On August 18, 2022, the results of the mandatory management audit of the Los Angeles Fire and Police Pension Plan were presented to the Board by Aon Investments USA Inc. (Aon). The audit is mandated by Section 1112 of the City Charter, which requires the Mayor, City Council, and City Controller to jointly conduct a management audit of the City’s three retirement systems every five years. The purpose of the audit is to examine whether each retirement system is operating in the most efficient and economical manner, and to evaluate each system’s asset allocation.
This is the third management audit that has been conducted of LAFPP and the number of recommendations has significantly decreased over time, from 168 recommendations in 2007 to the current report with 25 recommendations. The recommendations contained in the audit are intended to further enhance and improve operations, and ensure the Board is presented with pertinent data when making investment decisions. LAFPP staff will further research each recommendation and develop implementation plans for the Board’s consideration.
The Management Audit noted that LAFPP had a thoughtful investment strategy and well-structured investment policy and has recognized the need to prudently manage cybersecurity risks. Some of the noteworthy audit results included the following:
Innovative Investment Funding Strategies
- “The success of LAFPP’s funding progress is due to a myriad of reasons, but one key reason is the commitment to the actuarial funding policy that was originally put in place, and not deviating from it.“
Cybersecurity
- “…it is clear the LAFPP has recognized the need to prudently manage cybersecurity risks…LAFPP has begun work that reflects many of the DOL’s best practice tips including conducting vulnerability assessments of the network, ensuring adoption of practices designed to protect member data, and engaging in Board and staff training. “
Administration/Management of the System
- “In reviewing the administrative and investment management expenses over the Scope period, we observed that these two expenses make up a small portion of overall expenditures. The majority of expenditures are for pension and health benefit related expenses.”
Governance
- “…LAFPP exhibits best practices through the adoption of a Board Governance Policies Manual and Board Operating Policies and Procedures Manual, and transparency by posting these governance documents on its public website.”
Aon consultants concluded the presentation by stating that LAFPP is a well-run, effective pension system. We invite you to review the entire audit report posted on the LAFPP website.
