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REVIEW REPORT PEACE OFFICERS' ANNUITY AND
BENEFIT FUND OF GEORGIA A COMPONENT UNIT OF THE STATE OF GEORGIA
YEAR ENDED JUNE 30, 1998
,---'-------
STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
254 WASHINGTON STREET
ATLANTA, GEORGIA 30334-8400

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

EXIllBITS

FINANCIAL STATEMENTS

A STATEMENT OF PLAN NET ASSETS

ARISING FROM CASH TRANSACTIONS

FIDUCIARY FUND TYPE - PENSION TRUST FUND

2

B STATEMENT OF CHANGES IN PLAN NET ASSETS

ARISING FROM CASH TRANSACTIONS

PENSION TRUST FUND

3

C NOTES TO THE FINANCIAL STATEMENTS

4

SUPPLEMENTARY INFORMATION

SCHEDULES

1 SCHEDULE OF ADMINISTRATIVE EXPENSES PAID BY OBJECT

18

2 RECONCILIATION OF SALARIES AND TRAVEL

19

3 RECONCILIATION OF PER DIEM AND FEES

20

4 SCHEDULE OF FUNDING PROGRESS

21

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

CLAUDE L. VICKERS
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia ~0334-8400
February 12, 1999

Honorable Roy E. Barnes, Governor Members ofthe General Assembly of Georgia Members ofthe Board of Commissioners ofthe Peace Officers' Annuity and Benefit Fund of Georgia
and Honorable Robert W. Carter, Secretary-Treasurer Peace Officers' Annuity and Benefit Fund of Georgia
INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have reviewed the accompanying fmancial statements (Exhibits A through C) of the Peace Officers' Annuity and Benefit Fund of Georgia as of and for the year ended June 30, 1998, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. As described in Note 2, these fmancial statements were prepared on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than generally accepted accounting principles. All information included in these fmancial statements is the representation of the management of the Peace Officers' Annuity and Benefit Fund of Georgia.
A review consists principally of inquiries of retirement fund personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the fmancial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying fmancial statements in order for them to be in conformity with the basis of accounting described in Note 2.
Our review was made for the purpose of expressing limited assurance that there were no material modifications that should be made to the financial statements in order for them to be in conformity with the basis ofaccounting described in Note 2. The accompanying supplementary information (Schedules 1 through 4) is presented only for supplementary analysis purposes. Such information has been subjected to the

98ARL-4C

inquiries and analytical procedures applied in the review ofthe fmancial statements and we are not aware of any material modifications that should be made thereto.
Respectfully submitted,

CLV:gp 98ARL-4C

Claude 1. Vickers State Auditor

FINANCIAL STATEMENTS - 1-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA STATEMENT OF PLAN NET ASSETS ARISING FROM CASH TRANSACTIONS
FIDUCIARY FUND TYPE - PENSION TRUST FUND JUNE 30, 1998

EXHIBIT "A"

ASSETS
Cash and Cash Equivalents
Investments U. S. Government Securities, at Cost (Market Value $102,059,411 ,55) Stocks. at Cost (Market Value $131,713,895.31) Bonds and Debentures, at Cost (Market Value $5.713.125.00) Notes, at Cost (Market Value $25.823.527.85) Investment Accounts, at Cost (Market Value $53,151.60) Investment Pool, at Cost (Market Value $33,169.488.60) Mutual Funds, at Cost (Market Value $9,642,422.44)
TOTAL ASSETS
LIABILITIES
Payroll Withholdings

$

3,389,458.00

$ 98,359,971.02 90,796,652.10 5,485,090.00 24,982,802.20 53,151,60 13,008,506.39 9,642,422,44

242,328.595,75

$ 245,718,053.75

4,392,73

NET ASSETS HELD IN TRUST FOR PENSION BENEFITS (A schedule offunding progress is presented on page 21)

$ 245.713,661.02

See Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
The notes to the financial statements are an integral part of this statement.
-2-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA STATEMENT OF CHANGES IN PLAN NET ASSETS ARISING FROM CASH TRANSACTIONS
PENSION TRUST FUND YEAR ENDED JUNE 30,1998

EXHIBIT"B"

ADDITIONS

Member Contributions

$ 1,118,559.14

Fines and Bond Forfeitures

12,591,469.41

Investment Income Interest Received Dividends Received Gain or (Loss) on Sale of Investments (Net)

