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Plante Moran outlines audit plan, flags valuation and management‑override risks
Summary
Plante Moran presented its fiscal‑year audit approach for CalPERS, highlighting significant risks including management override, valuation of level‑3 investments and revenue recognition tied to healthcare premiums; auditors described planned journal‑entry testing, valuation expert support and timing for fieldwork and issuance.
Gene Young, the lead partner for the engagement at Plante Moran, and his team briefed the board and committee on the firms approach to the fiscal‑year audit. The audit scope covers the financial statements, GASB schedules and an agreed‑upon procedures engagement on census data for an agent multi‑employer plan, with additional deliverables related to internal control communications and, if necessary, a management letter.
Amanda Kronck described the audits significant‑risk focus areas: management override of controls, valuation of investments that rely on unobservable inputs (level‑3 and NAV‑valued assets), improper revenue recognition for insurance premiums and subsidies, pension and OPEB liabilities and the long‑term‑care policy liability. She explained the testing approach: journal‑entry downloads and analytics to select high‑risk manual entries; walkthroughs and control testing; substantive testing of investment valuations with involvement of valuation specialists; and actuarial expertise for pension and OPEB liability estimates.
"We've designed our audit testing to focus on a couple different areas. Number one, journal entry testing," Amanda said, describing analytics and sample selection. On valuation, the auditors said they will obtain audited capital statements where available, evaluate managements roll‑forward procedures, and engage internal valuation experts for investments with unobservable inputs.
Plante Moran also discussed permitted uses of analytic tools and said firms use data analytics heavily while keeping protected client data out of external AI services. The team said its on‑site walkthroughs began during earlier interim work and that year‑end fieldwork is planned to support an issuance target in mid‑November.
Why it matters: The identified risks (valuation of hard‑to‑price assets, management override, and material estimates) are typical for large public pension audits but are especially important at an investor of this scale. The auditors planned testing and specialist involvement are the primary mitigations staff and the committee will monitor.
Next steps: Plante Moran will continue interim procedures and control testing, perform year‑end fieldwork beginning in August, and report any material deficiencies to the Risk & Audit Committee.
