HOUSE BILL No. 2612

      An Act concerning audit; relating to audits of the Kansas public employees retirement
      system; concerning the pooled money investment board; amending K.S.A. 46-1106,
      75-4222 and 75-4234 and K.S.A. 1997 Supp. 74-4921 and repealing the existing sections;
      also repealing K.S.A. 75-627.

Be it enacted by the Legislature of the State of Kansas:

    Section 1. On and after July 1, 1998, K.S.A. 1997 Supp. 74-4921 is
hereby amended to read as follows: 74-4921. (1) There is hereby created
in the state treasury the Kansas public employees retirement fund. All
employee and employer contributions shall be deposited in the state
treasury to be credited to the Kansas public employees retirement fund.
The fund is a trust fund and shall be used solely for the exclusive purpose
of providing benefits to members and member beneficiaries and defray-
ing reasonable expenses of administering the fund. Investment income of
the fund shall be added or credited to the fund as provided by law. All
benefits payable under the system, refund of contributions and overpay-
ments, purchases or investments under the law and expenses in connec-
tion with the system unless otherwise provided by law shall be paid from
the fund. The director of accounts and reports is authorized to draw
warrants on the state treasurer and against such fund upon the filing in
the director's office of proper vouchers executed by the chairperson or
the executive secretary of the board. As an alternative, payments from
the fund may be made by credits to the accounts of recipients of payments
in banks, savings and loan associations and credit unions. A payment shall
be so made only upon the written authorization and direction of the re-
cipient of payment and upon receipt of such authorization such payments
shall be made in accordance therewith. Orders for payment of such claims
may be contained on (a) a letter, memorandum, telegram, computer prin-
tout or similar writing, or (b) any form of communication, other than
voice, which is registered upon magnetic tape, disc or any other medium
designed to capture and contain in durable form conventional signals used
for the electronic communication of messages.

    (2) The board shall have the responsibility for the management of
the fund and shall discharge the board's duties with respect to the fund
solely in the interests of the members and beneficiaries of the system for
the exclusive purpose of providing benefits to members and such mem-
ber's beneficiaries and defraying reasonable expenses of administering
the fund and shall invest and reinvest moneys in the fund and acquire,
retain, manage, including the exercise of any voting rights and disposal of
investments of the fund within the limitations and according to the pow-
ers, duties and purposes as prescribed by this section.

    (3) Moneys in the fund shall be invested and reinvested to achieve
the investment objective which is preservation of the fund to provide
benefits to members and member beneficiaries, as provided by law and
accordingly providing that the moneys are as productive as possible, sub-
ject to the standards set forth in this act. No moneys in the fund shall be
invested or reinvested if the sole or primary investment objective is for
economic development or social purposes or objectives.

    (4) In investing and reinvesting moneys in the fund and in acquiring,
retaining, managing and disposing of investments of the fund, the board
shall exercise the judgment, care, skill, prudence and diligence under the
circumstances then prevailing, which persons of prudence, discretion and
intelligence acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of like character and with like aims
by diversifying the investments of the fund so as to minimize the risk of
large losses, unless under the circumstances it is clearly prudent not to
do so, and not in regard to speculation but in regard to the permanent
disposition of similar funds, considering the probable income as well as
the probable safety of their capital.

    (5) Notwithstanding subsection (4): (a) Total investments in common
stock may be made in the amount of up to 60% of the total book value
of the fund;

    (b) the board may invest or reinvest moneys of the fund in alternative
investments if the following conditions are satisfied:

    (i) The total of such alternative investments does not exceed more
than 5% of the total investment assets of the fund. If the total of such
alternative investments exceeds more than 5% of the total investment
assets of the fund on the effective date of this act, the board shall not
invest or reinvest any moneys of the fund in alternative investments until
the total of such alternative investments is less the 5% of the total in-
vestment assets of the fund subject to the 5% limitation contained in this
subsection. Nothing in this subsection requires the board to liquidate or
sell the system's holdings in any alternative investment held by the system
on the effective date of this act, unless such liquidation or sale would be
in the best interest of the members and beneficiaries of the system and
be prudent under the standards contained in this section. The 5% limi-
tation contained in this section shall not have been violated if the total of
such alternative investments exceeds 5% of the total investment assets of
the fund as a result of market forces acting to increase the value of such
alternative investments relative to the rest of the system's investments;
however, the board shall not invest or reinvest any moneys of the fund
in alternative investments until the total of such alternative investments
is less than 5% of the total investment assets of the fund subject to the
5% limitation contained in this subsection;