$ 8,842,445.98
3,079,548.73 14,511,655.29

26,433,650.00

Other Sources Commission Rebates Contract with Judges of the Probate Courts Retirement Fund of Georgia For Administrative Services Contract with State Agency Georgia Department of Revenue For Collection of Fees from Fines and Bond Forfeitures Proceeds from Sale of Fixed Assets Other

$

77,601.28

15,950.00

31,500.00 500.00 184.74

125,736.02 $ 40,269,414.57

DEDUCTIONS

Benefits Death Benefits Disability Benefits Retirement Benefits Survivorship Benefits

$

193,071.99

929,893.10

7,495,937.11

1,201,298.53 $ 9,820,200.73

Administrative Expenses Personal Services Operating Expenses

$

203,498.76

961,693.56

1,165,192.32

Refunds to Terminated Members

96,481.30

11,081,874.35

NET INCREASE

$ 29,187,540.22

NET ASSETS HELD IN TRUST FOR PENSION BENEFITS - JULY 1, 1997

216,526,120.80

NET ASSETS HELD IN TRUST FOR PENSION BENEFITS - JUNE 30, 1998

$ 245,713,661.02

See Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
The notes to the financial statements are an integral part of this statement.
-3-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXHIBIT "C" NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1998

NOTE 1: PLAN DESCRIPTION

ORGANIZATION AND PURPOSE The Peace Officers' Annuity and Benefit Fund of Georgia is a cost-sharing multiple-employer defined benefit pension plan established in 1950 by the General Assembly of Georgia for the purpose of paying retirement benefits to the peace officers of the State of Georgia. The Board of Commissioners of the Annuity and Benefit Fund is comprised of six (6) members and consists ofthe Governor or his designee, an appointee of the Governor other than the Attorney General, the Commissioner of Insurance or his designee, and three active or retired peace officers appointed by the Governor in accordance with the Official Code of Georgia Annotated Section 47-17-20. The Peace Officers' Annuity and Benefit Fund of Georgia is considered a component unit of the State of Georgia and is included within the State of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and fmancial relationships with the State of Georgia. These reporting entity relationships are defmed in Section 2100 of the Governmental Accounting Standards Board Codification of Governmental Accounting and Financial Reporting Standards.

Individuals eligible to apply for membership in the Annuity and Benefit Fund are defined in the Official Code of Georgia Annotated Section 47-17-1 and generally include any individual employed by the State of Georgia or any municipality, county, or other political subdivision thereof for the preservation of public order, the protection oflife and property or the detection ofcrime, and full-time employees of the Annuity and Benefit Fund. The Annuity and Benefit Fund is funded through a combination ofmember contributions paid by the affected member and designated portions of fmes and forfeitures collected for criminal and quasi-criminal cases involving the violation of State of Georgia laws, county ordinances, or municipal ordinances.

CURRENT MEMBERSIDP The following analysis compares the membership ofthe Peace Officers' Annuity and Benefit Fund of Georgia at June 30, 1998, to that of the prior year:

June 30, 1998 June 30, 1997

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

224 1,244
239

214 1,209
230

Number ofActive Members

-4-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXIDBIT "C"
NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1998
NOTE 1: PLAN DESCRIPTION
PLAN BENEFITS The Peace Officers' Annuity and Benefit Fund of Georgia provides retirement as well as death and disability benefits. Benefit provisions and vesting requirements are established by statute and may be amended only by the General Assembly of Georgia. A description ofplan benefits and vesting requirements is as follows:
(A) RETIREMENT CONDmONS: Retirement benefits vest after ten years of credited service. Normal retirement is the earlier of:
(1) The later ofthe first day ofthe month next following the member's fifty-fifth birthday or the first day of the month following the completion often years of service, or
(2) The first day of the month following the completion ofthirty years of service, regardless of age.
(B) RETIREMENT BENEFITS: The normal monthly benefit is calculated by multiplying $21.41 by the number of years of credited service. Thirty years of credited service is the maximum amount which may be used for the calculation.
(C) OPTIONAL BENEFITS: The following optional benefit provisions are available to members upon application for retirement benefits:
(1) 100% Joint Life Annuity
(2) 50% Joint Life Annuity
The monthly benefit amount paid under the optional provisions is the actuarial equivalent ofthe normal monthly retirement benefit and is payable until remarriage.
(D) DISABILITY BENEFITS: Disability benefits vest after twenty years of credited service. Subject to the approval ofthe Board of Commissioners, any active member ofthe Annuity and Benefit Fund with less than twenty years of credited service who becomes totally and permanently disabled due to disease or injury may be granted a monthly pension in the amount of $306.33. Any active member of the Annuity and Benefit Fund with more than twenty years of credited service who meets the criteria cited above may qualify for a monthly pension calculated in the same manner as a retirement based on age and service.
(E) DEATH BENEFITS:
(1) If a member dies before retirement, the beneficiary is entitled to a lump sum settlement in the amount of$3,500.00.
(2) If a member dies while in the line of duty and has a designated beneficiary, that beneficiary will be eligible for a lump sum benefit of $5,500.00.
-5-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXillBIT "C"
NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1998

