06/11/2026
Review of the KPPA Audit Committee Meeting
June 10, 2026
Committee Chair William Summers called the meeting to order. Roll was taken – six members present. There were no public comments. Minutes of the February 24, 2026, meeting were approved. Meeting materials can be found here:https://www.kyret.ky.gov/About/Meeting-Calendar/Materials/June%2010%202026%20KPPA%20Audit%20Committee%20Meeting%20Material.pdf
The first item under Legal Updates dealt with Information Disclosure Incidents. Fourteen occurred in the Jan-Mar 2026 time period involving suspicious account access attempts and mailing/emailing information to a member with contents belonging to another member, while five were found not to be a disclosure incident. Additionally, there was an unauthorized access incident with a KPPA vendor’s subcontractor involving two members. Regarding Anonymous Tips, five new tips were received since the last meeting in February, of which two were closed upon review and three remain open. Overall, a total of five tips remains open.
The next item for discussion was the result of research on the Retirement Allowance Account (RAA) by CFO Mike Lamb. To paraphrase the opening paragraph from his memo, the issue here is “Disagreement and/or lack of clarification of what the Retirement Allowance Account is and how and where it is to be set up and utilized for CERS. KRS, and SPRS.” This account has been in existence since the pension funds were established in 1956/1958. His research “has found no statutory evidence that the RAA should be set up as a bank, custodial, or investment account, or a series of such accounts.”
System assets shall be held in their respective retirement fund and credited to one of three accounts: (1) the Members’ account (2) the RAA, or (3) an account established to pay medical benefits. (NOTE: These are “accounting” accounts and not “bank” accounts.) The Members’ Account is where all employee and employer dollars, except health insurance contributions, first hit when received. Prior to a members’ death, retirement, or required refund, no funds are to be paid from this account. Upon a members’ retirement, the accumulated member balance is transferred to the RAA, which also contains income from investments. This is the account from which all administrative expenses, including pension benefit payments, are made. The third account is that to which health insurance contributions and investment earnings from these contributions are received and from which medical benefits are paid per federal statute.
There was further discussion of Lambs’ report but, in the end, there was agreement as to his report’s conclusions. Chief Auditor Kriten Coffey stated that this report satisfies one particular finding in the Review of Chase Accounts audit, but others remain open. Another issue discussed today is the “proper” amounts to maintain in the JPM accounts as transfers to the BNY accounts are made. Lamb reported his group works to keep balances no higher than $50,000 for the insurance accounts and $500,000 for the pension accounts. He reported higher balances than these targets as of the end of April but these balances fluctuate as funds are transferred between the two banks.
(CONTEXT: The RAA was originally discussed in a memo from Rebecca Adkins, former Deputy Executive Director of KPPA on August 25, 2022 as a follow-up to the Plan Liquidity Phase 1 Audit discussing the flow of dollars through KPPA. KPPA receipts, like all funds received by the Commonwealth’s agencies, first hit the state’s depository bank, JPMorgan Chase [JPM], before being transferred to its custodial bank, Bank of New York Mellon [BNY]. KPPA assets are, by law, classified as trust funds. BNY is a fiduciary of the trusts and JPM is not and cannot be named a fiduciary.
Subsequent to this report was a Review of Chase Accounts by the Audit Division dated February 20, 2023. This Review reported that KPPA maintains twelve (12) separate accounts at JPM, one Clearing Account, one Excess Benefit Account, and ten accounts, one each for the five pension and five insurance plans. The Clearing Account is that to which member and employer contributions first flow before being transferred to BNY. The Excess Benefit Account is that used to pay retirees who earn more than allowed by federal law. The other ten accounts are those who receive money back from BNY and pay out our pension benefits and other administrative costs. While this Review highlighted specific areas of risk, overall, it seems that KPPA might be better served by reducing the complexity of this back-and-forth arrangement between JPM and BNY.
All of this was one of the reasons that the Chief Financial Officer position was created. Further recommendations on whether any/all of KPPA’s cash flow processes needs to be changed with proposals possibly at the next meeting of this Committee.)
The next item was an update on the Office Space Utilization Project, an audit that was approved at the May 2025 Audit Committee meeting. The original agreement was for KPPA management to perform the research into certain details of costs associated with KPPA’s office “footprint” with the Audit staff performing an independent review. It is being reported that a June 1 memo to the Chief Auditor did not address all of the questions approved by the Audit Committee. Follow up by Coffey seemed to indicate that a subsequent meeting between members of KPPA management and members of the Audit Committee changed the requirements of this project without the knowledge of the Chief Auditor and/or the Audit Committee. The question Coffey is asking today is how to proceed? Ryan Barrow, KPPA CEO, stated there were no changes made to the original questions that were to be answered but he expected more time to have been given to fully respond to the questions raised. Coffey reiterated that she was told that changes were made and consequently brought up the issue to advise the Committee. Chair Summers summarized that the information from KPPA will be completed and forwarded to the Audit Division in time for the next meeting.
Under Administrative Updates, the first item was a review of the FY27 Independence Statements for the five members of the Internal Audit Division. Next, the expenditure/budget report for the Audit Division as of March 31, 2026, was presented showing that 30.88% of the budget remaining for the last quarter of the year. The budget for FY27 was presented for an amount of $668,702.40 with labor costs driving most of the year-over-year increase with the 2% salary increase for all state employees and a rise in employee health insurance costs. These numbers are included in the overall KPPA budget. The FY27 budget was approved by the Committee.
A status sheet on current projects was provided for review (page 64 in the Materials). Regarding this year’s audit plan, it was reported that twenty audits have been completed, thirty-three audits in progress, and two audits pulled. Overage of hours for any particular audit was detailed.
Next were Issued Reports for two audits. Audit 2026-9 dealt with a review of the post-retirement audit process performed by the Quality Assurance and Retiree Payroll staff. There were no reportable findings or observations following this audit but some suggestions for inclusion of future audits were made. Next was Audit 2026-16 which dealt with the update process for Administrative Regulations. Here again, there were no reportable findings or observations, or opportunities for improvement.
With no other business, the meeting was adjourned.
LPT
