ࡱ> KMJ#` bjbj .4|||||||X X X X , ,)& !!!)))))))$*h$-;)|$!!$$;)|| P)u'u'u'$ | | )u'$)u'u'||u' YX $ u'(f)0)u'-$-u'-|u'!S"u'"lE#V!!!;);)k' !!!)$$$$ t t|||||| DELAWARE PUBLIC EMPLOYEES RETIREMENT SYSTEM AUDIT COMMITTEE MEETING MAY 7, 2007 WILMINGTON, DELAWARE ATTENDEES AUDIT COMMITTEE KPMG Joel Poorman Bob Steen William Markell Evelyn Zerenner Harold Smith Kathlynn Farley INVESTMENT COMMITTEE PENSION OFFICE Jan King David Craik Kim Vincent ASHFORD CONSULTING Kathy Kunkle Ted Ashford Jeffrey Hoover Garry Musto Jeffrey Johnson Rob Gooderham Linda Drew ATTORNEY GENERALS OFFICE Cynthia L. Collins STATE AUDITORS OFFICE Stacey Wynne The primary purpose of the meeting was to prepare for the Annual Audit for the year ending June30, 2007 and the funds Annual Report. MOTION made by H. Smith and seconded by W. Markell to move into Executive Session for the purpose of discussing confidential information relating to venture capital and limited partnership investments. MOTION ADOPTED UNANIMOUSLY Following that discussion, a motion was made to return to Public Session. MOTION made by H. Smith and seconded by W. Markell to return to Public Session. MOTION ADOPTED UNANIMOUSLY AUDIT TEAM The audit team will be Bob Steen, Engagement Partner; Joe Siebert, Concurring Review Partner; Katie Farley, Engagement Manager (replacing Evelyn Zerenner); Sophia Smith, Senior Associate; and Chris Chepel, State Oversight Manager. The Audit Committee, Ashford Consulting and KPMG discussed the Alternative Investments and the difficultly in valuation. KMPG made it clear they do not want the auditing practices to affect the investing criteria of the Delaware retirement system pension fund. The Audit Committee agreed to provide as much information as possible regarding the alternative investment valuation without posing a conflict with confidentially of the venture capital funds. In anticipation of the additional field work required in the valuation of the alternative investments the auditors will be invoicing for an additional $10,000 and an additional time of two weeks. CHANGES FROM PRIOR YEAR KPMG anticipates additional invoicing of approximately $19,000 to cover the identified expanded scope of the FY2007 audit, and provided details of the cost drivers. The change in Custodian from Mercantile to Northern Trust will require additional field work and invoicing of $5,000 from KPMG. Also the change in custodians will effect the allocation of the assets in the financial statements, but KMPG does not see this being a material event affecting an opinion as this event is common with custody transitions. Along with Northern Trust becoming the Custodian Bank during the fiscal year 2007, the Delaware Pension Fund Board elected to participate in a securities lending program. The securities lending program will require additional field work and invoicing of $4,000. This year there is a new accounting requirement, GASB Statement No. 43, which establishes accounting and financial reporting for plans that provide other post-employment benefits (OPEB) other than pension benefits (for example, health insurance, and life insurance). Legislation is being drafted that would accommodate the new accounting reporting requirements. Another new accounting requirement, Auditing Standards No. 112, requires the establishment of standards and guidance on the auditors responsibilities for evaluating the severity of control deficiencies identified as part of the audit and communicating matters related to an entitys internal control over financial reporting identified in an audit of non-issuer financial statements. FLOW CHARTS The Audit Committee reviewed and approved the revised Pension Office flow charts. The work processes described have been updated to reflect the change bank custodian change. SECURITIES LENDING J. Poorman reviewed for the Committee the meeting with Northern Trust that he, G. Musto and S. Yablonovitz had in Chicago. Northern Trust provided an in-depth analysis by key staff members of program processes and resources. They remain convinced that the program is sound and well-managed to minimize known risks. PRIOR YEARS MANAGEMENT LETTER Last years management letter had 13 items. All items excepts for IT items have been addressed. IT items will be addressed or closed by June 30, 2007. AUDIT/ANNUAL REPORT SCHEDULE The timing for this years Audit Report and the Annual Report on the Fund is as follows: May & June Preliminary field work and Custodian transition review. May 21 The IT audit will begin reviewing the procedures and processes July 30 KPMG will start the field work. This is anticipated to last about five weeks. Aug 16 Draft of the investment section of the Annual Report will be sent to the Investment Committee for review at its meeting of August 21. Aug 28 Full draft of Annual Report to be sent to Audit Committee for review/comment. Week of Sep 4 Exit meeting with KPMG (time and date to be finalized) Sep 10 Deadline for all comments on the Annual Report and Audit Report Sep 17 KPMG signs off on CAFR Sep 19 Annual Report / Audit Report sent to the printer Sept 29 Board of Trustees meeting to approve the Report. At 12:10 p.m., there being no further business, MOTION was made by H. Smith and seconded by W. Markell to adjourn the meeting. 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