OSC Audit Focuses on LOSAP Asset Management

Here is a link to the latest audit from the Office of the State Comptroller that focuses on LOSAP: https://www.osc.ny.gov/local-government/audits/fire-district/2025/07/18/roosevelt-fire-district-length-service-award-program-2025m-40

Before we give our insight into this audit, we’d like to state that the purpose of this post is to help other LOSAP sponsors learn from the findings, not to criticize this or any particular District that is the subject of an audit. One of the findings in this Report was that the District properly awarded points – while that is a positive outcome for this District, there isn’t much more to say. However, the overall theme of regular monitoring of the LOSAP asset management is a topic worth exploring in more detail.

This is the first time that the OSC has commented on the management of the LOSAP assets. Readers of our blog will know this is something we have been anticipating since the OSC implemented the requirements of GASB Statement 84 into the Annual Financial Report (AFR), which now considers LOSAP assets as part of the general fund. With this change, we felt it was inevitable that LOSAP audits would shift from primarily focusing on the awarding of points to the financial operations. The first of these financial-focused LOSAP audits was in December 2023. We commented on that audit here: Blog Post: 2024 01 17.

One of the two Key Recommendations in the report was to “Ensure that the District obtains an annual audit of the LOSAP, or in the alternative, include LOSAP disclosure notes in the District’s annual audit.” The delay in the completion of the annual audit appeared to be the statutory path OSC could use to emphasize the importance of monitoring the LOSAP asset management.

In reading the Audit Report, it feels as if the OSC is trying to bring attention to a very important process without getting too much into the weeds or making specific recommendations that are outside the current statutory framework. Generally, the purpose of an OSC audit is to determine if a municipality or government agency is following the statute and their own policies, thereby ensuring taxpayer dollars are used most effectively. To that point, the annual LOSAP audit is the only statutorily required review of the fiscal condition of a LOSAP. While Firefly clients receive the benefit of our services that supplement the audit by providing annual independent review and analysis of the asset performance, that is not a statutory role of the actuary. Therefore, it seems that the OSC’s only available recommendation was to make sure the annual audit is completed and filed timely. Beyond that, we think there are some implications in the Report that are worth exploring.

The Report makes clear that the OSC views the annual LOSAP audit as an important opportunity for a board to monitor the performance of the LOSAP assets. Here are few highlights from the Report regarding the monitoring of the LOSAP assets:

It is tempting to try and read between the lines or draw conclusions that are not specifically stated in the Report. The words “prudent” and “regular” are subjective, and the Report mainly drives home the importance of regular monitoring and prudent management without a lot of additional details. While the OSC commented on the negative performance of the assets in 2022 and the impact the loss had on future contributions, there was no specific statement by the OSC that this District failed to manage or monitor the assets prudently. Instead, the OSC pointed to the fact that timely completed audits could have facilitated more effective monitoring the LOSAP assets. However, the District’s response was clear that it had already been investigating alternative asset managers before the OSC auditors arrived, indicating a level of monitoring was already occurring.

The OSC did provide examples of what a LOSAP sponsor should do to monitor the LOSAP assets (as described in the final bullet-point above). To assist in developing an effective monitoring process, we suggest LOSAP sponsors consider the following:

1. Request that the investment manager provide monthly statements detailing the securities/investments held at month end, interest/dividends earned, gain/loss in the value of the assets, as well as any fees or benefits that were paid during the month. Although monthly is preferred, quarterly would be acceptable.
2. Request that periodic reports be sent from the investment manager stating the rate of return earned on the LOSAP assets. Quarterly would be best, but semi-annually or annually would be acceptable. Ideally, these reports would include returns during the past quarter, year-to-date, and from the beginning of the relationship with the investment manager. They should also include information on agreed-upon benchmarks or other goals to measure performance relative to those goals.
3. Request monthly reports on the benefits paid during the month. The report should include names, amounts, and taxes withheld (if any). This may be provided by the third-party administrator if the investment manager is not responsible for processing distributions.
4. The treasurer should review and reconcile the investment statements and include the activity with the monthly report to the board (or at least quarterly). Remember that the LOSAP assets are now part of the general fund, so they should be reconciled and reported to the Board like other general funds.
5. Review the assets with the investment manager at least annually.
6. Adopt a LOSAP investment policy (sometimes referred to as an Investment Policy Statement or IPS) and review that policy with the investment manager to ensure that the current asset allocation is in compliance with the policy.
7. Request feedback from the external CPA after the annual LOSAP audit process.

Implementing some or all of these best practices should give the LOSAP sponsor the information it needs to regularly monitor the LOSAP assets. Additionally, this information will also then be available to the external CPA when performing the LOSAP audit, allowing for a more complete review and better insights.

Finally, the other key recommendation in this Audit Report was about complying with the procurement policies and procedures. Firefly does not offer any advice or guidance on compliance with procurement policies, and we suggest contacting your attorney for guidance on these types of policies.