Audit report, Magistrates Retirement Fund of Georgia, year ended June 30, 2007

STATE OF GEORGIA
Sonny Perdue Governor
AUDIT REPORT MAGISTRATES RETIREMENT FUND
OF GEORGIA YEAR ENDED JUNE 30, 2007
Prepared by State Accounting Office

MAGISTRATES RETIREMENT FUND OF GEORGIA - TABLE OF CONTENTS -

SECTION I - FINANCIAL

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

Supplementary Information

1

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 ofFunding Progress

10

Schedule of Employer Contributions

11

Notes to Required Supplementary Information

12

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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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

w. RUSSELL HINTON

Atlanta, Georgia 30334

STATE AUDITOR (404) 656-2174

June 10, 2008

The Honorable Sonny Perdue, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the Board of Commissioners of the Magistrates 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 Magistrates Retirement Fund of Georgia, a part of the primary government of the State of Georgia, as of and for the year ended June 30, 2007, as listed in the table of contents. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion 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 Comptroiler 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 opinion.

In our opinion, the statements referred to above present fairly, in all material respects, the financial position of the Magistrates Retirement Fund of Georgia, as of June 30, 2007, and the changes in plan net assets available for benefits 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 a report dated June 10, 2008 on our consideration of the Magistrates Retirement Fund of Georgia's internal control over

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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 Magistrates 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:wlt

Russell W. Hinton, CPA, CGFM State Auditor

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BASIC FINANCIAL STATEMENTS

MAGISTRATES RETIREMENT FUND OF GEORGIA STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2007

Assets Cash and Cash Equivalents Receivables
Other
Total Assets
Net Assets Held in Trust for:
Pension Benefits

$

1,369,156

116,710

$

1,485,866

$

1,485,866

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

MAGISTRATES RETIREMENT FUND OF GEORGIA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS
FOR THE FISCAL YEAR ENDED JUNE 30, 2007

Additions: Contributions Plan Members Other Contributions Other Fees Interest and Other Investment Income Dividends and Interest
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

$

104,213

1,396,879

16,578

$

1,517,670

$

29,914

1,890

$

31,804

$

1,485,866

0

$ =====1,=48=5=,8=66=

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

MAGISTRATES RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2007

A. PLAN DESCRIPTION
ORGANIZATION AND PLAN DESCRIPTION The Magistrates Retirement Fund of Georgia is a cost-sharing multiple-employer defined benefit pension plan established July 1, 2006 by the General Assembly of Georgia for the purpose of paying retirement benefits to chief magistrates of the magistrate 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, and five full-time chief magistrates who are members of the Retirement Fund. The Magistrates 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 full-time chief magistrates of a county of the State of Georgia and any person serving as secretary-treasurer of the Board of Commissioners of the Magistrates Retirement Fund of Georgia are eligible for membership. The Retirement Fund is funded through a combination of member contributions paid by the affected chief magistrates and designated portions of fees collected for civil filings.
CURRENT MEMBERSIDP As this fund began operations on July 1, 2006, there were no members receiving benefits at June 30, 2007. Membership at June 30, 2007 is as follows:

Number of Active Members Vested Nonvested

June 30, 2007
0 87

Total

87

BENEFITS The Magistrates 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 shall be eligible for retirement at age 60 and must have served at least eight years as a regularly qualified and commissioned full-time chief magistrate or as a secretarytreasurer of the Board of Commissioners of the Retirement Fund. A member must have terminated his or her official capacity as a chief magistrate or as a secretary-treasurer of the Board to receive benefits.
(B) RETIREMENT BENEFITS: A member who is approved for retirement benefits shall be paid a monthly benefit equal to 4 percent of his or her average final monthly compensation (subject to a salary cap) for each year served up to, but not exceeding, a total of twenty years, with exceptions.

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MAGISTRATES RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2007
A. PLAN DESCRIPTION (C) 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. (D) 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, shall 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. (E) 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. B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The Pension Fund's financial statements are prepared on the accrual basis of accounting. Contributions from members are recognized as additions in the period in which the members provide services and court fees are recognized as additions in the period collected by the magistrate courts. Retirement benefit and refund payments are recognized as deductions when due and payable. C. CONTRIBUTIONS FUNDING POLICY As the pension fund began operations on July 1, 2006, no actuarial valuation reporting the progress of the employer contribution has been prepared at June 30, 2007. Member contribution requirements are set forth in O.C.G.A. Section 47-25-41 and are not actuarially determined. Administrative expenses are generally funded from current member and court fee contributions. Investment earnings may be utilized to fund any expenses in excess of contributions.
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MAGISTRATES RETIREMENT FUND OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2007