    (ii) if in addition to the system, there are at least two other sophisti-
cated investors, as defined by section 301 of the securities and exchange
act of 1933;

    (iii) the system's share in any individual alternative investment is lim-
ited to an investment representing not more than 20% of any such indi-
vidual alternative investment;

    (iv) the system has received a favorable and appropriate recommen-
dation from a qualified, independent expert in investment management
or analysis in that particular type of alternative investment;

    (v) the alternative investment is consistent with the system's invest-
ment policies and objectives as provided in subsection (6);

    (vi) the individual alternative investment does not exceed more than
2.5% of the total alternative investments made under this subsection. If
the alternative investment is made pursuant to participation by the system
in a multi-investor pool, the 2.5% limitation contained in this subsection
is applied to the underlying individual assets of such pool and not to
investment in the pool itself. The total of such alternative investments
made pursuant to participation by the system in any one individual multi-
investor pool shall not exceed more than 20% of the total of alternative
investments made by the system pursuant to this subsection. Nothing in
this subsection requires the board to liquidate or sell the system's holdings
in any alternative investments made pursuant to participation by the sys-
tem in any one individual multi-investor pool held by the system on the
effective date of this act, unless such liquidation or sale would be in the
best interest of the members and beneficiaries of the system and be pru-
dent under the standards contained in this section. The 20% limitation
contained in this subsection shall not have been violated if the total of
such investment in any one individual multi-investor pool exceeds 20%
of the total alternative investments of the fund as a result of market forces
acting to increase the value of such a multi-investor pool relative to the
rest of the system's alternative investments; however, the board shall not
invest or reinvest any moneys of the fund in any such individual multi-
investor pool until the value of such individual multi-investor pool is less
than 20% of the total alternative investments of the fund;

    (vii) the board has received and considered the investment manager's
due diligence findings submitted to the board as required by subsection
(6)(c); and

    (viii) prior to the time the alternative investment is made, the system
has in place procedures and systems to ensure that the investment is
properly monitored and investment performance is accurately measured.

    For purposes of this act, ``alternative investment'' means nontraditional
investments outside the established nationally recognized public stock
exchanges and government securities market. Alternative investments
shall include, but not be limited to, private placements, venture capital,
partnerships, limited partnerships and leveraged buyout partnerships;

    (c) except as otherwise provided, the board may invest or reinvest
moneys of the fund in real estate investments if the following conditions
are satisfied:

    (i) If, in addition to the system, there are at least two other sophis-
ticated investors, as defined by section 301 of the securities and exchange
act of 1933;

    (ii) the system's share in any individual real estate investment is lim-
ited to an investment representing not more than 20% of any such indi-
vidual real estate investment;

    (iii) the system has received a favorable and appropriate recommen-
dation from a qualified, independent expert in investment management
or analysis in that particular type of real estate investment;

    (iv) the real estate investment is consistent with the system's invest-
ment policies and objectives as provided in subsection (6);

    (v) the total of such real estate investments made pursuant to partic-
ipation by the system in any one individual multi-investor pool shall not
exceed more than 20% of the total of real estate investments made by
the system pursuant to this subsection. Nothing in this subsection re-
quires the board to liquidate or sell the system's holdings in any real estate
investments made pursuant to participation by the system in any one
individual multi-investor pool held by the system on the effective date of
this act, unless such liquidation or sale would be in the best interest of
the members and beneficiaries of the system and be prudent under the
standards contained in this section. The 20% limitation contained in this
subsection shall not have been violated if the total of such investment in
any one individual multi-investor pool exceeds 20% of the total real estate
investments of the fund as a result of market forces acting to increase the
value of such a multi-investor pool relative to the rest of the system's real
estate investments; however, the board shall not invest or reinvest any
moneys of the fund in any such individual multi-investor pool until the
value of such individual multi-investor pool is less than 20% of the total
real estate investments of the fund;

    (vi) the board has received and considered the investment manager's
due diligence findings submitted to the board as required by subsection
(6)(c);

    (vii) prior to the time the real estate investment is made, the system
has in place procedures and systems to ensure that the investment is
properly monitored and investment performance is accurately measured;
and

    (viii) the provisions of this subsection shall not apply to any real estate
investment held by the system on July 1, 1992; and

    (d) the board shall not invest or reinvest moneys of the fund in any
banking institution, savings and loan association or credit union which
positions the system as a shareholder or owner of such banking institution,
savings and loan association or credit union.

