Audit report, Judges of the Probate Courts Retirement Fund of Georgia, year ended June 30, 2006

STATE OF GEORGIA
Sonny Perdue Governor
AUDIT REPORT JUDGES OF THE PROBATE COURTS
RETIREMENT FUND OF GEORGIA YEAR ENDED JUNE 30, 2006
Prepared by State Accounting Office

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA -TABLE OF CONTENTS-

SECTION I - FINANCIAL

Independent Auditor's Report on Basic Financial Statements Accompanied by Required Supplementary Information

Basic Financial Statements

Statement of Fiduciary Net Assets

4

Statement of Changes in Fiduciary Net Assets

5

Notes to the Financial Statements

6

Required Supplementary Information

Schedule of Funding Progress

12

Schedule of Employer Contributions

13

Notes to Required Supplementary Information

14

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

17

SECTION III - CURRENT YEAR FINDINGS AND QUESTIONED COSTS

Schedule of Findings and Questioned Costs

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SECTION I - FINANCIAL

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DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington St. S.W. Suite 1-156 Atlanta, Georgia 30334
RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174
March 8, 2007
Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Commissioners of the Judges of the Probate Courts Retirement Fund of Georgia
and Honorable Robert W. Carter, Secretary/Treasurer
INDEPENDENT AUDITOR'S REPORT ON BASIC FINANCIAL STATEMENTS ACCOMPANIED BY REQUIRED SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying financial statements of the Judges of the Probate Courts Retirement Fund of Georgia, a part of the primary government of the State of Georgia, as of and for the year ended June 30, 2006, as listed in the table of contents. These financial statements are the responsibility of the Fund's management. Our responsibility is to express opinions on these financial statements based on our audit.
Except as discussed in the following paragraph, 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opm10n.
The financial statements of the Judges of the Probate Courts Retirement Fund of Georgia for the fiscal year ended June 30, 2005 were not audited in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States. Since the amount of net assets reported in the Statement of Fiduciary Net Assets as of June 30, 2005 materially affect the amounts reported in the Statement of Changes in Fiduciary Net Assets for the year ended June 30, 2006, the scope of

our work was not sufficient to enable us to express, and we do not express, an opinion on the Statement of Changes in Fiduciary Net Assets for the year ended June 30, 2006.
In our opinion, the statement of Fiduciary Net Assets of the Judges of the Probate Courts Retirement Fund of Georgia present fairly, in all material respects, the financial position of the Judges of the Probate Courts Retirement Fund of Georgia, as of June 30, 2006, in conformity with accounting principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued a report dated March 8, 2007 on our consideration of the Judges of the Probate Courts Retirement Fund of Georgia's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.
The Judges of the Probate Courts Retirement Fund of Georgia has not presented the management's discussion and analysis that the Governmental Accounting Standards Board has determined is necessary to supplement, although not required to be part of, the basic financial statements.
The accompanying Schedule of Funding Progress, Schedule of Employer Contributions, and Notes to Required Supplementary Information are not required parts of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We did not audit the information and express no opinion on it.
Respectfully submitted,

RWH:dp

Russell W. Hinton, CPA, CGFM State Auditor

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BASIC FINANCIAL STATEMENTS

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA STATEMENT OF FIDUCIARY NET ASSETS IBNE 30, 2006

Assets Cash and Cash Equivalents Receivables
Due from Brokers for Securities Sold Investments
Mutual Funds Municipal, U.S. and Foreign
Government Obligations Corporate Bonds/Notes/Debentures Stocks Mortgage Investments
Total Assets
Net Assets Held in Trust for:
Pension Benefits

$

32,484

96,955

2,265,062

9,799,510 8,045,543 36,506,998
754,584

$

57,501,136

$

57,501,136

The notes to the financial statements are an integral part of this statement. 4

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE FISCAL YEAR ENDED JUNE 30, 2006

