State Auditor Crit Luallen found no evidence of wrongdoing in an audit of the Kentucky Retirement Systems, but the report raises several areas of concern.
The audit primarily focused on the use of placement agents, who act as middlemen to secure investments from entities like the KRS. Placement agents have been at the center of “pay-to-play” scandals in other states, but Luallen says that does not appear to be the case in the commonwealth.
However, Luallen says placement agent Glen Sergeon of New York had “an unusually close working relationship” with former KRS chief investment officer Adam Tosh, who no longer works for KRS.
“That placement agent received a high percentage of the investment contracts – more than all of the other placement agents combined,” she says.
Findings from the audit have been referred to the Securities and Exchange Commission, which is conducting an informal inquiry into the use of placement agents at KRS. The audit makes 92 recommendations, which the KRS board has already started implementing.
Responding to the report, Governor Steve Beshear sent the following statement praising the auditor’s work and looking forward to the necessary changes for additional transparency.
From the governor’s office:
Last August, I asked the Auditor of Public Accounts to conduct this audit because of my concerns regarding the management and accountability of the retirement system. I am pleased that she found that the substantial investments that support city, county, and state employees as well as thousands of retirees are secure.
However, as I suspected, there are improvements which can and should be made to this system. The auditor’s recommendations to improve transparency and accountability are well-reasoned and should be implemented quickly to assure the hundreds of thousands of Kentuckians who depend on this system that their retirement funds are handled in a wise and ethical manner.
I am encouraged that the new board chair has already agreed with the audit’s findings and has begun implementing many of the audit’s recommendations.
My ultimate objective for the system continues to be the protection and satisfactory growth of the funds for the benefit of hundreds of thousands of current and retired public employees.