    (6) Subject to the objective set forth in subsection (3) and the stan-
dards set forth in subsections (4) and (5) the board shall formulate policies
and objectives for the investment and reinvestment of moneys in the fund
and the acquisition, retention, management and disposition of invest-
ments of the fund. Such policies and objectives shall include:

    (a) Specific asset allocation standards and objectives;

    (b) establishment of criteria for evaluating the risk versus the poten-
tial return on a particular investment;

    (c) a requirement that all investment managers submit such man-
ager's due diligence findings on each investment to the board or invest-
ment advisory committee for approval or rejection prior to making any
alternative investment;

    (d) a requirement that all investment managers shall immediately re-
port all instances of default on investments to the board and provide the
board with recommendations and options, including, but not limited to,
curing the default or withdrawal from the investment; and

    (e) establishment of criteria that would be used as a guideline for
determining when no additional add-on investments or reinvestments
would be made and when the investment would be liquidated.

    The board shall review such policies and objectives, make changes con-
sidered necessary or desirable and readopt such policies and objectives
on an annual basis.

    (7) The board may enter into contracts with one or more persons
whom the board determines to be qualified, whereby the persons under-
take to perform the functions specified in subsection (2) to the extent
provided in the contract. Performance of functions under contract so
entered into shall be paid pursuant to rates fixed by the board subject to
provisions of appropriation acts and shall be based on specific contractual
fee arrangements. The system shall not pay or reimburse any expenses of
persons contracted with pursuant to this subsection, except that after
approval of the board, the system may pay approved investment related
expenses subject to provisions of appropriation acts. The board shall re-
quire that a person contracted with to obtain commercial insurance which
provides for errors and omissions coverage for such person in an amount
to be specified by the board, provided that such coverage shall be at least
the greater of $500,000 or 1% of the funds entrusted to such person up
to a maximum of $10,000,000. The board shall require a person con-
tracted with to give a fidelity bond in a penal sum as may be fixed by law
or, if not so fixed, as may be fixed by the board, with corporate surety
authorized to do business in this state. Such persons contracted with the
board pursuant to this subsection and any persons contracted with such
persons to perform the functions specified in subsection (2) shall be
deemed to be agents of the board and the system in the performance of
contractual obligations.

    (8) (a) In the acquisition or disposition of securities, the board may
rely on the written legal opinion of a reputable bond attorney or attorneys,
the written opinion of the attorney of the investment counselor or man-
agers, or the written opinion of the attorney general certifying the legality
of the securities.

    (b) The board shall employ or retain qualified investment counsel or
counselors or may negotiate with a trust company to assist and advise in
the judicious investment of funds as herein provided.

    (9) (a) Except as provided in subsection (7) and this subsection, the
custody of money and securities of the fund shall remain in the custody
of the state treasurer, except that the board may arrange for the custody
of such money and securities as it considers advisable with one or more
member banks or trust companies of the federal reserve system or with
one or more banks in the state of Kansas, or both, to be held in safe-
keeping by the banks or trust companies for the collection of the principal
and interest or other income or of the proceeds of sale. The services
provided by the banks or trust companies shall be paid pursuant to rates
fixed by the board subject to provisions of appropriation acts.

    (b) The state treasurer and the board shall collect the principal and
interest or other income of investments or the proceeds of sale of secu-
rities in the custody of the state treasurer and pay same when so collected
into the fund.

    (c) The principal and interest or other income or the proceeds of sale
of securities as provided in clause (a) of this subsection (9) shall be re-
ported to the state treasurer and the board and credited to the fund.

    (10) The board shall with the advice of the director of accounts and
reports establish the requirements and procedure for reporting any and
all activity relating to investment functions provided for in this act in order
to prepare a record monthly of the investment income and changes made
during the preceding month. The record will reflect a detailed summary
of investment, reinvestment, purchase, sale and exchange transactions
and such other information as the board may consider advisable to reflect
a true accounting of the investment activity of the fund.