Additions: Contributions Plan Members Other Contributions Fines and Bond Forfeitures Other Fees Interest and Other Investment Income Dividends and Interest Net Appreciation (Depreciation) in Investments Reported at Fair Value Less: Investment Expense
Total Additions
Deductions: General and Administrative Expenses Benefits Refunds
Total Deductions
Change in Net Assets Held in Trust for Pension Benefits
Net Assets, July 1
Net Assets, June 30

$

163,198

520,329 612,649

1,669,953

1,453,905 (385,428)

$

4,034,606

$

70,857

2,271,430

19,572

$

2,361,859

$

1,672,747

55,828,389

$ ===:::::5::7::,=5=01=,=1=3=6=

The notes to the financial statements are an integral part of this statement. 5

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006

A. PLAN DESCRIPTION

ORGANIZATION AND PLAN DESCRIPTION The Judges of the Probate Courts Retirement Fund of Georgia is a cost-sharing multiple-employer defined benefit pension plan established in 1958 by the General Assembly of Georgia for the purpose of paying retirement benefits to judges of the probate courts of the State of Georgia. The Board of Commissioners of the Retirement Fund is comprised of seven members and consists of the Governor or his designee, an appointee of the Governor other than the Attorney General, four judges of the probate courts who are members of the Retirement Fund, and one appointee of the Governor who is a member of the Retirement Fund and a retired judge of a probate court. The Judges of the Probate Courts Retirement Fund of Georgia is included within the State of Georgia's basic financial statements as a part of the primary government.

All duly qualified and commissioned judges of the probate court of the counties of the State of Georgia, any person serving as secretary-treasurer of the Board of Commissioners of the Judges of the Probate Courts Retirement Fund of Georgia and qualified employees of the Board are eligible for membership. The Retirement Fund is funded through a combination of member contributions paid by the affected judges of the probate courts, designated portions of fines and forfeitures for criminal and quasi-criminal cases involving the violation of State of Georgia traffic laws, and designated portions of fees collected for civil filings and the processing of marriage and pistol licenses.

CURRENT MEMBERSHIP The following analysis compares the membership ofthe Judges of the Probate Courts Retirement Fund at June 30, 2006, to that of the prior year:

Retirees and Beneficiaries Currently Receiving Benefits and Terminated Members Entitled to, but not yet receiving Benefits For Disability For Retirement For Survivorship

June 30, 2006
3
90
39

June 30, 2005
3 90 40

Total

132

133

Number of Active Members Vested Nonvested

28

27

129

129

Total

157

156

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006
A. PLAN DESCRIPTION
BENEFITS The Judges of the Probate Courts Retirement 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:
(A) RETIREMENT CONDITIONS: Members prior to July 1, 1995 shall be eligible for retirement at age 60 and must have served at least four years as a regularly qualified commissioned probate judge, secretarytreasurer or qualified employee of the Board of Commissioners of the Retirement Fund. Members on or after July 1, 1995, shall be eligible for retirement at age 60 and must have served at least eight years. A member must have terminated his or her official capacity as a judge of a probate court or as an employee of the Board to receive benefits.
(B) RETIREMENT BENEFITS: Members prior to July 1, 1995, approved for retirement benefits, shall be paid a monthly benefit equal to 5 percent of his or her average monthly net earnings (subject to a salary cap) for each year served up to, but not exceeding, a total of twenty years, with exceptions. The benefit for members on or after July 1, 1995, is equal to 5 percent of his or her final monthly net earnings (subject to a salary cap) for each year served up to, but not exceeding, a total of twenty years, with exceptions. The Board of Commissioners is authorized to provide for increases in benefits being paid up to 1 percent in a six month period and can increase the salary caps in effect up to 3 percent annually.
(C) OPTIONAL BENEFITS: The monthly benefits referred to above are payable for the lifetime of the member. Members may elect, as an alternate to the benefit described above, to receive an actuarially reduced benefit in the form of a Joint and Survivor Annuity.
(D) DISABILITY BENEFITS: Any member who becomes totally and permanently disabled after completing four years of creditable service is entitled to receive retirement benefits in the amount that the member would receive if their retirement were effective at the time the member became disabled.
(E) DEATH BENEFITS ( 1) In the event of the death of a member who has not commenced receiving any benefits, the spouse may elect to withdraw the dues paid into the Retirement Fund by the deceased member plus interest, in which case the spouse shall be deemed to have waived any rights to any benefits; or an optional payment plan may be chosen for which benefits will be paid according to the terms of the Plan.
(2) In the event of the death of a member who has commenced receiving benefits, the surviving spouse, upon reaching age 60, may elect to receive a benefit equal to 50 percent of the monthly retirement benefit being paid to the deceased spouse at the time of death. These benefits will be paid for the remainder of the surviving spouse's life.
(F) TERMINATION: In the event of the termination, a member is entitled to any retirement benefits that may have been earned. However, the member may waive the right to these benefits and receive all dues paid plus interest.
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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The Pension Fund's financial statements are prepared on the accrual basis of accounting, except for the collection of fines, forfeitures and fees which are recognized when collected from the courts. Any accrual of these fines, forfeitures and fees 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.
INVESTMENTS Investments are defined as those financial instruments with terms in excess of three months from the date of purchase and certain other securities held for the production of revenue. In addition, funds on deposit with the Retirement Fund's investment custodian for purposes of continual investment are reflected as investments regardless of the term of the instruments.
Investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price.

