally and permanently disabled, applied for disability benefits, and was awarded such benefits prior to July 1, 1993 is entitled to a monthly disability benefit. The disability would need to have resulted from injuries suffered while performing duties of the position to which he was regularly assigned or was rendered, by heart disease or respiratory disease, totally and permanently disabled and as a result of such physical disability, was separated from his work as a firefighter or appointment as a volunteer firefighter.
(E) DEATH BENEFITS (1) In the event of the death of a member of the Pension Fund who is in good standing and who has not commenced receiving any benefits; the designated beneficiary of such deceased member shall be entitled to be paid the amount of $5,000.
(2) In the event of the death of a member of the Pension Fund who is in good standing and who has commenced receiving benefits; but who has not received total benefits in the amount of $5,000, the designated beneficiary of such deceased member shall be entitled to receive the difference between $5,000 and the amount of benefits received by such deceased member.
(3) In the event of the death of a member with 15 years service, prior to commencing benefits, the spouse or beneficiary of the member is entitled to the retirement benefit elected to have been received by the member in accordance with the terms above.
9

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013
NOTE 1 - PLAN DESCRIPTION (continued)
(F) TERMINATION: In the event of the termination of a member, 95 percent of the member's contributions will be returned. No interest shall be paid upon amounts so withdrawn.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The Pension Fund's financial statements are prepared on the accrual basis of accounting, except for contributions from insurance premium taxes which are recognized annually, upon receipt. Any accrual of these insurance premium taxes would be immaterial to the Pension Fund's financial statements. Contributions from members are recognized as additions in the period in which the members provide services. Retirement benefit and refund payments are recognized as deductions when due and payable.
During fiscal year 2013, the Pension Fund adopted the provisions of GASB Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34. The objective of this Statement is to improve financial reporting for a governmental financial reporting entity by modifying certain requirements for inclusion of component units in the financial reporting entity, amending the criteria for blended component units, and clarifying the reporting entity interests in component units. The Pension Fund did not have any component units for fiscal year 2013.
During fiscal year 2013, the Pension Fund adopted the provisions of GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and renames that measure as net position. The Pension Fund changed its presentation of net assets to net position for fiscal year 2013. There were no other applicable changes to the Pension Fund.
In June 2012, GASB issued Statement No. 67, Financial Reporting for Pension Plans an amendment of GASB No. 25. This Statement improves financial reporting by state and local governmental pension plans. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement will be effective for the Pension Fund in fiscal year 2014. Management of the Pension Fund is evaluating the impact on the Pension Fund's financial statements.
CASH AND CASH EQUIVALENTS Cash and cash equivalents, reported at cost, include cash on hand, cash in banks, cash on deposit with the investment custodian earning a credit to offset fees, and short-term highly liquid financial securities with original maturities of three months or less from the date of acquisition.
10

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INVESTMENTS Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price. There are no investments in, loans to, or leases with parties related to the Pension Fund.
The Pension Fund utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.
NOTE 3 - DEPOSITS AND INVESTMENTS
The Pension Fund maintains sufficient cash to meet its immediate liquidity needs. Cash not immediately needed is invested as directed by the investment policy of the Pension Fund. All investments are held by agent custodial banks in the name of the Pension Fund. State statutes and the Pension Fund's investment policy authorize the Pension Fund to invest in a variety of short-term and long-term securities as follows:
1) U.S. or Canadian corporations or their obligations with limits as to the corporations' size and credit rating. 2) Repurchase and reverse repurchase agreements for direct obligations of the U.S. Government and for
obligations unconditionally guaranteed by agencies. 3) Federal Deposit Insurance Corporation (FDIC) insured cash assets or deposits. 4) Bonds, notes, warrants, loans or other debt issued or guaranteed by the U.S. Government. 5) Taxable bonds, notes, warrants or other securities issued and guaranteed by any state, the District of
Columbia, Canada or any province in Canada. 6) Bonds, debentures or other securities issued or insured or guaranteed by an agency, authority, unit, or
corporate body created by the U.S. Government. 7) Investment grade collateralized mortgage obligations. 8) Obligations issued, assumed or guaranteed by the International Bank for Reconstruction and Development or
the International Financial Corporation. 9) Bonds, debentures, notes and other evidence of indebtedness issued, assumed, or guaranteed by any solvent
institution existing under the laws of the U.S. or of Canada, or any state or province thereof, which are not in default and are secured to a certain level. 10) Secured and unsecured obligations issued by any solvent institution existing under the laws of the U.S. or of Canada, or any state or province thereof, bearing interest at a fixed rate, with mandatory principal and interest due at a specified time with additional limits. 11) Equipment trust obligations or interests in transportation equipment, wholly or in part within the U.S., and the right to receive determinate portions or related income. 12) Loans that are secured by pledge or securities eligible for investment. 13) Purchase money mortgages or like securities received upon the sale or exchange of real property acquired. 14) Secured mortgages or mortgage participation, pass-through, conventional pass-through, trust certificate, or other similar securities with restrictions. 15) Land and buildings on such land used or acquired for use as a fund's office for the convenient transaction of its own business with restrictions. 16) Real property and equipment acquired under various circumstances.
11