    (11) The board shall provide for an examination of the investment
program annually. The examination shall include an evaluation of current
investment policies and practices and of specific investments of the fund
in relation to the objective set forth in subsection (3), the standard set
forth in subsection (4) and other criteria as may be appropriate, and rec-
ommendations relating to the fund investment policies and practices and
to specific investments of the fund as are considered necessary or desir-
able. The board shall include in its annual report to the governor as pro-
vided in K.S.A. 74-4907, and amendments thereto, a report or a summary
thereof covering the investments of the fund.

    (12) (a) The legislative post auditor shall conduct An annual finan-
cial-compliance audit of the system, including any performance audit sub-
jects which are directed to be included in such annual audit by the leg-
islative post audit committee, performance audits of the system as
prescribed by this section and under the Kansas governmental operations
law, and such other audits as are directed by the legislative post audit
committee under the Kansas legislative post audit act shall be conducted.
The annual financial-compliance audit shall include, but not be limited
to, a review of alternative investments of the system with any estimates
of permanent impairments to the value of such alternative investments
reported by the system pursuant to K.S.A. 74-4907, and amendments
thereto.

    (b) Except as otherwise provided by In accordance with this subsec-
tion (12), the legislative post auditor shall conduct annual financial-com-
pliance audit may include one or more performance audits, audit subjects
as directed by the legislative post audit committee, which shall include,
but not be limited to, one or more of the following subjects: An evaluation
of the performance of investment managers, an evaluation of the rates of
return of investments reported by the system, an evaluation of the total
compensation received for the planned year by investment managers by
individual investment classification, and a comparison of the system's in-
vestment practices and performance with the investment practices and
performance of other state pension programs by asset type, including all
asset types described as alternative investments in subsection (5)(b). In
considering performance audit subjects to be included in any financial-
compliance audit conducted pursuant to this subsection (12), the legisla-
tive post audit committee shall consider recommendations and requests
for performance audits, relating to the system or the management thereof,
by the joint committee on pensions, investments and benefits or by any
other committee or individual member of the legislature. Commencing
with the performance financial-compliance audit for the fiscal year ending
June 30, 1994 1998, the legislative post audit committee shall specify
which of the if one or more performance audit subjects listed in this
subsection shall be included in each performance the financial-compli-
ance audit conducted pursuant to this subsection (12), in addition to such
other subjects as may be directed to be included in the performance
financial-compliance audit by the legislative post audit committee. Except
as otherwise determined by the legislative post audit committee pursuant
to this subsection (12), commencing with the performance financial-com-
pliance audit for the fiscal year ending June 30, 1994, each of the 1998,
one or more performance audit subjects listed in this subsection specified
by the legislative post audit committee shall be included at least once
every two fiscal years in a performance financial-compliance audit con-
ducted pursuant to this subsection, excluding any fiscal year during which
the system and the board are subject to review and evaluation by the
legislature under the Kansas governmental operations accountability law
(12). Except as otherwise directed by the legislative post audit committee,
no performance audit shall be conducted pursuant to this subsection dur-
ing any fiscal year when the system and the board are subject to a per-
formance audit and to review and evaluation under the Kansas govern-
mental operations accountability law. The legislative post audit committee
may direct that one or more performance audit subjects are to be included
in a financial-compliance audit conducted pursuant to this subsection (12)
not more than once during a specific period of three fiscal years, in lieu
of once every two fiscal years.

    (c) The auditor to conduct any the financial-compliance audit re-
quired pursuant to this subsection (12) shall be specified in accordance
with K.S.A. 46-1122, and amendments thereto. If the legislative post audit
committee specifies under such statute that a firm, as defined by K.S.A.
46-1112, and amendments thereto, is to perform all or part of the audit
work of such audit, such firm shall be selected and shall perform such
audit work as provided in K.S.A. 46-1123, and amendments thereto, and
K.S.A. 46-1125 through 46-1127, and amendments thereto. The audits
required pursuant to this subsection (12) shall be conducted in accord-
ance with generally accepted governmental auditing standards. The audits
financial-compliance audit required pursuant to this subsection (12) shall
be conducted as soon after the close of the fiscal year as practicable, but
shall be completed no later than six months after the close of the fiscal
year. The post auditor shall annually compute the reasonably anticipated
cost of providing the financial-compliance audit pursuant to this section
subsection (12), subject to review and approval by the contract audit com-
mittee established by K.S.A. 46-1120, and amendments thereto. Upon
such approval, the system shall reimburse the division of post audit for
the amount approved by the contract audit committee. The furnishing of
the financial-compliance audit pursuant to this section subsection (12)
shall be a transaction between the legislative post auditor and the system
and shall be settled in accordance with the provisions of K.S.A. 75-5516,
and amendments thereto.

