Auditors flag conflict-of-interest gaps at PSPRS; trustees defend new disclosure process

A follow-up briefing on the Public Safety Personnel Retirement System (PSPRS) on March 12, 2025 exposed continuing questions about the retirement system’s conflict-of-interest policies and recordkeeping even as trustees said they have tightened disclosure procedures and engaged outside counsel.

The Auditor General reported that the system’s 2023 review found a former administrator had undeclared business relationships with two former board members and that the three ‘‘failed to disclose these relationships either in a conflict of interest disclosure form or at a public meeting,’’ the auditor said. Auditors recommended the system develop and document conflict-of-interest policies and keep all substantial-interest disclosures in a special file for public inspection.

Auditors’ findings and examples

Patrick Jannett from the Auditor General’s office told the committee his staff found multiple disclosures in 2023 and 2024 that had not been documented in a public special file and that the system did not consistently document its review or remediation of potential substantial interests. He described specific examples, including a board member and an executive employee who disclosed a business relationship in which the employee received compensation from the board member; a senior portfolio manager who disclosed ownership of an investment-related business; and board members who disclosed personal investments held in the system’s portfolio.

The Auditor General said the office had not concluded whether the disclosed matters constituted “substantial interests” under statute because the system did not provide contemporaneous documentation of legal review and remediation. ‘‘Absent procedures for assessing these reported conflicts...we lacked evidence to review that would allow us to determine if we agree with the system's conclusions,’’ Jannett said.

PSPRS response: tighter procedures, outside counsel and oversight

PSPRS Administrator Mike Townsend told JLAC the system has changed policies and created a review process that routes potential disclosures to general counsel and fiduciary counsel and that PSPRS had developed a broader review population to ensure potential issues are identified. He said the system believes its processes are now more rigorous and that remaining documentation issues can be remedied before the next follow-up.

Trustee Harry Papp, PSPRS vice chair and chair of the investment committee, acknowledged past failures and defended current procedures. He described recent disclosure examples and said outside counsel (Gallagher & Kennedy) and internal counsel had reviewed disclosures. Papp told the committee he and trustees have worked to rebuild trust and that many disclosures are immaterial but were being filed out of an abundance of caution: ‘‘Disclosure is like sun — the sunlight cures an awful lot of problems,’’ Papp said.

Historical matters and oversight

The Auditor General recounted past incidents, including a March 2018 home purchase and a subsequent retroactive pay increase, that implicated prior leadership and led to corrective recommendations. The office said it referred aspects of the earlier work to the Attorney General’s office for further review.

What lawmakers pressed for

Committee members asked whether legal counsel’s review was independent and whether the system had attempted to recoup prior inappropriate reimbursements. The Auditor General said it had not found evidence that the system had sought to claw back improper payments and that the office had provided its report to the Attorney General for further action.

Next steps

PSPRS said it will work with the Auditor General to provide the audit trail and documentation the auditors requested. The Auditor General said it will revisit the outstanding recommendations in its next follow-up review.

Ending

Lawmakers and trustees agreed on the need for documented procedures and transparent public records to prevent conflicts and protect trust in a large public pension fund. PSPRS trustees said they will continue implementing documentation and review steps and that outside counsel reviews will be shared with auditors to the extent permissible.