Audit report, Sheriffs' Retirement Fund of Georgia, fiscal year ended June 30, 2013

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

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

SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia)

- TABLE OF CONTENTS Page
SECTION I - FINANCIAL

Independent Auditor's Report

1

Basic Financial Statements

Statement of Fiduciary Net Position

6

Statement of Changes in Fiduciary Net Position

7

Notes to the Financial Statements

8

Required Supplementary Information (Unaudited)

Schedule of Funding Progress

18

Schedule of Contributions from the Employer and Other Contributing Entities

19

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

23

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SECTION I - FINANCIAL

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BASIC FINANCIAL STATEMENTS

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

Assets: Cash and cash equivalents
Interest and dividends receivable
Investments, at fair value: Pooled investments Mutual funds U. S. Government obligations Corporate bonds/notes/debentures Stocks Total investments
Total assets
Liabilities: Accounts payable and other accruals Compensated absences payable
Total liabilities
Net position restricted for pensions
See accompanying notes to financial statements.

$

2,225,917

217,732

$

5,893,690

15,045,335

6,193,297

11,712,184

39,022,372

77,866,878 80,310,527

19,270 2,761

22,031

$

80,288,496

6

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

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

$

126,311

2,336,786

$

1,909,227

7,903,206

(388,846)

9,423,587 5,565
11,892,249

205,619 4,887,025
24,660
5,117,304
6,774,945

73,513,551

$

80,288,496

7

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

NOTE 1 - PLAN DESCRIPTION

ORGANIZATION AND PLAN DESCRIPTION
The Sheriffs' Retirement Fund of Georgia is a cost-sharing multiple-employer defined benefit pension plan established in 1963 by the General Assembly of Georgia for the purpose of paying retirement benefits to the sheriffs of the State of Georgia. The Board of Commissioners of the Retirement Fund is comprised of six members and consists of the state treasurer, one former sheriff who is a retired beneficiary of the Retirement Fund, and four persons holding office as sheriffs within the State of Georgia, each of whom are active members of the Retirement Fund and have held office as a sheriff for at least four years. The Sheriffs' Retirement Fund of Georgia, a component unit of the State of Georgia, is included within the State of Georgia's basic financial statements as fiduciary funds of the primary government.

Any qualified and commissioned sheriff of the superior court of any county within the State of Georgia who makes payment of the required contributions is eligible for membership. The Retirement Fund is funded through a combination of member contributions paid by the affected sheriffs and designated portions of fines and forfeitures for criminal and quasi-criminal cases involving the violation of State of Georgia statutes, including traffic laws.

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

June 30, 2013

Retirees and beneficiaries currently receiving benefits

201

Terminated members not yet receiving benefits, vested

9

Total

210

Number of active members

150

PARTICIPATING EMPLOYERS AND CONTRIBUTING ENTITIES The number of participating employers of the Retirement Fund at June 30, 2013 was 150. The number of contributing entities of the Retirement Fund at June 30, 2013 was 925.
BENEFITS The Sheriffs' Retirement Fund of Georgia provides retirement as well as 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: Normal retirement is at age 55 provided the member has at least four years of credited service as a sheriff after and including January 1, 1961. The credited service requirement is eight years for a sheriff who first or again becomes an active member on or after July 1, 1988. A member must have terminated his or her service as sheriff to receive benefits.