    (d) Any internal assessment or examination of alternative investments
of the system performed by any person or entity employed or retained
by the board which evaluates or monitors the performance of alternative
investments shall be reported to the legislative post auditor so that such
report may be reviewed in accordance with the annual financial-compli-
ance audits provided in conducted pursuant to this subsection (12)(a) (12).

    Sec. 2. K.S.A. 46-1106 is hereby amended to read as follows: 46-
1106. (a) A financial-compliance audit shall be conducted each year of
the general purpose financial statements prepared by the division of ac-
counts and reports for its annual financial report. This audit shall be con-
ducted in accordance with generally accepted governmental auditing
standards. The resulting written audit report shall be issued as soon after
the end of the fiscal year as is practicable. In addition, separate written
audit reports on the financial management practices of the office of the
state treasurer and the pooled money investment board shall be prepared
addressing the adequacy of financial management practices and compli-
ance with applicable state laws. Copies of this report such reports shall
be furnished to the governor, director of accounts and reports, director
of the budget, each state agency, the legislative post audit committee and
other persons or agencies as may be required by law or by the specifi-
cations of the audit. Any additional costs associated with preparing the
separate additional reports on the office of the state treasurer and the
pooled money investment board shall be borne by the office of the state
treasurer and the pooled money investment board in accordance with
K.S.A. 46-1121, and amendments thereto.

    (b) Including financial-compliance audit work conducted as part of
the audit conducted pursuant to subsection (a), financial-compliance au-
dit work shall be conducted at each state agency at least once every three
years as directed by the legislative post audit committee. Written reports
on the results of such auditing shall be furnished to the governor, director
of accounts and reports, director of the budget, the state agency which is
audited, the legislative post audit committee and such other persons or
agencies as may be required by law or by the specifications of the audit.

    (c) Books and accounts of the state treasurer and the director of ac-
counts and reports, including the bond register of the state treasurer, may
be examined monthly if the legislative post audit committee so deter-
mines, and such examination may include detailed checking of every
transaction or test checking.

    Any person receiving tax information under the provisions of subsec-
tion (a) or (b) shall be subject to the same duty of confidentiality imposed
by law upon the personnel of the department of revenue and shall be
subject to any civil or criminal penalties imposed by law for violations of
such duty of confidentiality.

    (d) The post auditor shall report immediately in writing to the leg-
islative post audit committee, governor and attorney general whenever it
appears in the opinion of the post auditor that there may have occurred
any violation of penal statutes or any instances of misfeasance, malfea-
sance or nonfeasance by a public officer or employee disclosed by any
audit or audit work conducted under the legislative post audit act. The
post auditor shall furnish the attorney general all information in the pos-
session of the post auditor relative to any report referred to the attorney
general. The attorney general shall institute and prosecute civil proceed-
ings against any such delinquent officer or employee, or upon such officer
or employee's official bond, or both, as may be needed to recover for the
state any funds or other assets misappropriated. The attorney general shall
also prosecute such ouster and criminal proceedings as the evidence in
the case warrants. Any person receiving tax information under the pro-
visions of this subsection shall be subject to the same duty of confiden-
tiality imposed by law upon the personnel of the department of revenue
and shall be subject to any civil or criminal penalties imposed by law for
violations of such duty of confidentiality.

    (e) The post auditor shall immediately report to the committee on
surety bonds and insurance when any audit or audit work conducted un-
der the legislative post audit act discloses a shortage in the accounts of
any state agency, officer or employee.

    (f) In the discharge of the duties imposed under the legislative post
audit act, the post auditor may require state agencies to preserve and
make available their accounts, records, documents, vouchers, requisitions,
payrolls, canceled checks or vouchers and coupons, and other evidence
of financial transactions.