NOTE 1: PLAN DESCRIPTION

PLAN BENEFITS (E) DEATH BENEFITS:
(3) Ifa member dies after his or her retirement date, the beneficiary is entitled to a death payment that is decreased by theamount received by the member in retirement untif they have received a total of $1,000.00 in pension. After they have received the first $1,000.00 in pension, the death payment remains at the $2,500.00 level.

(4) If a member dies before or after the retirement date, but before benefits begin, and has an eligible spouse, that spouse may elect to receive a reduced monthly annuity.

(F) TERMINATION: At any time before a member begins drawing retirement benefits the member may request a 95% refund ofall member contributions paid into the Annuity and Benefit Fund. Any interest or penalties paid are not refundable.

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

(A) MEMBER'S CONTRIBUTIONS: Members must contribute $10.00 per month of credited service.

(B) COURT FINES AND FORFEITURES: For each criminal and quasi-criminal case involving the violation of State of Georgia laws, county ordinances, or municipal ordinances, a sum based upon the scale set forth below is collected and remitted to the Annuity and Benefit Fund:

For fines or bond forfeitures in excess of$4.00, but not more than $25.00

$ 3.00

For fines or bond forfeitures in excess of $25.00, but not more than $50.00

$ 4.00

For fines or bond forfeitures in excess of $50.00, but not more than $100.00

$ 5.00

For fines or bond forfeitures in excess of $100.00

5%

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS

FUND COMPRISING FINANCIAL STATEMENTS The Peace Officers' Annuity and Benefit Fund of Georgia uses a fund to report on its financial position and the results ofits operations determined inconformity with the accounting practices prescribed or permitted by statutes and regulations ofthe State of Georgia A fund is an independent fiscal and accounting entity with a self-balancing set ofaccounts. Fund accounting segregates funds according to their intended purpose and

-6-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXHIBIT "C" NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1998
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS
FUND COMPRISING FINANCIAL STATEMENTS is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number offunds are maintained consistent with legal and managerial requirements. The fund presented in the accompanying financial statements is as follows:
FIDUCIARY FUND TYPE
PENSION TRUST FUND - The fund used to account for the accumulation of resources for retirement benefits to eligible members.
BASIS OF ACCOUNTING The Peace Officers' Annuity and Benefit Fund ofGeorgia prepares its financial statements on the basis ofcash receipts and disbursements, which is a comprehensive basis of accounting other than generally accepted accounting principles. This basis of accounting is defmed as that method of accounting in which certain revenues and related assets are recognized when received rather than when earned, and certain expenses are recognized when paid rather than when the obligation is incurred.
Generally accepted accounting principles applicable to retirement funds require that investments be valued at fair value as of the plan year-end for the Statement of Plan Net Assets. While market value has been disclosed, it is not presented within the financial statements at June 30, 1998, as it is the policy of the Peace Officers' Annuity and Benefit Fund of Georgia to prepare its financial statements on a basis of accounting other than generally accepted accounting principles as noted above.
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents include currency on hand and demand deposits with a bank.
INVESTMENTS The Official Code of Georgia Annotated Section 47-17-23 states that the Board of Commissioners of the Peace Officers' Annuity and Benefit Fund of Georgia shall have full power to invest and reinvest funds subject to the terms and conditions imposed by the laws ofthe State ofGeorgia upon domestic life insurance companies in the making and disposing of their investments. In addition, the Board of Commissioners is restricted to invest no more than 50% ofthe assets ofthe Annuity and Benefit Fund in common stocks and equities and may not invest more than 5% of the investment portfolio in corporations or in obligations of
corporations organized in a country other than the United States ofAmerica or Canada. Statutory provisions
governing the investments of domestic life insurance companies are enumerated in Title 33, Chapter II of the Official Code of Georgia Annotated. The significant forms of investments in accordance with these statutes and available to the Annuity and Benefit Fund are as follows:
(l) Deposits in checking, savings, certificates ofdeposit or similar evidences ofdeposits in banks, trust companies, savings and loan associations and building and loan associations which have qualified for the insurance protection afforded by the Federal Deposit Insurance Corporation.
-7-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXHIBIT "C" NOTES TO THE FINANCIAL STATEMENTS JUNE 30. 1998