C. CONTRIBUTIONS AND RESERVES

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, 2005, which reflected the proceeds of designated portions of fines and forfeitures for violation of traffic laws and a designated portion of fees collected for civil filings and processing of marriage and pistol licenses as the employer contribution was met. Member contribution requirements are set forth in O.C.G.A. Section 47-11-40 and are not actuarially determined.

Administrative expenses are generally funded from current member and court fine and fee contributions. Investment earnings may be utilized to fund any expenses in excess of contributions.

A description of contribution provisions are established by statute and may be amended only by the General Assembly of Georgia. A description of contribution requirement is as follows:

(A) MEMBERS CONTRIBUTIONS: Members must contribute $105 per month as dues; provided, however, that the requirement for such dues shall cease after the member has paid such dues for a period of 20 years.

(B) PROBATE COURT CONTRIBUTIONS: For each criminal and quasi-criminal case involving the violation of State of Georgia traffic laws, a sum based upon the scale set forth below is collected by the presiding judge and remitted to the Secretary-Treasurer of the Retirement Fund:

For fines or bond forfeitures in excess of $4, but not more than $25

$1.00

For fines or bond forfeitures in excess of $25, but not more than $50

$1.50

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006

C. CONTRIBUTIONS AND RESERVES

For fines or bond forfeitures in excess of $50, but not more than $100

$2.00

For fines or bond forfeitures in excess of $100

$2.50

For civil filings

$2.00

(C) LICENSE CONTRIBUTIONS:

For marriage

20% of fee

For pistol

$1.00

Actual contributions for the year ended June 30, 2006, were as follows:

Member Contributions Fines and Forfeitures Civil Filing Fees Marriage Licenses Fees Pistol Licenses Fees

$

163,198

520,329

117,447

437,233

57,969

Total

$

1,296,176

D. CONCENTRATION OF CREDIT RISK
At June 30, 2006, more than 5 percent of the Retirement Fund's total investments were investments in securities of U. S. agencies not explicitly guaranteed by the U. S. government. These investments represented approximately 10.9 percent of the Retirement Fund's total investments.

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REQUIRED SUPPLEMENTARY INFORMATION

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE OF FUNDING PROGRESS JUNE 30, 2006

Actuarial Valuation
Date
July 1, 2001
July 1, 2003
July 1, 2005

Actuarial Value of Assets
(a)

Actuarial Accrued Liability (AAL) - Entry Age Normal
(b)

Unfunded AAL
(UAAL) (b-a)

Funded Ratio (alb)

Covered Payroll
( C)

UAAL as a Percentage of Covered
Payroll ((b-a)/c)

$

53,036,654 $

42,720,679 $

(10,315,975)

124.1%

n/a

n/a

$

57,181,423 $

47,261,377 $

(9,920,046)

121.0%

n/a

n/a

$

58,084,168 $

48,902,042 $

(9,182,126)

118.8%

n/a

n/a

The actuarial value of assets at July 1, 2005 is equal to 104% of the market value of assets.