8

SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013
NOTE 1 - PLAN DESCRIPTION (continued)
(B) RETIREMENT BENEFITS: The monthly benefit is a single life annuity payable in monthly payments for the life of the member. The maximum monthly payment at June 30, 2013 is equal to $136.10 per month (plus 1/12 of this amount for each month of any partial year) for each full year of creditable service up to a maximum of $4,083.00 per month. The Board of Commissioners is authorized to provide for increases effective as of January 1 and July 1 of each year up to 1 percent of the maximum monthly retirement benefit then in effect.
(C) OPTIONAL BENEFITS: Members may elect, as an alternate to the benefit described above, to receive a 100 percent joint life annuity payable during the life of the member or the member's spouse or a contingency life annuity with a 50 percent monthly payment to the surviving spouse. The amount of the benefit for these options is an actuarially reduced portion of the single life annuity benefit described above.
(D) DEATH BENEFITS (1) In the event of the death of a member before retirement, the total amount of his or her contributions into the fund shall be paid, without interest, to the surviving spouse, the named beneficiary or the member's estate.
(2) In the event of the death of a member after retirement, who has yet to receive an amount in benefits equal to the total amount the member paid in as contributions, the difference shall be paid, without interest, to the surviving spouse, the named beneficiary or the member's estate.
(3) Additionally, upon the death of the following, the sum of $15,000 shall be paid to the surviving spouse, the named beneficiary or the members estate:
(a) an inactive member who would otherwise qualify to be carried upon the active membership rolls except that he or she no longer holds office of sheriff;
(b) a member who is receiving retirement benefits;
(c) a member who is otherwise qualified to receive retirement benefits from this Retirement Fund except that he or she has not reached age 55 or has not filed an application or has not been approved for retirement benefits or
(d) any active member.
(4) In addition to the death benefit discussed in item (D)(3), upon the death of an active member, the surviving spouse receives an additional benefit in the form of a 100 percent joint life annuity. In such event, the death benefit discussed in item (D)(1) will not be payable.
(E) TERMINATION: At any time before a member begins drawing retirement benefits, the member may request a refund of the total sum he or she has paid into the Retirement Fund as membership dues. No interest shall be paid upon amounts so withdrawn.
9

SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The Retirement Fund's financial statements are prepared on the accrual basis of accounting, except for the collection of fines and forfeitures which are recognized when collected from the courts. Any accrual of these fines and forfeitures would be immaterial to the Retirement Fund's financial statements. Contributions from members are recognized as additions in the period in which the members provide services. Retirement benefit and refund payments are recognized as deductions when due and payable.
During fiscal year 2013, the Retirement Fund adopted the provisions of GASB Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34. The objective of this Statement is to improve financial reporting for a governmental financial reporting entity by modifying certain requirements for inclusion of component units in the financial reporting entity, amending the criteria for blended component units, and clarifying the reporting entity interests in component units. The Retirement Fund did not have any component units for fiscal year 2013.
During fiscal year 2013, the Retirement Fund adopted the provisions of GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and renames that measure as net position. The Retirement Fund changed its presentation of net assets to net position for fiscal year 2013. There were no other applicable changes to the Retirement Fund.
In June 2012, GASB issued Statement No. 67, Financial Reporting for Pension Plans an amendment of GASB No. 25. This Statement improves financial reporting by state and local governmental pension plans. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement will be effective for the Retirement Fund in fiscal year 2014. Management of the Retirement Fund is evaluating the impact on the Retirement Fund's financial statements.
CASH AND CASH EQUIVALENTS Cash and cash equivalents, reported at cost, include cash in banks, cash on deposit with the investment custodian earning a credit to offset fees, and short-term highly liquid financial securities with original maturities of three months or less from the date of acquisition.
INVESTMENTS Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price. There are no investments in, loans to, or leases with parties related to the Retirement Fund.
The Retirement Fund utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.
10

SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia)
Notes to Financial Statements
For the Year Ended June 30, 2013
NOTE 3 - DEPOSITS AND INVESTMENTS
The Retirement Fund maintains sufficient cash to meet its immediate liquidity needs. Cash not immediately needed is invested as directed by the investment policy of the Retirement Fund. All investments are held by agent custodial banks in the name of the Retirement Fund. State statutes and the Retirement Fund's investment policy authorize the Retirement Fund to invest in a variety of short-term and long-term securities as follows:
1) U.S. or Canadian corporations or their obligations with limits as to the corporations' size and credit rating. 2) Repurchase and reverse repurchase agreements for direct obligations of the U.S. Government and for
obligations unconditionally guaranteed by agencies. 3) Federal Deposit Insurance Corporation (FDIC) insured cash assets or deposits. 4) Bonds, notes, warrants, loans or other debt issued or guaranteed by the U.S. Government. 5) Taxable bonds, notes, warrants or other securities issued and guaranteed by any state, the District of
Columbia, Canada or any province in Canada. 6) Bonds, debentures or other securities issued or insured or guaranteed by an agency, authority, unit, or
corporate body created by the U.S. Government. 7) Investment grade collateralized mortgage obligations. 8) Obligations issued, assumed or guaranteed by the International Bank for Reconstruction and Development or
the International Financial Corporation. 9) Bonds, debentures, notes and other evidence of indebtedness issued, assumed, or guaranteed by any solvent
institution existing under the laws of the U.S. or of Canada, or any state or province thereof, which are not in default and are secured to a certain level. 10) Secured and unsecured obligations issued by any solvent institution existing under the laws of the U.S. or of Canada, or any state or province thereof, bearing interest at a fixed rate, with mandatory principal and interest due at a specified time with additional limits. 11) Equipment trust obligations or interests in transportation equipment, wholly or in part within the U.S., and the right to receive determinate portions or related income. 12) Loans that are secured by pledge or securities eligible for investment. 13) Purchase money mortgages or like securities received upon the sale or exchange of real property acquired. 14) Secured mortgages or mortgage participation, pass-through, conventional pass-through, trust certificate, or other similar securities with restrictions. 15) Land and buildings on such land used or acquired for use as a fund's office for the convenient transaction of its own business with restrictions. 16) Real property and equipment acquired under various circumstances.
DEPOSITS
The carrying amount of the Retirement Fund's deposits totaled $240,501 at June 30, 2013, with actual bank balances of $286,078. The Retirement Fund's cash balances are fully insured through the Federal Deposit Insurance Corporation, an independent agency of the U.S. Government.
INVESTMENTS
Short-term highly liquid financial securities are authorized in the investment policy of the Retirement Fund in money market funds. This investment is classified as a cash equivalent on the Retirement Fund's Statement of Fiduciary Net Position. At June 30, 2013, the Retirement Fund held $1,985,416 in money market mutual funds.
11