C. 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.
(B) MAGISTRATE COURT CONTRIBUTIONS: In addition to all other legal costs, the sum of $3.00 shall be charged and collected in each civil matter or proceeding filed in the magistrate courts. The fees shall be remitted to the secretary-treasurer of the Retirement Fund.
Actual contributions for the year ended June 30, 2007, were as follows:

Member Contributions Civil Filings

$

104,213

1,396,879

Total

$

1,501,092

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REQUIRED SUPPLEMENTARY INFORMATION

MAGISTRATES RETIREMENT FUND OF GEORGIA SCHEDULE OF FUNDING PROGRESS JUNE 30, 2007

Actuarial Valuation
Date

Actuarial Value of Assets
(a)

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

Unfunded AAU(Funding
Excess) (UAAL)
(b-a)

Funded Ratio (alb)

Covered Payroll
(c)

UAALasa Percentage of Covered
Payroll ((b-a)/c)

July 1, 2007

$

1,369,156 $

700,003 $

(669,153)

195.6%

n/a

n/a

The actuarial value of assets at July 1, 2007 is equal to 100% of the market value of assets.

Fiscal Year
2007

MAGISTRATES RETIREMENT FUND OF GEORGIA SCHEDULE OF EMPLOYER CONTRIBUTIONS JUNE 30, 2007

Annual Required Contribution

$

610,141

Percentage Contributed
210%

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MAGISTRATES RETIREMENT FUND OF GEORGIA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
JUNE 30, 2007

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:

July 1, 2007

Actuarial Cost Method:

Entry age normal

Amortization Method:

Level dollar, open

Remaining Amortization Period:

30 years

Asset Valuation Method:

5 year smoothed market value

Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Includes Inflation at Cost-of-Living Adjustments

7% Not applicable None None

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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 GOVERNMENTAUDITING STANDARDS

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DEPARTMENT OF AUDITS AND ACCOUNTS

w. RUSSELL HINTON

270 Washington St. S.W. Suite 1-156 Atlanta, Georgia 30334

STATE AUDITOR (404) 656-2174

June 10, 2008

The Honorable Sonny Purdue, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the Board of Commissioners of the Magistrates Retirement Fund of Georgia
and Honorable Robert W. Carter, Secretary/Treasurer
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATIERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
We have audited the financial statements of the Magistrates Retirement Fund of Georgia, a part of the primary government of the State of Georgia, as of and for the year ended June 30, 2007, and have issued our report thereon dated June 10, 2008.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Magistrates Retirement Fund of Georgia'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 Magistrates Retirement Fund of Georgia's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Magistrates Retirement Fund of Georgia's internal control over financial reporting.
A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the

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entity's internal control. We consider the following deficiency in internal control as described in the Schedule of Findings and Questioned Costs to be a significant deficiency:
1. Expenditures/Liabilities/Disbursements Inadequacies in Accounting Procedures FS-991-07-01
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control.
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Magistrates 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 or other matters 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 Magistrates Retirement Fund of Georgia 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,

RWH: wit

Russell W. Hinton, CPA, CGFM Sta~e Auditor

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SECTION III - CURRENT YEAR FINDINGS AND QUESTIONED COSTS

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MAGISTRATES RETIREMENT FUND OF GEORGIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2007

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

Finding Control Number: FS-991-07-01 EXPENDITURES/LIABILITIES/DISBURSEMENTS Inadequacies in Accounting Procedures Significant Deficiency

Condition: Criteria: Cause: Effect: Recommendation:

The Magistrates Retirement Fund paid the Secretary/freasurer $13,200.00 as per

diem payments for administering the newly established Retirement Fund. In

addition, we were unable to determine if this compensation was reported to the

Internal Revenue Service {IRS) through IRS Form 1099.



IRS Publication 15-A discusses the business relationship between an employee and an independent contractor. The publication states in part: "under common law rules, anyone who performs services for you is your employee if you have the right to control what will be done and how it will be done."

Management lacked the sound business discretion to treat the Secretary/freasurer's compensation as salary even though he receives salary as compensation from the other two Retirement Funds for which he has been serving as Secretary/freasurer.

Improperly classifying an employee as an independent contractor when you have no reasonable basis to do so could result in the Magistrates Retirement Fund having to pay employment taxes on that individual. Failing to file IRS Form 1099 by the due date could also result in fines being levied by the IRS.
The Magistrates Retirement Fund should discontinue paying the Secretary/ Treasurer's compensation as per diem and report it as salary. Additionally, the Retirement Fund should file IRS Form 1099 for the amounts paid to the Secretaryffreasurer as per diem.

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