Audit report, Judges of the Probate Courts Retirement Fund of Georgia, year ended June 30, 2010

Judges of the Probate Courts Retirement Fund of Georgia
Fiscal Yew.

Moccasin Creek State Park
Known as the park "where spring spends the surmner," Moccasin Creek is nestled in the Blue Ridge Mountains on the shores of lovely 2,800-acre Lake Burton in Rabun County. In the early 1960s,Fulton Lovell, Director of the DNR's Fish and Game Division, envisioned a campground located on the adjacent hatchery property for fishermen who visited each season, In 1963,a proposal was made to land owners Charles and Lona Hunt for the use of Lovell's vision. In May 1963, $63,415 was given to Fish and Ganle to convert what was once a cornfield into a Georgia Power campground, run by the Fish Hatchery.
The state of Georgia acquired the campground in 1966 and the name was changed to Moccasin Creek State Park, in reference to the stream that flows between the park and the hatchery. Today the park is an easily accessible base camp for adventures in fishing, hiking, hatchery tours, boating, hunting, swimming, and natural water slides. The park's location also provides visitors with the opportunity to visit mountain overlooks and nearby state parks.
For additional information on this site, please visit httD://www.p;astate~arkS.or~/MoccasinCr.
Photo provided by O 2010 - Georgia Deuartment of Natural Resources (DNR]

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

SECTION I - FINANCIAL

Page

Independent Auditor's Report
Basic Financial Statements
Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets Notes to the Financial Statements

Required Supplementary Information
Schedule of Funding Progress Schedule of Contributions from the Employer and Other Contributing Entities

- SECTION 11 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
SECTION m - PRIOR YEAR FINDINGS AND QUESTIONED COSTS
Summary Schedule for Prior Year Findings and Questioned Costs
SECTION IV - CURRENT YEAR FINDINGS AND QUESTIONED COSTS
Schedule of Findings and Questioned Costs

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SECTION I - FINANCIAL

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DEPARTMEONFTAUDITSAND ACCOUNTS 270 Washington St. S.W. Suite 1-156 Atlanta, Georgia 30334
RUSSELWL. HINTON
STATE AUDITOR
(404)656-2174
February 10,2011
Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the Judges of the Probate Courts Retirement Fund
and Honorable Robert Carter, SecretarylTreasurer
INDEPENDENT AUDITOR'S REPORT
Ladies and Gentlemen:
We have audited the accompanying basic financial statements of the Judges of the Probate Courts Retirement Fund, a component unit of the State of Georgia, as of and for the year ended June 30,2010, as listed in the table of contents. These financial statements are the responsibility of the Judges of the Probate Courts Retirement Fund's management. Our responsibility is to express opinions on these financial statementsbased 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Judges of the Probate Courts Retirement Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 opinion.
In our opinion, the financial statements referred to previously present fairly, in all material respects, the fiduciary net assets of the Judges of the Probate Courts Retirement Fund, as of June 30, 2010, and the changes in fiduciary net assets for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated February 10, 2011 on our consideration of the Judges of the Probate Courts Retirement 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 perfbrmed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
The Schedule of Funding Progress and Schedule of Contributions from the Employer and Other Contributing Entities information on pages 12 through 13 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted primarily of inquiries of management regarding the methods of measurement and presentation of the required supplementaryinformation. However, we did not audit the information and express no opinion on it.
The Judges of the Probate Courts Retirement Fund 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.
Respectfully submitted,
Russell W. Hinton, CPA, CGFM State Auditor

BASIC FINANCIAL STATEMENTS

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA STATEMENT OF FIDUCIARY NET ASSETS JUNE 30,2010
Assets Cash and Cash Equivalents Receivables
Due &om Brokers for Securities Sold Investments
Mutual Funds Municipal, U. S. and Foreign
Government Obligations Corporate Bonds/Notes/Debentures Asset-Backed Securities Stocks Mortgage Investments Real Estate Investment Trusts Total Assets Liabilities Due to Brokers for Securities Purchased Salaries~WithholdingPsayable Total Liabilities
Net Assets Held in Trust for:
Pension Benefits
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 30,2010
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 Net Investment Income Other Miscellaneous
Total Additions Deductions:
General and Administrative Expenses Benefits Total Deductions Change in Net Assets Held in Trust for Pension Benefits Net Assets, July 1
Net Assets, June 30
The notes to the fmancial statements are an integral part of this statement.

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2010

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 govemment.

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 h d e d through a combination of member contributions paid by the affectedjudges 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 of the Judges of the Probate Courts Retirement Fund at June 30, 20 10, 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 30,2010

June 30,2009

Total

Number of Active Members Vested Nonvested

Total

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2010
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 and 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.
) 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?hpercent 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.
) TERMINATION: In the event of 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.

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2010
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, forfeituresand fees would be immaterial to the Pension Fund's financial statements. Contributions h m members are recognized as additions in the period in which the members provide services. Retirement benefit and r e h d 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-terminvestments are reported at cost, which approximates fair value. Securitiestraded on a national or international exchange are valued at the last reported sales price.
C. 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, 2009, 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 47-1 1-40 and are not actuarially determined.
Administrative expenses are generally h d e d fkom current member and court fine and fee contributions. Investment earnings may be utilized to h d 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 requirement for such dues shall cease after the member has paid such dues for a period of 20 years.
) 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
For fines or bond forfeitures in excess of $25, but not more than $50

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2010

C. CONTRIBUTIONS

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

For tines 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 30,2010, were as follows:

Member Contributions Fines and Forfeitures Other Fees
Civil Filing Fees Marriage Licenses Fees Courts Interest and Penalties Pistol Licenses Fees

$

151,628

48 1,259

$

108,879

438,354

442

104,286

651,961

Total

$

1,284.848

D. CONCENTRATION OF CREDIT RISK
At June 30, 2010, 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 9.3 percent of the Retirement Fund's total investments. Also, more than 5 percent of the Retirement Fund's total investments were short term investments held by State Street Bank & Trust Company. These investments represented approximately 6.2 percent of the Retirement Fund's total investments.