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013

NOTE 3 - DEPOSITS AND INVESTMENTS (continued)

DEPOSITS

The Pension Fund had cash on hand of $2,078 at June 30, 2013.

The carrying amount of the Pension Fund's deposits totaled $72,654 at June 30, 2013, with actual bank balances of $173,401. The Pension Fund's cash balances are fully insured through the Federal Deposit Insurance Corporation, an independent agency of the U.S. Government.

INVESTMENTS

Short-term highly liquid financial securities are authorized in the investment policy of the Pension Fund in money market funds. This investment is classified as a cash equivalent on the Pension Fund's Statement of Fiduciary Net Position. At June 30, 2013, the Pension Fund held $38,433,584 in money market mutual funds.

Fixed income investments are authorized in the following instruments:



State and municipal government securities. At June 30, 2013, the Pension Fund held municipal

government securities of $128,495.



U.S. Government obligations. At June 30, 2013, the Pension Fund held U.S. Treasury bonds of

$21,159,800.



Obligations unconditionally guaranteed by agencies of the U.S. Government. At June 30, 2013, the

Pension Fund held U.S. Government obligations of $29,982,874.



Corporate bonds that are rated as BBB or higher at the time of purchase as defined by a nationally

recognized rating agency. At June 30, 2013, the Pension Fund held U.S. corporate bonds of $77,229,232

and international corporate bonds of $3,426,469.



Asset-backed securities. At June 30, 2013, the Pension Fund held asset-backed securities of $3,028,857.



Mortgage investments. At June 30, 2013, the Pension Fund held mortgage investments of $77,709,488.

Equity securities are also authorized by the Public Retirement System Investment Authority Law for investment as a complement to the Pension Fund's fixed income portfolio and as a long-term inflation hedge. By statute, no more than 75% of the total invested assets on a historical cost basis may be placed in equities. The equity portfolio is managed by the Pension Fund in conjunction with independent advisors. Buy/sell decisions are based on securities meeting rating criteria established by the investment policy of the Pension Fund. Equity trades are approved and executed by the independent advisors. Common stocks eligible for investment must meet the General Investment Policies and Guidelines of the Pension Fund investment policy. Equity investments are authorized in the following instruments:

Mutual funds are investments that are made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. At June 30, 2013, the Pension Fund held mutual funds - equity of $163,637,999.

12

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013

NOTE 3 - DEPOSITS AND INVESTMENTS (continued)



Domestic equities are those securities considered by The Official Code of Georgia Annotated (O.C.G.A.)

to be domiciled in the United States. At June 30, 2013, the Pension Fund held domestic equities of

$214,459,507.



International equities will be a diversified portfolio including both developed and emerging countries.

These securities are not considered by the O.C.G.A. to be domiciled in the United States. At June 30,

2013, the Pension Fund held international equities of $11,826,217.

Real Estate Investment Trusts (REIT) are a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. At June 30, 2013, the Pension Fund held shares of REITs of $27,370,702.

