County Retirement-System Management Criticized : Audit: Independent study cites lack of ‘cooperation and mutual respect’ among the staff and excessive travel expenses.

A lack of “cooperation and mutual respect” among the Orange County Employees Retirement System staff could harm administration of the $1.6-billion pension fund, an independent management audit released Monday concludes.

After a five-month review of the way the retirement system is being run, the accounting firm of KPMG Peat Marwick delivered 72 recommendations to the county retirement board in a 99-page report.

One retirement board member, Tax Collector-Treasurer Robert L. Citron, said the audit shows a lack of leadership on the part of fund administrator Mary-Jean Hackwood, who was hired by the board in 1987.

Among other findings, the audit report pointed out that the retirement board and its staff spend more per day in travel than other pension systems in the state, averaging daily expenditures of between $180 and $250 per person.

But the strongest criticism came in a tersely worded section about the apparent difficulty that the retirement system’s 27-member staff is experiencing in working together.

“During the review, it became evident that OCERS management and staff are having difficulty maintaining a high level of coordination, cooperation and mutual respect,” the report stated.

The report also pointed out that “it is imperative that the board and management establish improved teamwork as a priority within OCERS operations.”

Retirement board members met for almost an hour and half behind closed doors after receiving the report, and announced afterward that they will ask Hackwood to respond to the review by their next meeting scheduled for Aug. 12.

But they declined to say whether the report will lead to any disciplinary action against Hackwood, who has been at the center of a controversy lately about the retirement board’s frequent travel.

“It is my hope that this report not be seen as an indictment of the system, its management or its employees, but rather, as an aid in making future decisions in sound management,” said board member Victor Heim before the board discussed the report in executive session.

Hackwood, who was in Juneau, Alaska, because of a family emergency, could not be reached for comment, staff members said.

Other board members said that because Hackwood is the top executive in the small organization, responsibility for the problems outlined in the report have to fall mostly at her feet.

“There’s no management leadership; that’s what the report says,” Citron said.

“There are all those glowing reports floating around out there about how well the administrator has done in helping the fund get such good returns,” he said. “That may be true, but if you don’t have control of management, those gains can turn into losses.

“What this report says to me is that right now, all those accounts, including financial records, are not being managed properly,” Citron added.

Citron, however, also declined to comment on the nature of the closed-door session, especially as it related to Hackwood’s performance.

The $80,000 audit is the first in-depth review of the retirement system’s management since 1986, when the Board of Supervisors agreed to remove it from the control of Citron’s office.

Retirement board members decided last fall to commission the audit, which reviewed personnel practices, record-keeping and management controls. The study did not look at the performance of the fund itself in terms of the rate of return on investments.

The auditors obtained their information through review of documents, interviews with management and staff and confidential questionnaires filled out by staff members. They also interviewed others, such as retirement board members, who deal with management and staff on a regular basis.

The audit found that staff vacancies are often not posted, that employee reviews are not conducted often enough and that the system approves charges for big-ticket jobs without going through standard contract-bidding and approval procedures.

The report also pointed to the lack of standardized travel policies, a subject that has placed the retirement system in the spotlight in the last few weeks.

After a 26-day trip to Europe in May by four board members and two administrators, County Auditor-Controller Steven E. Lewis rejected $5,000 in personal expenses, touching off a furor about the board’s frequent out-of-town travel.

One of the recommendations was that the board strengthen its travel expense-reimbursement guidelines and set stricter deadlines for filing of expense reports.

More than half of the recommendations involve changes that the administrator--Hackwood--should be responsible for implementing. The majority of the changes could be made within six months, according to the report.

Among the recommendations:

* That the administrator submit an annual report to the board, outlining short-term and long-range goals and objectives.

* That the board review the administrator’s travel expenses before they are sent to the auditor-controller’s office for reimbursement. Currently, only Hackwood’s staff reviews the expenses, which complies with county policy.

* That the board receive quarterly performance reports on the jobs of the administrator, assistant administrator and division managers.

* That the administrator and the board provide better definition of the roles and expectations for board members as well as staff members.

Retirement board chairman Patrick Brunner said the report would probably lead to changes in the way the retirement system conducts its business, but that he welcomes the chance to improve.

“We asked them to look at the system and tell us what we could do to improve,” he said. “Once you get your answers, then you have to look at the recommendations and see how valid they are for your organization.”

Audit’s Key Findings

Here are key findings and recommendations of a management audit on the Orange County Employees Retirement System. The audit took five months to complete and cost $80,000.

* That there is not enough “teamwork” and “mutual respect” among the 27-member retirement system staff. While none of the recommendations specifically addressed that area, it suggested that the pension administrator submit to the board an annual report on goals and objectives.

* The dual role of Mary Abbott, who is both a retirement board member and a retirement system employee, is confusing to other staff members working below her and over her. The audit report recommended better definition of each of her roles.

* The retirement board has to provide a more defined policy on out-of-town travel expense reimbursements and stricter deadlines on submittal of expense forms.

* Employee performance evaluations, required annually, are not performed in a timely manner. In one case, the report found, one employee’s merit salary increase was delayed because management had not conducted an evaluation.

* The retirement system take more care in storing certain confidential records, such as those on employee disability, in secure areas.