    (g) In the discharge of the duties imposed under the legislative post
audit act, the post auditor or firm conducting a financial-compliance audit
or conducting other financial-compliance audit work shall have access to
all books, accounts, records, files, documents and correspondence, con-
fidential or otherwise, of any person or state agency subject to the legis-
lative post audit act or in the custody of any such person or state agency.
Except as otherwise provided in this subsection, the post auditor or firm
conducting a financial-compliance audit or other financial-compliance au-
dit work and all employees and former employees of the division of post
audit or firm performing a financial-compliance audit or other financial-
compliance audit work shall be subject to the same duty of confidentiality
imposed by law on any such person or state agency with regard to any
such books, accounts, records, files, documents and correspondence, and
any information contained therein, and shall be subject to any civil or
criminal penalties imposed by law for violations of such duty of confiden-
tiality. The duty of confidentiality imposed on the post auditor and on
firms conducting financial-compliance audits or other financial-compli-
ance audit work and all employees of the division of post audit and all
employees of such firms shall be subject to the provisions of subsection
(d), and the post auditor may furnish all such books, accounts, records,
files, documents and correspondence, and any information contained
therein to the attorney general pursuant to subsection (d). Upon receipt
thereof, the attorney general and all assistant attorneys general and all
other employees and former employees of the office of attorney general
shall be subject to the same duty of confidentiality with the exceptions
that any such information contained therein may be disclosed in civil
proceedings, ouster proceedings and criminal proceedings which may be
instituted and prosecuted by the attorney general in accordance with sub-
section (d), and any such books, accounts, records, files, documents and
correspondence furnished to the attorney general in accordance with sub-
section (d) may be entered into evidence in any such proceedings. Noth-
ing in this subsection shall be construed to supersede any requirement
of federal law.

    (h) Any firm or firms which develop information in the course of
conducting a financial-compliance audit or other financial-compliance au-
dit work which the post auditor is required to report under subsection
(d) or (e) shall immediately report such information to the post auditor.
The post auditor shall then make the report required in subsection (d) or
(e).

    New Sec. 3. Commencing on or before June 30, 1999, and at least
every two years thereafter, a comparative investment performance review
and an audit of the investment program of the pooled money investment
board shall be conducted. Such review and audit shall include an evalu-
ation of current investment policies and practices and of specific invest-
ments of the pooled money investment portfolio and recommendations
relating to the investment policies and practices and to specific invest-
ments of the portfolio as are considered necessary or desirable. The firm
or individual to perform the work required by this subsection shall be
selected in accordance with K.S.A. 75-37,102, and amendments thereto.
The cost of such comparative investment performance review and such
audit of the investment program of the pooled money investment board
shall be borne by the pooled money investment board.

    Sec. 4. K.S.A. 75-4222 is hereby amended to read as follows: 75-
4222. (a) It shall be unlawful for the pooled money investment board to
award a state bank account to any depository bank in which any member
of the board is interested as a stockholder or officer, except upon the
unanimous vote of the other members of the board.

    (b) The board shall appoint a director of investments who shall be in
the unclassified service under the Kansas civil service act. The board may
appoint investment officers and investment analysts, who shall be in the
unclassified service of the Kansas civil service act. In addition the board
may appoint such employees as may be needed who shall be in the clas-
sified service of the Kansas civil service act.

    (c) From and after the effective date of this act, all current employees
of the office of the state treasurer performing any responsibilities, powers,
duties or functions related to the municipal investment pool fund are
hereby transferred to the pooled money investment board. All such em-
ployees shall retain all retirement benefits and all rights of civil service
which such employees had before the effective date of this act and their
service shall be deemed to have been continuous. All such transfers shall
be in accordance with civil service laws and rules and regulations.

    (d) From and after the effective date of this act, the liability for all
accrued compensation, wages or salaries of employees who, immediately
prior to such date, were engaged in the performance of responsibilities,
powers, duties or functions relating to the municipal investment pool fund
in the office of the state treasurer and who are transferred to the pooled
money investment board pursuant to subsection (c), shall be assumed and
paid from appropriations to the state treasurer for operations of the mu-
nicipal investment pool fund and operations of the pooled money invest-
ment board.

    (e) The employees working for the pooled money investment board
shall have access at all times to all papers, documents and property in the
custody or possession of the state treasurer that relate to duties of the
board, and the state treasurer shall take such steps as may be necessary
to make this provision of law effective for such purposes as the pooled
money investment board may indicate.

    (f) On and after the effective date of this act, the state treasurer shall
provide the pooled money investment board office space, services, equip-
ment, materials and supplies, and all purchasing and related management
functions required by the pooled money investment board in the exercise
of the powers, duties and functions imposed or authorized upon such
board. The portion of the state treasurer's budget relating to the opera-
tions of the pooled money investment board shall be approved by the
pooled money investment board prior to submission to the director of
the budget.

