BATON ROUGE, La - Money managers won't be leaving anything under the tree any more for the eight board members of the Firefighters' Retirement System of Louisiana.
A scathing 31-page report by Louisiana Legislative Auditor Daniel G. Kyle, citing several ethics and administrative lapses by the $650 million system over the last three years, recommended ending the practice of money managers bearing gifts for board members and hosting holiday parties or golf outings. The report has also led the board to tighten the system's travel and expense reimbursement practices, saying the gifts and other perks add to the perception by the public that "the board members' and employees' independence is impaired for participating in such dinner parties and accepting gifts paid for by investment managers."
The report, issued last month, said Freeman Associates Investment Management, one of the system's equity managers, sent six Ansel Adams coffee-table books and coffeecake with a combined value of $630 to the system office in 2001. In addition, the report said Freeman, based in Rancho Santa Fe, Calif., paid $150 for a golf outing for board Vice Chairman William Desormeaux and board member R. Brady Broussard at the 2001 Public Safety Employees Pension and Benefits Conference in Palm Springs, Calif. Freeman paid another $155 for Mr. Desormeaux's golf and lunch at the National Conference on Public Employee Retirement Systems last year in Las Vegas, according to the report. In December 2000, six leather-bound desk calendars and coffeecake worth a total of $240 were sent to the system's office as Christmas gifts.
In addition, the report said, Hibernia National Bank, New Orleans, one of the system's bond managers, and Bank One, Chicago, the system's custodian, co-sponsored annual Christmas dinners for the firefighters' system between 1999 and 2001. According to the auditor's report, "the dinners were a large affair with not only board members but also many other related guests." According to the auditor, the Christmas bashes cost $3,172 in 1999, $1,700 in 2000 and $2,354 in 2001.
No more. The system's board of trustees and executive staff have embraced the report and already adopted most of its recommendations, according to Steven Stockstill, executive director. The board also plans to address each of the findings in coming weeks, he said, with the goal of full compliance with "each and every" recommendation by the legislative auditor.
Chalk it up as a sign of the times, according to industry experts. While other large public plans have faced similar problems in years past, the headline-making corporate blowups and ethics lapses of the past year brought quick action from Louisiana watchdogs as public and government officials pushed for stricter corporate and business ethical standards.
The practice of wining and dining trustees by investment managers and banks is "still going on, but has declined in the last half-dozen years," said Stephen T. Cummings, president and chief executive officer at Ennis, Knupp and Associates, Chicago. He said regulators and self-policing boards are cutting back on behavior "which could be viewed as a conflict ... particularly in the public sector."
"The system should develop a detailed ethics policy that prohibits board members and employees from accepting anything of value, including gifts, golf outings, meals and dinner parties, and any other specific activity that would give the perception that such gifts compromise their fiduciary responsibility," the report stated.
The 31-page report issued late last month includes a litany of problems, including:
* System officials received duplicate travel reimbursements to which they were not entitled (Mr. Stockstill said all duplicate reimbursements have since been repaid by those involved);
* Officials failed to follow the state's travel regulations;
* Former board Chairman Michael Hemphill lacked documentation for travel outside the continental United States by; and
* The system failed to enter into written contracts for legal services provided by attorneys.
The report said state travel regulations provide for reimbursement of meals at "established rates"($26 per day for in-state meals and $29 per day for out-of-state meals) and specifically prohibits reimbursement for alcohol. That normally wouldn't cover a $284 tab for alcohol purchases the report said was rung up by former General Counsel Randy Roche on July 25, 2001, which was part of five restaurant bills totaling $4,246 that included alcohol purchases of $851, according to the auditor's report. The auditor said the expenditures were "clearly extravagant and unreasonable." The report said former board Chairman Michael Hemphill, who is leaving the board at the end of this year, sought reimbursement for a $484 credit card charge that included $114 in alcohol purchases.
The examination came after the auditor "received information relating to travel, credit cards, payroll, tapes of board meetings, litigation and policies" from an unnamed person, according to the auditor. The auditor's examination "was performed to determine the propriety of certain allegations received by this office," said Mr. Kyle in his letter to the system.
Mr. Stockstill said the board has corrected several of the auditor's findings and plans to take action on the remainder as soon as possible.
In a written response to the report, Mr. Desormeaux said the auditor's examination and methodology was "sound and the conclusions will provide a road map for action" that will "result in the betterment of our system." He said each board member has reviewed the report and the consensus was that "your recommendations are sound" and will be "immediately submitted to the board of trustees for discussion and action."
In his letter, he said the board has taken action to "strictly adhere to the state of Louisiana travel regulations." The letter said the board has adopted a policy "requiring all board travel to be approved in advance by the board," and it also adopted tighter restrictions on the use of personal and system credit cards, including keeping credit cards "in a locked file cabinet in a secure file room" to be used for system-related expenses pre-approved by the director.
The vice chairman's letter said the board would act immediately to strictly comply with the Louisiana Code of Government Ethics and maintain tapes of its public meetings in accordance with state law, as suggested by the auditor.