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS

INVESTMENTS (2) Securities of any open-end management type investment company or investment trust registered with the Securities and Exchange Commission, provided that the investment company or trust has been organized for not less than ten years or has assets"ofnot less than $25,000,000.00 at the date of investment.

(3) Bonds, notes, securities or other evidences of indebtedness which are direct obligations of the government of the United States of America.

(4) Loans guaranteed as to principal and interest by the government of the United States of America,

to the extent of such guaranty.

.

(5) Bonds, notes, warrants or securities not in default which are direct obligations of any state of the United States of America or of the District of Columbia, or of the government of Canada or any province of Canada, or for which the full faith and credit of such state, district, government or province has been pledged for the payment ofprincipal and interest.

(6) Obligations oflocal units ofgovernment or government related entities located within the United States of America or Canada, subject to certain conditions.

(7) Dividend paying stocks, common or preferred, ofany solvent corporation created or existing under the laws of the United States of America or any state or of the District of Columbia, subject to certain conditions.

(8) Bonds, debentures, notes, or other evidences of indebtedness of any solvent corporation created or existing under the laws of the United States of America or of any state or of the District of Columbia, subject to certain conditions.

(9) Bonds, debentures, notes, or other evidences ofindebtedness which are secured by first mortgage or deed of trust or deed to secure debt upon fee simple, unencumbered improved real estate or income producing real property located in the United States of America or Canada, subject to certain conditions.

(10) Purchase money mortgages or like securities received upon the sale or exchange of real property acquired.

(11) Real estate acquired for the purpose of leasing same to any person, fIrm or corporation, or in real estate already leased to any person, fIrm or corporation, subject to certain conditions.

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 Annuity and BenefIt Fund's investment custodian for purposes of continual investment are reflected as

-8-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXHIBIT "C" NOTES TO THE FINANCIAL STATEMENTS
JUNE 3D. 1998
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS
INVESTMENTS investments regardless ofthe term ofthe instruments. The method used to exchange or "swap" securities is the par-for-par basis with the proviso that exceptions may be made on quantities in order to even out odd lot transactions and provided further that the amount of such differences shall not be more than 100 bonds of $1,000 denominations. Any pay-up on a swap must be recouped by additional income over a seven-year period or over the life ofthe bond to call, whichever is shorter. Pay-up shall not be greater than the difference regardless of the term of the instruments. Investments in U. S. government securities, stocks, bonds and debentures, notes, investment accounts, investment pools, and mutual funds are recorded at cost. Accrued interest purchased, premiums or discounts on bonds and debentures and U. S. government securities are reflected as a part of cost and are not amortized over the remaining life of the security. The market values reflected on the Statement of Plan Net Assets were based on valuations appearing in the Annuity and Benefit Fund's Investment Custodian Trust Report at June 30, 1998.
Interest income and dividend income are recognized when received in cash. Gains and/or losses are recognized using the completed transaction method. Accrued interest purchased is recorded as a reduction of interest income at the time ofpurchase.
Approximately 40% ofthe net assets available for benefits are invested in U. S. government securities. The Annuity and Benefit Fund has no other investments in securities of governmental, commercial, or industrial organizations whose cost exceeds 5% ofplan net assets.
The Peace Officers' Annuity and Benefit Fund of Georgia participates in an investment pool managed by the Employees' Retirement System of Georgia (ERS). Disclosures concerning risk exposure from investments in derivatives or similar investments made through the ERS investment pool, if any, are located in the ERS fmancial report.
The Annu!!l' and Benefit Fund has funds invested in open-end mutual funds. The Annuity and Benefit Fund
is not aware of the risk exposure resulting from investments in derivatives or similar investments, if any, ...."through these open-end mutual funds.
FIXED ASSETS Fixed assets are recorded as expenditures atthe time ofpurchase. No depreciation has been provided on fixed assets.
RELATED PARTY TRANSACTIONS The Secretary-Treasurer of the Peace Officers' Annuity and Benefit Fund Q,f Georgia is also SecretaryTreasurer ofthe Judges ofthe Probate Courts Retirement Fund ofGeorgia For the year ended June 30, 1998, the Annuity and Benefit Fund received $15,950.00 from the Judges of the Probate Courts Retirement Fund of Georgia for contracted administrative services.
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PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXIllBIT "C" NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 1998

