L 700.3 16li 2009 c.l
""'.II.II ••.••.•'•••••,,(S of the Land Office
INTERNAL AUDIT REPORT
Review of the Investment Division
The purpose of this audit was to conduct a compliance audit of the investment activities
of the Investment Division of the Commissioners of the Land Office (CLO). The review
was performed to determine if CLO's investment activities are in compliance with the
Constitution of the State of Oklahoma, Oklahoma Statutes, and the Commissioner's In-vestment
Plan and Policy.
The scope of this audit was to review the internal and environmental controls of the in-vestment
process. The review encompassed the activities and performance of the Invest-ment
Committee, Investment Division, Investment Consulting Firm, Investment Manag-ers,
the Custodial Trustee's duties of the Master Custodian Bank, and the accounting and
reporting of investment transactions and assets. The CLO's Investment Divisions portfo-lio
consists of investments in fixed income securities (bonds), equities in securities
(stocks in corporations) and cash. Audit tests were performed by reviewing documents
and recalculating amounts for the year ending February 28, 2009.
1. Verify that the Investment Committee and the Investment Division are following
Oklahoma Statutes, CLO's Investment Plan and Policy and the Commissioners'
2. Determine if the contractual agreements between CLO and the Investment Man-agers,
Master Custodian Bank are adequate and within the mandates of the CLO's
Investment Plan and Policy and Oklahoma Statutes.
3. Verify that fees charged by the Investment Consulting Firm, the Master Custodial
Bank and Investment Managers are in accord with their contractual agreements
and the Commissioners approval.
4. Verify that the Investment Consulting Firm and the Master Custodian Bank are
performing their duties as dictated by their contractual agreement with the CLO.
5. Confirm compliance with the CLO policies and procedures and the Oklahoma
Statutes regarding the Master Custodian Bank in its capacity as custodial trustee.
6. Determine if investment practices of the Investment Managers are in compliance
with the CLO's Investment Plan and Policy and their contractual agreements with
7. Determine if the cash management practices of the CLO Investment Division are
adequate and performed in a timely manner allowing for maximum earnings effi-ciency
while providing cash flow.
8. Determine and confirm that the Securities Lending Agreement is sufficient to pro-vide
assurance that the lent securities are properly monitored and collateralized.
9. Determine that investments are properly recorded, and those accounting and fi-nancial
statement presentations are correct.
10. Ascertain that the CLO Investment Policy is sufficient to provide assurance that
investments are safeguarded and risk is properly monitored and evaluated.
Investment Portfolio Total
The total investment portfolio book value was $1,549,124,790 with a market value of
$1,550,030,342 on February 28, 2008. The portfolio's book value on February 28, 2009,
was $1,495,716,591 with a market value of$I,191,327,749.
The February 28, 2009 book value includes $97,724,335 from oil and gas royalties and
lease bonuses, and land sales were invested in the investment portfolio for the year end-ing
February 28, 2009.
From February 28, 2008 to February 28, 2009 the book value of CLO's investment port-folio
decreased $151,132,534 (9.8%), due to losses from sales of stocks and bonds. Dur-ing
this period market value of the portfolio decreased $358,702,593 (23%).
The book value of the investment in fixed securities (bonds, preferred stocks & cash) on
February 28,2008 was $955,223,260, with a market value of$958,280,539. On February
28, 2009, the book value of the investment in fixed securities was $992,352,878 and the
market value was $869,313,631. A market value decrease of $88,966,908 (9.3%).
The book and market value of the CLO investment portfolio for equity investments on
February 28, 2008 was $593,901,530 and $591,749,803, respectively. The book value of
equity investments decreased to $503,363,713 (33.7% of the total portfolio) with a mar-ket
value of $322,014,118 (27% of the total portfolio) on February 28, 2009.
The Dow Jones Industrial Average Index was down approximately 44% during this time
SUMMARY OF FINDINGS
The review found the CLO's investment activities are in compliance with the Constitu-tion
of the State of Oklahoma, Oklahoma Statutes, and the Investment Policy of the
Commissioners of the Land Office. Audit tests found that internal controls are in place to
safeguard the CLO investments. There were no material findings in each of the above
d$ttY~ May 28,2009
Ro E. eoo er;d PA
Chief Internal Auditor
Brad Henry, Governor
Jari Askins, Lt. Governor
Steve Burrage, State Auditor
Sandy Garrett, State Superintendent of Public Instruction
Terry Peach, President of State Board of Agriculture
John C. Rahhal, Acting Secretary
Phyllis Bolt, Investments Division Director
Brian Heanue, Accounting Division Director
David Atkinson, Investment Committee Member
Marion S. McMillan, Investment Committee Member
Dianne Wigley, Investment Committee Member
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