N.D.board looks to expand audit of office overseeing investments, public pensions

A committee of North Dakota's State Investment Board decided Thursday to revise the scope of the audit ordered after the state investment director's suicide last month.

A committee of North Dakota's State Investment Board decided Thursday to revise the scope of the audit ordered after the state investment director's suicide last month.

The revised specifications now call for a performance audit based on standards recommended by state auditors, said Rebecca Dorwart, chairwoman of the board's audit committee.

"Our previous one was a little bit vague on what objectives we wanted to accomplish," said Dorwart, director of internal audit for MDU Resources in Bismarck.

Thursday's development came amid continued controversy surrounding the performance of the office that invests almost $5 billion in state funds, including pensions for public employees and state insurance programs.

Questions have swirled since the April 10 suicide of Steve Cochrane, who had been director of the North Dakota Retirement and Investment Office.


The new audit specifications, which will be presented today to the full State Investment Board for review, are "very specific" about focusing on examining Cochrane's "duties and responsibilities."

One focus of the audit, with final results expected in late August, will examine the "decision-making" and "due diligence process" involving commissions paid to investment advisers hired by the investment office, Dorwart said.

State Auditor Bob Peterson said members of his staff had been in contact with the State Investment Board's audit committee after its first request for proposals seeking an audit were issued April 30.

"We felt the RFP" - request for proposals - "was not as strongly worded as it might have been," he said. "It had to do with auditing standards."

Critics, including taxpayer advocates and Democratic legislative leaders, have been calling for an audit to thoroughly examine the funds' performance and the fees paid to investment consultants and managers.

On May 8, Ladd Erickson, the McLean County state's attorney, wrote the legislative audit committee chairman a 10-page letter outlining his concerns about high fees the state investment office was paying to manage state funds totaling $4.8 billion.

The retirement funds for North Dakota's public employees and teachers pay about $2 million in management fees per year, Erickson wrote.

Bringing those fees in line with industry benchmarks would save about $221,568 a year - money that if invested over 30 years with a 7½-percent return would yield an additional $23 million in retirement funds, according to Erickson's analysis.


"There were some real red flags to me," Erickson said Thursday, referring to the amounts paid in consulting fees. Of the original audit specifications, he said, "I didn't think they were getting at the issue."

Dustin Gawrylow, executive director of the North Dakota Taxpayers Association, also is urging a full-blown performance audit of the state investment office.

He echoed Erickson's concerns about high fees, and said he found troubling questions about state pension funds' exposure to financial risks 1½ times greater than those for state insurance funds.

"The question needs to be asked: Why is one pile of money treated differently than another pile of money?" Gawrylow said, adding that pension funds and insurance funds both ordinarily have conservative investment strategies.

As a result, during the recent financial turmoil the losses to state pension funds were much worse than those for insurance funds - despite the high fees.

"It's just not adding up," Gawrylow said. "It just doesn't make sense."

Rep. Merle Boucher, D-Rollette, also is calling for a performance audit to unravel shortfalls of at least $600 million to $700 million. It's possible taxpayers could be asked to contribute money to compensate for losses to keep pension funds financially healthy, so taxpayers deserve answers, he said.

Dorwart said the new audit specifications will go out soon, no later than Monday.


Springer reports for The Forum of Fargo-Moorehad, which, like the Herald, is owned by Forum Communications Co.

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