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

NOTE 3 - DEPOSITS AND INVESTMENTS (continued)

Fixed income investments are authorized in the following instruments:



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

$2,162,102.



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

Retirement Fund held U.S. Government obligations of $4,031,195.



Corporate bonds that are rated as investment grade as defined by a nationally recognized rating agency.

At June 30, 2013, the Retirement Fund held U.S. corporate bonds of $11,507,056 and international

corporate bonds of $205,128.

Equity securities are also authorized by the Public Retirement System Investment Authority Law for investment as a complement to the Retirement Fund's fixed income portfolio and as a long-term inflation hedge. By statute, no more than 75% of the total invested assets on a historical cost basis may be placed in equities. Equity holdings in any one corporation may not exceed 5% of the equity portfolio, based on cost. The equity portfolio is managed by the Retirement Fund in conjunction with independent advisors. Buy/sell decisions are based on securities meeting rating criteria established by the investment policy of the Retirement Fund. Equity trades are approved and executed by the independent advisors. Common stocks eligible for investment must meet the Investment Objectives and Guidelines of the Retirement Fund investment policy. Equity investments are authorized in the following instruments:



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

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

$35,002,072.



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

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

2013, the Retirement Fund held international equities of $4,020,300.

Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the Retirement Fund. State law limits investments to investment grade securities. The Retirement Fund's investment policy requires that purchases of bonds be restricted to bonds rated as investment grade with no more than 10% of the bond portfolio invested in securities rated lower than "A" as defined by a nationally recognized rating agency. Obligations of the U.S. Government or obligations explicitly guaranteed by the U.S. Government are not considered to have credit risk and do not require disclosure of credit quality. The quality ratings of investments in fixed income securities as described by Standard & Poor's and by Moody's Investor Services, which are nationally recognized statistical rating organizations, at June 30, 2013 are shown in the chart on the following page.

12

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

NOTE 3 - DEPOSITS AND INVESTMENTS (continued)

Investment Type Domestic obligations:
Money market mutual funds U.S. Treasuries Governments Corporates
Total corporates International obligations:
Corporates Total fixed income in v es tmen ts

Standard and Poor's /Moody's quality rating

June 30, 2013 fair value

Unrated

$ 1,985,416

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

2,162,102
4,031,195
7,062,686 206,154 102,068
1,065,897 692,510 777,972 52,361
1,342,132 205,276
11,507,056

BBB/Baa

205,128

19,890,897

13

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

NOTE 3 - DEPOSITS AND INVESTMENTS (continued)
Interest Rate Risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Retirement Fund does not have a formal policy for managing interest rate risk. The following table provides information about the Retirement Fund's interest rate risk:

Total Fair Value

Less than 3 Months

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

More than 10 Years

Money Market Mutual Fund $ U. S. Treasury Obligations U. S. Agency Obligations Corporate Debt
Domes tic International