NOTE 3: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

CATEGORIZATION OF DEPOSITS For purposes of analysis of custodial credit risk, cash deposits consist of all bank balances which include demand deposits and/or interest bearing accounts. The bank balances as of June 30, 1998, are categorized below in order to provide information about the extent to which such deposits are exposed to custodial credit risk.

Category 1 - Amounts covered by depository insurance or collateralized with securities (at market value) held by the Annuity and Benefit Fund or by its agent in the Annuity and Benefit Fund's name.

Category 2 - Amounts collateralized with securities (at market value) held by the pledging financial institution's trust department or agent in the Annuity and Benefit Fund's name.

Category 3 - Amounts collateralized with securities (at market value) held by the pledging financial institution or by its trust department or agent, but not in the Annuity and Benefit Fund's name, and amounts uncollateralized.

Cash Deposits

Carrying Amount

Bank Balance

Risk Categories

2

3

$ 3.389,258,00 $ 3.404,794.59 $ 100000 00 $=="';OM!l'O~O $ 3,304794,59

CATEGORIZATION OF INVESTMENTS For purposes of analysis ofcustodial credit risk, investments consist ofU. S. government securities, stocks, bonds and debentures, notes, and investment accounts. Investments are stated at cost, and are summarized and classified as to custodial credit risk within the categories described below:

Category 1 - Insured or registered, or securities held by the Annuity and Benefit Fund or its agent in the Annuity and Benefit Fund's name.

Category 2 - Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the Annuity and Benefit Fund's name.

Category 3 - Uninsured and unregistered, with securities held by the counterparty, or by its trust department or agent but not in the Annuity and Benefit Fund's name.

The carrying amounts ofinvestm~nt balances as of June 30, 1998, are categorized below. These amounts
include amounts maintained in an investment pool by the Employees' Retirement System of Georgia and
open-end mutual funds which are not subject to risk categorization.

-10 -

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXHIBIT "C" NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

NOTE 3: CUSTODIAL CREDIT RISKS OF CASH DEPOSITS AND INVESTMENTS

CATEGORIZATION OF INVESTMENTS

Type ofInvestment

Risk Categories

2

3

Carrying Amount

Market Value

U. S. Government Securities $ 98,359,971.02 $

Stocks

90,796,652.10

Bonds and Debentures

5,485,090.00

Notes

24,982,802,20

Investment Accounts

53,151.60

0.00 $

0.00 $ 98,359,971.02 $ 102,059,411.55

90,796,652.10 131,713,895.31

5,485,090.00 5,713,125.00

24,982,802.20 25,823,527.85

53.151.60

53.151.60

$ 219.677 666.92 $

0,00 $'====0d.0~0 $ 219,677,666.92 $ 265,363,111.31

Government Investment Pool

13,008,506.39 33,169,488.60

Mutual Funds (Open-End)

9,642.422.44

9,642.422.44

Total Investments

$ 242.328.595.75 $ 308 175022.35

NOTE 4: OPERATING LEASES

The Peace Officers' Annuity and Benefit Fund of Georgia has entered into certain agreements to lease equipment which are classified as operating leases. These leases generally contain provisions that, at the expiration ofthe original term ofthe lease, the Annuity and Benefit Fund has the option ofrenewing the lease on a year-to-year basis. Future minimum lease payments for operating leases as of June 30, 1998, are listed below. Amounts are included only for multi-year leases and for cancellable leases for which an option to renew for the subsequent fiscal year has been exercised.

Fiscal Year Ending June 30

1999 2000

$ 2,599.92 2,383.26

Total Future Minimum Lease Payments

$ 4,983.18

Expenditures for rental of equipment under operating leases for the year ended June 30, 1998, totaled $2,599.92.