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2010

E. FUNDED STATUS AND FUNDING PROGRESS

The funded status of the plan as of July 1,2009, the most recent actuarial valuation date, is as follows:

Actuarial value of Plan
assets

Acturial accrued
liability
-
entry age

Unfunded AAL @ J A W
(funding excess)

Funding ratio

Annual covered payroll

UAAL (funding excess) as a percentage of covered payroll

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 1,2009

Actuarial cost method

Entry age normal

Amortization method

Level dollar, open

Remaining amortization period

40 years

Asset valuation method

Five-year smoothed market Value

Actuarial assumptions:

Investment rate of return (includes inflation)

7%

Projected salary increases

NI A

Cost-of-living adjustments

2%

REOUIRED SUPPLEMENTARYINFORMATION

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE OF FUNDING PROGRESS JUNE 30,2010

Actuarial Valuation
Date

Actuarial Value of Assets
(a)

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

Unfunded AALl(Funding
Excess) (UAAL)
@-a)

Funded Ratio
(ah)

Covered Payroll
(c)

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

July 1,2005

$

58,084,168 $

48,902,042 $

(9,182,126)

118.8%

nla

da

July 1,2007

62,326,994

54,498,885

(7,828,109)

114.4%

da

da

July 1,2009

55,690,298

53,714,007

(1,976,291)

103.7%

da

da

The actuarial value of assets at July 1,2009 is equal to 115% of the market value of assets.

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA
SCHEDULE OF CONTRIBUTIONS FROM THE EMPLOYER AND OTHER CONTRIBUTING ENTITIES JUNE 30,2010

Fiscal Year

Annual Required Contribution

Percentage Contributed

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- SECTION I1 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON
COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCEWITH GOVERNMENTAUDITINGSTANDARDS

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DEPARTMEONF TAUDITSAND ACCOUNTS 270 Washington St. S.W. Suite 1-156 Atlanta, Georgia 30334
RUSSELWL . HINTON
STATE AUDITOR
(404)656-2174
February 10,2011
Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the Judges of the Probate Courts Retirement Fund
and Honorable Robert Carter, SecretaryITreasurer
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
We have audited the accompanying basic financial statements of the Judges of the Probate Courts Retirement Fund, a component unit of the State of Georgia, as of and for the year ended June 30, 2010, and have issued our report thereon dated February 10,2011. 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Judges of the Probate Courts Retirement Fund's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Judges of the Probate Courts Retirement Fund's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Judges of the Probate Courts Retirement Fund's internal control over financial reporting.
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 financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identifl all deficiencies in internal control over

financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identi@ any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we identified the following deficiency in internal control over financial reporting, described in the accompanying Schedule of Findings and Questioned Costs that we consider to be a significant deficiency in internal control over financial reporting.
1. Cash, Investments and Investment Related Activity Expenses/Expenditure and Liabilities Failure to Account for Unclaimed Property FS-949- 10-1
A signiJicantdeJciency 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.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Judges of the Probate Courts Retirement Fund's financial statements are fiee 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 or other matters that are required to be reported under GovernmentAuditing Standards.
This report is intended solely for the information and use of management, members of the Judges of the Probate Courts Retirement Fund Board, 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

- SECTION I n PRIOR YEAR FINDINGS AND QUESTIONED COSTS

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA
SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
JUNE 30,2010
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND OUESTIONED COSTS
FINDING CONTROL NUMBER AND STATUS
FS-949-09-01 Further Action Not Warranted

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- SECTION IV CURRENT YEAR FINDINGS AND OUESTIONEDCOSTS

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS JUNE 30,2010

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: FS-949-10-01 CASH, INVESTMENTS AND INVESTMENT RELATED ACTIVITY EXPENSESIEXPENDITURESAND LIABILITIES Failure to Account for Unclaimed Property

Condition:

Our review of benefit payments for the Judges of the Probate Courts Retirement Fund of Georgia revealed the the Fund has not been properly accounting for outstanding checks. The outstanding checks are being errounously placed into the operating account after being voided.

Criteria:

The Accounting Procedures Manual for the State of Georgia, Section 4-6 states in part: "When canceling or voiding these checks, it is essential to keep record of which checks were originally issued for personal service expense (e-g., wages) separate fiom all others. The sum of the face value of all of the cancelled or voided checks must be remitted to the Department of Revenue annually".

Information:

The Retirement Fund currently has a retiree who has not been cashing monthly benefit checks. As the checks become stale, the checks are currently being voided with the voided amount of the check being put back into the pension h d .

Cause:

The Judges of the Probate Courts Retirement Fund of Georgia failed to implement policies and procedures regarding their outstanding checks as stated in the Accounting Procedures Manual for the State of Georgia and the Unclaimed Property Act OCGA 44-12-190through 44-12-235.

Effect:

Outstanding checks are being voided and the funds being placed back into the operating account resulting in a violation of the Unclaimed Property Act OCGA 44-12-190 through 44-12-235.

Recommendation:

The Judges of the Probate Courts Retirement Fund of Georgia should initiate policies and procedures to account for outstanding checks in accordance with the Accounting Procedures Manual for the State of Georgia.