Interest Rate Risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Pension Fund does not have a formal policy for managing interest rate risk. The following table provides information about the Pension Fund's interest rate risk:

Total Fair Value

Less than 3 Months

Maturity Period 4 - 12 Months 1 - 5 Years 6 - 10 Years

More than 10 Years

Money Market Mutual Funds $ Municipal Bonds U. S. Treasury Obligations U. S. Agency Obligations Corporate Debt
Domes tic International Asset-backed Securities Domes tic Mortgage-backed Securities Total Debt Securities

38,433,584 128,495
21,159,800 29,982,874

$ 38,433,584 $ -

-$

-$

-$

-

-

-

128,495

-

-

12,792,644

7,072,891

1,294,265

-

967,454

-

29,015,420

77,229,232 3,426,469

727,098 -

7,412,992 373,277

27,402,159 739,067

21,172,952 1,034,499

20,514,031 1,279,626

3,028,857

-

-

1,664,882

1,363,975

-

77,709,488

2,405

-

1,347,263

2,943,286

73,416,534

251,098,799 $ 39,163,087 $ 7,786,269 $ 44,913,469 $ 33,716,098 $ 125,519,876

Mutual Funds - Equity Equity Securities
Domes tic International Real Estate Investment Trust

163,637,999
214,459,507 11,826,217 27,370,702

Total Investments

$ 668,393,224

13

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013

NOTE 3 - DEPOSITS AND INVESTMENTS (continued)

Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the Pension Fund. State law limits investments to investment grade securities. The Pension Fund's investment policy requires purchases of fixed income securities to be rated BBB or higher at the time of purchase by a nationally recognized rating organization. Obligations of the U.S. Government or obligations explicitly guaranteed by the U.S. Government are not considered to have credit risk and do not require disclosure of credit quality. The quality ratings of investments in fixed income securities as described by Standard & Poor's and by Moody's Investor Services, which are nationally recognized statistical rating organizations, at June 30, 2013 are shown in the following chart:

Standard and

Poor's /Moody's

June 30, 2013

Investment Type

Quality Rating

Fair Value

Domestic obligations:

Money Market Mutual Funds

Unrated

$ 38,433,584

Municipals

A/A

128,495

U.S. Treasuries

21,159,800

U.S. Agency Obligations

AA/Aaa

29,982,874

Corporates
Total corporates Asset-backed securities
Total asset-backed securities

AAA/Aaa AAA/Aa AA/Aa
AA/A AA/Baa
A/Aa A/A A/Baa A/Unrated BBB/A BBB/Baa BBB/Ba BBB/Unrated BB/Baa BB/Ba Unrated
AAA/Aaa AAA/Unrated BBB/Unrated Unrated/Aaa

132,046 1,305,847 1,335,643 1,156,584
314,750 924,146 22,785,653 2,897,500 8,290,624 166,207 22,198,412 1,287,505 12,469,573 984,525 349,165 631,052 77,229,232
856,141 693,470 1,030,605 448,641 3,028,857

14

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013

NOTE 3 - DEPOSITS AND INVESTMENTS (continued)
Investment Type Mortgages

Standard and Poor's /Moody's Quality Rating
AAA/Aaa AAA/Aa AAA/A AAA/Unrated AA/Aa
AA/A AA/Baa AA/Ba AA/B AA/Unrated
A/Aa A/A A/Baa A/Ba A/B A/Unrated BBB/Aa BBB/A BBB/Baa BBB/Ba BBB/B BBB/Unrated BB/Aa BB/A BB/Baa BB/Ba BB/B BB/Caa BB/Ca BB/Unrated B/Ba B/B B/Caa B/Withdrawn B/Unrated

June 30, 2013 Fair Value
$ 1,599,924 298,049 30,398 630,310
1,288,631 446,480 966,844 129,447
1,412,232 209,690 305,077
2,806,698 2,215,203 3,170,748
41,306 2,713,331
464,550 862,871 6,474,141 1,178,256 958,913 7,267,007 821,611 1,617,448 4,249,992 1,529,032 1,431,834 1,199,496 2,073,532 2,273,023 562,900 2,663,866 1,628,361 23,203 612,320

15

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013

NOTE 3 - DEPOSITS AND INVESTMENTS (continued)
Investment Type Mortgages (continued)
Total mortgages International obligations:
Corporates Total corporates Total fixed income investments

Standard and Poor's/Moody's Quality Rating
CCC/Ba CCC/B CCC/Caa CCC/Ca CCC/C CCC/Unrated CC/Caa CC/Unrated D/Caa D/Ca
D/C Unrated/Aaa Unrated/Aa Unrated/A Unrated/Baa Unrated/Ba Unrated/B Unrated/Caa Unrated/C Unrated/Withdrawn
Unrated