NOTE 5: CAPITAL LEASES

The Peace Officers' Annuity and Benefit Fund of Georgia acquires certain vehicles and equipment through multi-year capital leases with varying terms and options. These agreements contain fiscal funding clauses in accordance with Official Code of Georgia Annotated Section 50-5-64 which prohibits the creation of a debt to the State of Georgia for payment of any sums under such agreements beyond the fiscal year of execution

- 11 -

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXHIBIT "C" NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

NOTE 5: CAPITAL LEASES

if appropriated funds are not available. If renewal of such agreements is reasonably assured, capital leases requiring appropriation by the General Assembly of Georgia are considered noncancellable for financial reporting purposes.

As of June 30, 1998, future minimum lease payments under capital leases are as follows:

Fiscal Year Ending June 30

1999 2000 2001

$ 7,985.28 7,985.28 3,992.78

Total Future Minimum Lease Payments

$ 19,963.34

Less: Amounts Representing Interest

1,560.41

Present Value ofFuture Minimum Lease Payments

$ 18.402.93

NOTE 6: FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS

The Peace Officers' Annuity and Benefit Fund of Georgia did not implement Governmental Accounting Standards Board (GASB) Statement No. 25, Financial Reportingfor DefinedBenefit Pension Plans andNote Disclosuresfor Defined Contribution Plans, for the fiscal year ended June 30, 1998, as required by generally accepted accounting principles. GASB Statement No. 25 requires that the Annuity and Benefit Fund measure all actuarially detennined information in accordance with certain parameters. Statement No. 25 also requires that an actuarial valuation be performed at least biennially. The last actuarial valuation was dated July 1, 1995.

An actuarial valuation dated July 1, 1998, was performed in the subsequent year. GASB Statement No. 25 requires a schedule offunding progress and a schedule ofemployer contributions for the most recent six fiscal years ofinformation. A schedule offunding progress is shown for informational purposes, but the required six-fiscal-year history of funding progress prior to July 1, 1998, is not available. A schedule of employer contributions is not presented since this actuarial valuation did not provide information in accordance with the parameters noted.

NOTE 7: CONTRIBUTIONS REQUIRED AND MADE

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

- 12-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXHIBIT "C" NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

NOTE 7: CONTRIBUTIONS REQUIRED AND MADE

exceed legislative requirements. The actuarial valuation as of July 1, 1998, which reflected the proceeds of designated portions of fmes and bond forfeitures as the employer contribution, indicated that the minimum employer contribution level was being met. Member contribution require~ents are set forth in O.C.G.A. Section 47-17-44 and are not actuarially determined. Covered payroll information was not available.

NOTE 8: CONTRIBUTIONS REQUIRED AND MADE

FUNDING REQUIREMENTS
Actual contributions for the year ended June 30, 1998, were as follows:

Member Contributions Fines and Bond Forfeitures

$ 1,118,559.14 12,591,469.41

$13.710.028.55

NOTE 9: CHANGES IN FIXED ASSETS

Fixed assets used in plan operations are not included in the accompanying financial statements as required by generally accepted accounting principles applicable to retirement funds. The following is a summary of changes in fixed assets during the fiscal year:

Land

Building

Equipment

Total

Balance July 1, 1997

$ 5,000.00 $ 305,295.76 $ 92,866.47 $ 403,162.23

Additions

32,715.23

32,715.23

Deletions

2,083.73

2,083.73

Balance June 30, 1998 $=~ 5.0~ 00.~ 00 $ 305.295.76 $ 123.497.97 $ 433.793.73

NOTE 10: RISK MANAGEMENT

PUBLIC ENTITY RISK POOL
The State Personnel Board, Merit System of Personnel Administration administers for the State of Georgia a program ofhealth benefits for the employees ofunits of government ofthe State of Georgia, units of county government and local education agencies located within the State of Georgia. This plan is funded by participants covered in the plan, by employers' contributions paid by the various units of government participating in the plan, and appropriations made by the General Assembly of Georgia. The State Personnel Board, Merit System of Personnel Administration has contracted with Blue Cross Blue Shield of Georgia to process claims in accordance with the State Employees' Health Benefit Plan as established by the State Personnel Board.