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE OF EMPLOYER CONTRIBUTIONS JUNE 30, 2006

Fiscal Year
2000 2001 2002 2003 2004 2005

Annual Required Contribution

$

415,539

$

238,627

$

402,389

$

335,203

$

335,203

$

497,774

Percentage Contributed
145% 252% 175% 189% 254% 169%

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2006

Actuarial Assumptions
The information presented in the required supplementary schedules was determined as part of the actuarial valuation at the dates indicated. Additional information from the actuarial valuation follows:

Valuation Date:
Actuarial Cost Method:
Amortization Method:
Remaining Amortization Period:
Asset Valuation Method:
Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Includes Inflation at Cost-of-Living Adjustments

July 1, 2005 Entry age normal Level dollar, open 40 years 5 year smoothed market value
7% Not applicable None 2%

14

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 GOVERNMENTAUDITING STANDARDS

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DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington St. S.W. Suite 1-156 Atlanta, Georgia 30334
RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174
March 8, 2007
Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Commissioners of the Judges of the Probate Courts Retirement Fund of Georgia
and Honorable Robert W. Carter, Secretary/Treasurer
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
Ladies and Gentlemen:
We have audited the financial statements of the Judges of the Probate Courts Retirement Fund of Georgia, a part of the primary government of the State of Georgia, as of and for the year ended June 30, 2006, and have issued our report thereon dated March 8, 2007. 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, except we did not apply audit procedures necessary to satisfy ourselves about the opening balance (July 1, 2005) on the Statement of Changes in Fiduciary Net Assets.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Judges of the Probate Courts Retirement Fund of Georgia'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. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the Judges of the Probate Courts Retirement Fund of Georgia's ability to record, process, summarize and report financial data consistent with assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item FS-949-06-
01.

Internal Control Over Financial Reporting 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 the 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. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described above is not a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Judges of the Probate Courts Retirement Fund of Georgia'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 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. This report is intended solely for the information and use of management, members of the Fund and management of the State of Georgia, and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
Russell W. Hinton, CPA, CGFM State Auditor
RWH:dp
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SECTION III - CURRENT YEAR FINDINGS AND QUESTIONED COSTS

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2006

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS
Overpayment of Pension Benefits Finding Control Number: FS-949-06-01 Reportable Condition

Condition:

During the year under review, it was discovered that the Judges of the Probate Courts Retirement Fund of Georgia (Fund) was overpaying pension benefits to one beneficiary. Of the total of fifteen retirees receiving benefit payments selected for testing, one was identified as not being paid under the benefit payment option plan that was selected by the beneficiary.

Criteria:

The Official Code of Georgia Annotated, Section 47-11 Article 5, "Retirement Benefits," provides the criteria for determining eligibility, description of different payment options, and methods used to calculate benefit payments.

Questioned Cost: $18,434.35

Information:

Once a member of the Fund chooses to retire, they must notify the Fund. The Fund then begins a qualification screening to determine if the member meets the eligibility requirements. Next, based on the member's age at retirement, spouse's age, if applicable, length of service, etc., the Fund determines a payment schedule for the different available benefit payment option plans provided by the Fund.
A letter detailing these payment option plans is issued to the member. The member indicates which option they want and returns the letter to the Fund. Using the member's choice, the Fund sets up the benefit payment schedule in their computer system. Lastly, this information is forwarded to State Street, the Fund's custodian, who handles the benefit payments for the Fund.

Cause:

The Fund did not have adequate controls in place to ensure that amounts paid to retirees matched the payment option plan each retiree had chosen.

Effect:

The retiree has been overpaid a total of $18,434.35 for fiscal years 2001 through 2006. As a result, the Fund's Deductions account for Benefits has been overstated each year since fiscal year 2001.

Recommendation: The Fund should implement controls to ensure that all benefit payments made are in accordance with the benefit payment option plans as chosen by its members, and approved by the Board. In addition, the Fund should seek reimbursement of the overpayment of benefits from the plan member.

21