June 30, 2013

Fair Value

$

81,317

2,699,704

724,671

2,304,893

295,038

264,239

181,758

490,721

85,732

514,299

387,140

3,129,042

271,264

2,102,780

3,600,577

1,774,271

590,203

416,506

371,052

111,720

1,155,837

77,709,488

AA/Aa A/A A/Baa
BBB/A BBB/Baa Unrated

305,483 1,211,785
169,645 95,403
1,587,791 56,362
3,426,469
$ 251,098,799

Concentration of Credit Risk: Concentration of credit risk is the risk of loss attributed to the magnitude of the Pension Fund's investment in a single issuer. At June 30, 2013, the Pension Fund did not have any investments in any one organization which represented greater than 5% of total investments.

16

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013

NOTE 4 - CONTRIBUTIONS
FUNDING POLICY The minimum annual employer contribution requirements are set forth in the Official Code of Georgia Annotated (O.C.G.A.) Section 47-20-10 and are not actuarially determined. This statute further prohibits any action to grant a benefit increase until such time as the minimum annual contribution requirements meet or exceed legislative requirements. The actuarial valuation as of July 1, 2013, which reflected the proceeds of insurance premium taxes as the employer contribution, indicated that the minimum employer contribution for the fiscal year ended June 30, 2013 was $29,994,798. The insurance premium tax revenue of $28,441,739 for the fiscal year ended June 30, 2013 does not meet the minimum required fund contribution. Member contribution requirements are set forth in O.C.G.A. Section 47-7-60 and are not actuarially determined.
Administrative expenses are generally funded from current member and insurance premium taxes. Investment earnings may be utilized to fund any expenses in excess of contributions.
A description of contribution requirements is as follows:
(A) MEMBERS CONTRIBUTIONS: Each member must contribute $15 per month, to be paid no later than the tenth day of each month.
(B) INSURANCE PREMIUMS TAX: Every fire insurance company, corporation or association doing business within the State of Georgia must pay to the executive director of the Georgia Firefighters' Pension Fund one percent of the gross premiums, written by such insurance company, corporation, or association for fire, lightning, or extended coverage, inland marine or allied lines, or windstorm insurance policies covering property within the State of Georgia.
Actual contributions for the year ended June 30, 2013, were as follows:

Member Contributions Insurance Premiums Tax

$ 2,617,129 28,441,739

Total

$ 31,058,868

NOTE 5 - FUNDED STATUS AND FUNDING PROGRESS

The funded status of the plan as of July 1, 2013, the most recent actuarial valuation date, is as follows:

Actuarial value of plan assets
(a)

Actuarial accrued liability (AAL) entry age
(b)

Unfunded AAL (b-a)

Funded ratio (a/b)

Annual covered payroll
(c)

Unfunded AAL as percentage of covered payroll [(b-a)/c]

$ 606,836,423 $ 869,864,809 $ 263,028,386

69.8%

N/A

N/A

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GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013

NOTE 5 - FUNDED STATUS AND FUNDING PROGRESS (continued)

The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial values of plan assets are increasing or decreasing over time relative to the AAL for benefits.

Additional information as of the latest actuarial valuation follows:

Valuation date

July 1, 2013

Actuarial cost method

Entry age normal

Amortization method

Level dollar, open

Remaining amortization period

30 years

Asset valuation method
Actuarial assumptions: Investment rate of return (includes inflation) Projected salary increases Cost-of-living adjustments