- 13 -

PEACE OFFICERS' ANNillTY AND BENEFIT FUND OF GEORGIA EXHIBIT "C" NOTES TO THE FINANCIAL STATEMENTS
.JUNE 30, 1998
NOTE 10: RISK MANAGEMENT
OTHER RISK MANAGEMENT The Peace Officers' Annuity and Benefit Fund of Georgia is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illnesses or injuries to employees (workers' compensation); natural disaster; and unemployment compensation.
The Peace Officers' Annuity and Benefit Fund of Georgia has obtained commercial insurance for risk of loss associated with torts, assets, and workers' compensation. The Annuity and Benefit Fund has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded insurance coverage in any of the past three years.
The Peace Officers' Annuity and Benefit Fund of Georgia has elected to self-insure for all losses related to errors or omissions, which includes, among other risks, risks for sexual harassment and discrimination. No losses related to errors or omissions have occurred in the past three years.
The Peace Officers' Annuity and Benefit Fund of Georgia has elected to self-insure. with regard to unemployment insurance. Claims are accounted for on a cash basis and no losses related to unemployment insurance have occurred in the past three years.
The Secretary-Treasurer ofthe Peace Officers' Annuity and Benefit Fund of Georgia is bonded in the amount of $100,000.00 under a Public Official Bond written by Employers Insurance of Wausau, on which the premium has been paid to October 1, 1998.
The Secretary-Treasurer and all employees ofthe Peace Officers' Annuity and Benefit Fund of Georgia are bonded under a Public Employees Blanket Bond written by Employers Insurance of Wausau, on which the premium has been paid to October 1, 1998. Under this agreement the Public Employee Dishonesty Coverage insures the Annuity and Benefit Fund to a maximum of $1,000,000.00 against loss sustained through fraudulent or dishonest acts by its employees. The Faithful Performance of Duty Coverage insures the Annuity and Benefit Fund to a maximum of $1,000,000.00 against loss sustained from failure of its employees to perform faithfully their duties or to account properly for all monies and property received by virtue oftheir position or employment.
NOTE 11: YEAR 2000 SYSTEMS READINESS
The Peace Officers' Annuity and Benefit Fund of Georgia has identified one computer system that is critical to operations affected by the year 2000 issue. The year 2000 issue is the result of shortcomings in many electronic data processing systems and other equipment that make operations beyond the calendar year 1999 troublesome. The following stages have been identified by Governmental Accounting Standards Board Technical Bulletin 98-1, Disclosure About Year 2000 Issues, as necessary to implement year 2000 compliant systems.
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PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA EXIllBIT "C" NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1998

NOTE 11: YEAR 2000 SYSTEMS READINESS

Awareness Stage - Encompasses establishing a budget and project plan for dealing with the year 2000 issue.

Assessment Stage - The actual process of identifying all of its systems and individual components of the systems to check for compliance.

Remediation Stage - When changes are made to systems and equipment.

ValidationlTesting Stage - The process of ensuring that the changes made to systems and equipment will produce a year 2000 compliant system.

It will be necessary for the Annuity and Benefit Fund to progress through all four of these stages for the

computer system, not already year 2000 compliant, in order to assure that this system will not be adversely

affected.

.

The financial accounting system has been identified by management as a mission critical system. The following is an analysis of the progress made in ensuring this system is year 2000 compliant.

Peachtree Software

Primary Function General accounting

Compliance Stage at June 30. 1998
Assessment Stage

Compliance Stage Necessary for Completion
Remediation and Validation/Testing Stages

Because ofthe unprecedented nature ofthe year 2000 issue, its effects and the success ofrelated remediation efforts will not be fully detenninable until year 2000 and thereafter. While management is confident that the Annuity and Benefit Fund will be year 2000 ready, it cannot assume that its remediation efforts will be successful in whole or in part, or that parties with whom the Annuity and Benefit Fund does business will be year 2000 ready.

NOTE 12: CONTINGENCffiS

Litigation, claims and assessments filed against the Peace Officers' Annuity and Benefit Fund of Georgia, if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 1998.

At June 30, 1998, the Peace Officers' Annuity and Benefit Fund of Georgia had inactive members' dues on hand in the amount of $255,969.68. Ninety-five percent (95%) of such dues are refundable upon request of the inactive members.