Total Debt Securities

$

1,985,416 $ 2,162,102 4,031,195

1,985,416 $ -

-$ -

-$ 574,040

-$ 2,162,102 2,731,772

725,383

11,507,056

302,724

1,237,111

5,181,796

4,785,425

-

205,128

-

-

205,128

-

-

19,890,897 $ 2,288,140 $ 1,237,111 $ 5,960,964 $ 9,679,299 $ 725,383

Georgia Pooled Index Fund

5,893,690

Mutual Funds - Equity

15,045,335

Equity Securities

Domes tic International

35,002,072 4,020,300

Total Investments

$ 79,852,294

Concentration of Credit Risk: Concentration of credit risk is the risk of loss that may be attributed to the magnitude of a government's investment in a single issue. The Retirement Fund's concentration of credit risk policy limits investments to no more than 5% in any one issue, based on cost. On June 30, 2013, the Retirement Fund did not have any debt or equity investments in any one organization, other than those issued or guaranteed by the U.S. Government or its agencies, which represented greater than 5% of total investments.
NOTE 4 - CONTRIBUTIONS
FUNDING POLICY The minimum annual employer contribution requirements are set forth in The Official Code of Georgia Annotated (O.C.G.A.) Section 47-20-10 and are not actuarially determined. This statute further prohibits any action to grant a benefit increase until such time as the minimum annual contribution requirements meet or exceed legislative requirements. The actuarial valuation as of July 1, 2012, which reflected the proceeds of designated portions of fines and forfeitures as the employer contribution, indicated that minimum employer contribution for the fiscal year ended June 30, 2013 was $1,357,827. The fines and forfeitures revenue of $2,336,786 for the fiscal year ended June 30, 2013 does meet the minimum required fund contribution. Member contribution requirements are set forth in O.C.G.A. Section 47-16-43 and are not actuarially determined.
14

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

NOTE 4 CONTRIBUTIONS (continued)

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

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 $45.00 per month, with a maximum payment period of thirty years.

(B) COURT FINES AND BOND FORFEITURES: For each criminal and quasi-criminal case involving the violation of State of Georgia statutes, including traffic laws, a sum based upon the scale set forth below is collected by the presiding judge and remitted to the Retirement Fund:

For fines or bond forfeitures in excess of $5,

in any court where a sheriff of a superior

court acts as a sheriff

$2

In addition, the following amounts are required to be collected by the applicable courts and remitted to the Retirement Fund:

For civil actions, cases or proceedings filed in superior courts

$1

For civil actions, cases or proceedings filed in state courts

and magistrate courts where a sheriff of the superior

courts acts as a sheriff in those courts

$1

Actual contributions for the year ended June 30, 2013, were as follows:

Member Contributions Fines and Forfeitures

$

126,311

2,336,786

Total

$ 2,463,097

15

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

NOTE 5 - FUNDED STATUS AND FUNDING PROGRESS

The funded status of the plan as of July 1, 2012, the most recent actuarial valuation date, is as follows:

Actuarial value of plan assets
(a)

Acturial accrued liability (AAL) entry age
(b)

Unfunded AAL (b-a)

Funded ratio (a/b)

Annual covered payroll
(c)

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

$ 69,356,000 $ 77,766,000 $ 8,410,000

89.2%

N/A

N/A

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, 2012

Actuarial cost method

Entry age normal

Amortization method

Level dollar, open

Remaining amortization period

30 years

Asset valuation method

Five-year smoothed market value with 10% corridor

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

6.50% N/A N/A

16

REQUIRED SUPPLEMENTARY INFORMATION

SHERIFFS' RETIREMENT FUND OF GEORGIA (A Component Unit of the State of Georgia)
Schedule of Funding Progress
June 30, 2013

Actuarial valuation
date

Actuarial value of plan assets
(a)

Actuarial accrued liability (AAL) entry age
(b)

Unfunded AAL/ (funded excess) (b-a)

Funded ratio (a/b)

Annual covered payroll
(c)

July 1, 2008 $ 69,553,000 $

67,081,000 $

(2,472,000) 103.7% N/A

July 1, 2010

66,897,000

72,755,000

5,858,000

91.9% N/A

July 1, 2012

69,356,000

77,766,000

8,410,000

89.2% N/A

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

18

Fiscal Year
2008 2009 2010 2011 2012 2013

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

Annual required contribution

$

657,100

401,174

401,174

1,101,385

1,101,385

1,357,827

Percentage contributed
410.1% 697.7% 661.0% 226.8% 243.2% 172.1%

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

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