    (g) The director of investments shall keep and preserve a written
record of the board's proceedings.

    (h) The board shall make an annual report to the legislature of the
investments by the board of all moneys under the jurisdiction and control
of the board, by filing a copy of the report with the chief clerk of the
house of representatives and with the secretary of the senate no later than
the 10th calendar day of each regular session of the legislature.

    (i) The board shall provide for an audit of the investment program at
least every two years. Such audit shall be conducted by a firm as defined
in K.S.A. 46-1112, and amendments thereto. Such audit shall be con-
ducted in accordance with generally accepted governmental auditing
standards. Such audit shall include an evaluation of current investment
policies and practices and of specific investments of the pooled money
investment portfolio and recommendations relating to the investment
policies and practices and to specific investments of the portfolio as are
considered necessary or desirable. The resulting written audit report shall
be issued as soon after the end of the fiscal year as is practicable. Copies
of this report shall be furnished to the governor, director of accounts and
reports, director of the budget and the legislative post audit committee.
A copy of the report shall be filed with the chief clerk of the house of
representatives and with the secretary of the senate no later than the 10th
calendar day of the regular session of the legislature following completion
of such audit. The cost of such audit work shall be borne by the pooled
money investment board.

    Sec. 5. K.S.A. 75-4234 is hereby amended to read as follows: 75-
4234. (a) Except as provided in subsection (d) (c), all moneys in the state
treasury shall be invested as a single portfolio which is hereby designated
as the pooled money investment portfolio. The portfolio shall be invested
in accordance with article 42 of chapter 75 of the Kansas Statutes An-
notated, and amendments thereto. The director of investments shall com-
pute daily the earnings of the portfolio, including realized gains and losses.
The pooled money investment board by written policy may provide for
allocation of unrealized gains or losses. The director of investments shall
calculate on a daily basis and shall deduct from earnings an administrative
fee which shall be set by the board and applied as a fixed percentage of
moneys in the pooled money investment portfolio. The administrative fee
shall not exceed .25% annually on moneys deposited in the municipal
investment pool and .10% annually on other moneys in the pooled money
investment portfolio. The director of investments shall deposit the ad-
ministrative fee in accordance with K.S.A. 75-4235, and amendments
thereto. The gross earnings, after deduction of the administrative fee, shall
be designated as the net earnings of the pooled money investment port-
folio.

    (b) A comparative investment performance review of the pooled
money investment portfolio shall be contracted for periodically by the
pooled money investment board. The costs of such review shall be paid
from moneys appropriated to the state treasurer for operations of the
pooled money investment board.

    (c) (b) The pooled money investment board shall may contract for
the services of an external investment advisor to provide advisory services
concerning the investment policies and practices of the pooled money
investment portfolio. Such investment advisor shall not be the person or
firm contracted with under subsection (b) section 3.

    (d) (c) Moneys in the employment security fund established by K.S.A.
44-712, and amendments thereto, shall not be invested in the pooled
money investment portfolio except as may be authorized by the secretary
of human resources pursuant to subsection (e) of K.S.A. 44-712, and
amendments thereto.

    (e) (d) For moneys in funds designated in this subsection that are in
the pooled money investment portfolio and which are not invested in the
municipal investment pool, interest is to be paid on such moneys based
on the average daily balance in the fund for each month and the net
earnings rate of the pooled money investment portfolio for such month.
This subsection shall apply to the state highway fund and funds for bonds
and other debt instruments of state agencies and authorities.

    (f) (e) Moneys in funds designated in this subsection shall not be
invested in investment options of the municipal investment pool fund for
which the minimum term of such investment is less than 21 days. This
subsection shall apply to state moneys, other than moneys of municipal-
ities as described in subsection (a) of K.S.A. 12-1675, and amendments
thereto.

    Sec. 6. K.S.A. 46-1106, 75-627, 75-4222 and 75-4234 are hereby re-
pealed.

    Sec. 7. On and after July 1, 1998, K.S.A. 1997 Supp. 74-4921 is
hereby repealed.

    Sec. 8. This act shall take effect and be in force from and after its
publication in the Kansas register.

I hereby certify that the above Bill originated in the House,
and passed that body

__________________________________

__________________________________

Speaker of the House.

__________________________________

Chief Clerk of the House.

Passed the Senate __________________________

__________________________________

President of the Senate

__________________________________

Secretary of the Senate.

Aproved __________________________________

__________________________________

Governor.