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SUPPLEMENTARY INFORMAnON - 17-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA SCHEDULE OF ADMINISTRATIVE EXPENSES PAID BY OBJECT
YEAR ENDED JUNE 30, 1998

SCHEDULE "1"

PERSONAL SERVICES
Salaries and Wages Employer's Contributions for:
F.I.CA Health Insurance Workers' Compensation Insurance
OPERATING EXPENSES
Regular Operating Expenses Motor Vehicle Expenses Supplies and Materials Repairs and Maintenance Utilities Insurance and Bonding Other Operating Expenses Publications and Printing
Travel
Motor Vehicle Purchases Lease/Purchase of Equipment
Equipment Equipment Purchases LeaselPurchase of Equipment Rental of Equipment
Computer Charges Software
Telecommunications
Per Diem, Fees and Contracts Per Diem and Fees

$ 176,130.55

$ 12,315.06
14,880.15 173.00

27,368.21 $

203,498.76

$

231.69

11,218.86

7,809.34

6,775.59

26,096.15

11,110.10

4,026.57 $ 67,268.30

6,596.74

4,292.64

$ 7,616.23
2,821.32 5,499.36

15,936.91

1,071.85 4,452.21

862,074.91

961,693.56

$ 1,165,192.32

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
-18 -

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30,1998

SCHEDULE "2"

Totals per Annual Supplement

Adjustments Carter, Cline, Hancock, Langford, Park, Reed, Warren,

Robert W. William L. Billy P. Flynt Jack L., Jr. Bobby
B. Neil

Totals per Report

SALARIES

TRAVEL

$ 175,662.95 $

9,332.19

468.00

444.41 -1,324.55
-915.66 -17.62
-146.13 -768.86
-7.04

$ 176,130.95 $====6:=,59=6;,:,.7=4

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
-19 -

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA RECONCILIATION OF PER DIEM AND FEES YEAR ENDED JUNE 30, 1998

SCHEDULE "3"

Totals per Annual Supplement

Adjustments

Bolton and Park

Cline,

WilliamL

Hancock,

Billy

Invesco Trust Company

Johnson,

RUdolph

Langford,

Gwen

Langford,

P. Flynt

Park,

Jack L, Jr,

Reed,

Bobby

Wachovia Bank of Georgia

Warren,

B, Neil

Totals per Report

TYPE PAYMENT

FEE AMOUNT

EXPENSE AMOUNT

TOTAL

$ 856,519,59 $

0,00 $ 856,519.59

Attomey Board Member Board Member Investment Manager Board Member Consultant Consultant Attomey Board Member Investment Custodian Consultant

-19,748,50 225.00 300.00 -62.06
19,748,50 150,00
2,437.50

1,092.65 615.66
6,90 8,82 8,82 146,13 618.86
7,04

-19,748.50 1,317.65 915.66 -62.06 6.90 8,82 8,82
19,894,63 768.86
2,437.50 7.04

$ 859,570.03 $ 2,504,88 $ 862,074.91

See accompiilnying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Information.
-20-

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA SCHEDULE OF FUNDING PROGRESS YEAR ENDED JUNE 30, 1998

SCHEDULE "4"

ACTUARIAL VALUATION
DATE

ACTUARIAL VALUE OF ASSETS
(a)

ACTUARIAL ACCRUED LIABILITY (AAL) -ENTRY AGE NORMAL
(b)

UNFUNDED AAL
(UAAL) (b-a)

07/01/98 $ 263,141,974,00 $ 237,509,076,00 $ -25,632,898.00

FUNDED RATIO (alb)
110.8%

COVERED PAYROLL
(c)

UAALASA PERCENTAGE OF COVERED
PAYROLL b-a)/c)

nla

nla

Infonnation prior to July 1, 1998, is not available in accordance with the parameters of GASB Statement No, 25,

The infonnation presented in this supplementary schedule is based on the actuarial study prepared as of JUly 1, 1998. The actuarial value of assets is equal to 95% of market value of assets. Additional infonnation of this latest actuarial follows:

Valuation Date

July 1, 1998

Actuarial Cost Method

Entry age nonnal

Amortization Method

Level dollar, open

Remaining Amortization Period

30 years

Asset Valuation Method

Market related

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

7% None None None

See accompanying notes and Independent Accountant's Combined Report on Review of Financial Statements and Supplementary Infonnation.
- 21 -

SECTIONll AUDlTEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

PEACE OFFICERS' ANNUITY AND BENEFIT FUND OF GEORGIA AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1998

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

947-96-01

Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTIONIRESPONSES

BENEFITS EXPENSE Retirement Benefit Overpayments Finding Control Number: 947-96-01

The remaining outstanding balance of $450.16 is being recovered through deductions from the monthly benefits paid to those individuals involved.