Washington State Legislature HB 3010 Investment Performance Audits

The ideals of an audit is not to specifically spell out when an audit is supposed to take place. "Every eight years thereafter" (*1) is a lengthy timeframe and yet this is also a long enough timeframe for theft or embezzlement to happen.

One of the criteria to look at for embezzlement is around 2, 12 and 20 years of employment. After a two year period of time the employee logic is "I do have not enough devoted to this employer and if noticed or fired then it will not hurt me." Logic after around 12 years is the employer has not been treating me correctly and "I need to get an additional payment for my services." And then after 20 years or really about 22 years is: "If I am caught I can just retire."

What the above employees do not realize is that their pension plan portion which is not vested will be allowed to be taken back by the employer. The portion which is vested cannot be taken away unfortunately. Also, bankruptcy laws and some types of pensions, if set up correctly, the levy and garnishment process will not be allowed to touch these assets for settlement of a debt. But the real kicker is the next job or employment in a responsible position will not happen. State government will not hire. Private industry will not hire. The only type of occupation might be a ticket taker position. But not someone who touches money or has any position of accountancy whatsoever.

For the audit process to need to specify "Services actually provided under the contract in comparison to the services originally contracted" or "a comparison of investment performance and services obtained through the contract compared to industry-wide performance data" should be an on-going management criteria of the department. For this as a audit is revealing the Investment Board Investment Services Contract attention to detail to be extremely lacking. I hope there is an oversight board to this oversight board if this is a necessity. Yes, I do believe this is necessary but this bill should be a complete non-necessity. Procedures should be in place check and recheck the performance level of sub-contractors.

My question really is: From a financial standpoint why is this audit process not being done continuously every day. Management should have a handle or performance. If a sector is underperforming who is there to pull the plug. Are there objectives in place to make this entire process just a formal process. If this is not in place right now I would be of the mind to evaluate the personnel and advise them to find employment elsewhere. Perhaps the management should be from an outside vendor with government only making decisions of tweaking the investment objectives. What is the BETA performance. What is the risk. (Actually, the last two are the same sentence.) Are there other outside risks beyond the market risk which are not being looked at. Currently I believe the market will be going into a second or double dip. Is this being guarded against. What are the performances of "life insurance companies" and what are they doing right. (Only one life insurance company failed in 2009. Compare this with banks.) I would not put U.S.A. government bonds in the mix at all. I consider them to be excessively risky and below investment grade. Investing in backed securities. But not backed by an "good faith and credit" of any institution or government entity.

Sources:
1*) Conducting performance audits of state investment board investment services contracts
http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/House%20Bills/3010.pdf