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Outside lawyers to help in state fund audit

State officials approve hiring a law firm to assist in auditing the troubled investment fund.

By SCOTT BARANCIK, Times Staff Writer
Published December 25, 2007

Auditors being hired to figure out what went wrong with Florida's troubled state-run Local Government Investment Pool will get some legal help.

In a vote Friday, the audit committee of the State Board of Administration agreed that outside lawyers will be needed to answer critical questions associated with the forthcoming audit, such as how the supposedly low-risk investment pool ended up putting money into risky mortgage-backed securities and whether those investments complied with state and federal laws and regulations.

Florida Chief Financial Officer Alex Sink requested the external audit this month after dozens of panicked local governments across the state, responding to news that some of the mortgage-backed securities had defaulted, pulled their deposits. She said she wanted to know whether the pool - a sort of money-market fund for schools and municipalities - had invested in riskier assets than its guidelines suggested.

She also wanted to know how the pool's managers reacted when some of the investments were downgraded, and when and what they told their depositors. About 41 percent of the $2.5-billion in troubled assets had been purchased from a single Wall Street investment firm, Lehman Brothers Holdings.

On Friday, Sink and Gov. Charlie Crist further recommended that the audit committee hire a law firm to help the outside auditors answer the stickier legal questions. Bob Milligan, the SBA's interim executive director, reiterated the recommendation to the audit committee. The measure was approved later that day.

Results from the audit are expected by mid February. The auditing contract has not yet been awarded.

[Last modified December 24, 2007, 18:21:09]