Five-year smoothed market value with 15% corridor
6% N/A N/A

NOTE 6 - SUBSEQUENT EVENTS
On April 22, 2014, Governor Nathan Deal signed Senate Bill 235 which amends the Official Code of Georgia Annotated (O.C.G.A.) 47-7-1 by revising the term "firefighter" as a permanent, compensated employee of a fire department who works at least 1,040 hours per year; or appointed and regularly enrolled as a volunteer with a volunteer fire department or combination full-time and volunteer fire department. This bill also amends OCGA 47-7-87 relating to "prior eligible service" in that service rendered between July 1, 2006 and June 30, 2014, as a firefighter in part-time employment shall be entitled to credit for prior eligible service, provided that such person files an application on or before September 30, 2014 and pays to the Pension Fund for each month of prior eligible service credit sought an amount equal to the contributions that would have been made had the member or applicant been a member and entitled to credit during the period of prior eligible service, at the monthly contribution rate in effect at the time the application for credit is made, together with interest on such monthly amount from the date on which such contribution would have been made until the date of application for credit at a rate of 12 percent per year; or presents proof that such contributions were timely paid during such period. This bill has an effective date of July 1, 2014 and will resolve Finding Number FS-950-12-01 noted in the Schedule of Findings and Questioned Costs when effective.
On May 21, 2014, the Pension Fund's Board approved change in the plan's investment rate of return from 6% to 6.5%. This change made it possible for Senate Bill 235 to be concurrently funded under the O.C.G.A. Code Section 47-20-50. Otherwise, the legislation would not have become effective as law and would be null, void and stand repealed in its entirety on July 1, 2014.

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REQUIRED SUPPLEMENTARY INFORMATION

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Schedule of Funding Progress
June 30, 2013

Actuarial valuation
date

Actuarial value of plan assets
(a)

Actuarial accrued liability (AAL) entry age
(b)

Unfunded AAL (b-a)

July 1, 2009 $ 492,251,109 $ 746,144,702 $ 253,893,593

July 1, 2011

618,625,369

810,195,729

191,570,360

July 1, 2013

606,836,423

869,864,809

263,028,386

Funded ratio (a/b)

Annual covered payroll
(c)

66.0% N/A

76.4% N/A

69.8% N/A

Unfunded AAL as percentage of covered payroll [(b-a)/c]
N/A
N/A
N/A

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Fiscal Year
2008 2009 2010 2011 2012 2013

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Schedule of Contributions from the Employer and Other Contributing Entities
June 30, 2013

Annual required contribution

$

20,706,161

22,845,197

36,030,805

36,030,805

29,994,798

29,994,798

Percentage contributed
123% 116% 71% 73% 90% 95%

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SECTION II - REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS
PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Greg S. Griffin
STA TE AUDITOR (404) 6562180

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards
Independent Auditor's Report
The Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the Georgia Firefighters' Pension Fund
and Mr. C. Morgan Wurst, Executive Director
We have audited, 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, the financial statements of the Georgia Firefighters' Pension Fund, a component unit of the State of Georgia, which include the statement of fiduciary net position as of June 30, 2013, the related statement of changes in fiduciary net position for the year then ended, and the related notes to the financial statements, which collectively comprise Georgia Firefighters' Pension Fund's basic fmancial statements, and have issued our report thereon dated July 23, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the fmancial statements, we considered the Georgia Firefighters' Pension Fund's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circrunstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Georgia Firefighters' Pension Fund's internal control. Accordingly, we do not express an opinion on the effectiveness of Georgia Firefighters' Pension Fund's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination

of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's fmancial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Georgia Firefighters' Pension Fund's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of fmancial 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 or other matters that are required to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Respectfully submitted,
#urA.~
Greg S. Griffin State Auditor
July 23,2014
GSG:ad
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SECTION III - SCHEDULE OF FINDINGS AND QUESTIONED COSTS

GEORGIA FIREFIGHTERS' PENSION FUND (A Component Unit of the State of Georgia)
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2013

SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-950-12-01

Unresolved

FS-950-12-01 Admission of Ineligible Members to the Pension Plan

Control Category:
Internal Control Impact: Compliance Impact:

Revenues and Receivables Expenses/Expenditures and Liabilities Financial Reporting and Disclosure Significant Deficiency Nonmaterial Noncompliance

In the 2013 session of the General Assembly, Senate Bill 235 was introduced to define a firefighter as either "paid" or "volunteer", thus eliminating the criteria of either full time or part time. A "paid" firefighter must be engaged for a minimum of 1,080 hours to earn creditable service for the year. Provisions were also provided to allow prior part-time firefighters to purchase service if they were denied entry during the period 2006-2014. The bill is a fiscal bill and was evaluated by the actuary over the summer and was presented for final consideration in the 2014 legislative session. In the 2014 Legislative Session, the Bill passed through both the Senate and House unopposed. The Bill was signed by the governor on April 22, 2014.

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