The report by State Auditor Marion Higa says the fund has failed to deal with problems including a massive backlog in retirees' benefit calculations; potential conflicts of interest involving the ERS Board of Trustees, its investment managers and its chief advisor; and an inefficient computer system that has wasted millions of dollars in taxpayer resources.

ERS officials, trustees and lawyers today disputed the auditor's conclusions, saying Higa and her staff lacked the expertise to understand the complex retirement system and made several errors of fact and judgment.

"While we appreciate the effort put forward by the Auditor's Office, we strongly disagree with the majority of findings in the audit report, which contains numerous factual errors and lacks the objective, qualified research necessary to produce a credible audit," ERS administrator David Shimabukuro said.

Higa declined to comment pending the official release of the audit this afternoon.

ERS issued a 30-page response to the audit this morning, taking issue with most of its findings. ERS trustee Rick Humphries also responded, saying "misstatements and inaccuracies" in the report could lead people to wrongly conclude ERS' $8 billion asset portfolio is being improperly managed. A lawyer for the fund said the audit jeopardizes ERS' position in a lawsuit with a computer contractor who was supposed to fix the fund's obsolete Wang computer system.

But officials for the fund, which manages retirement benefits for 93,000 state and local employees, retirees and beneficiaries, said they agreed with the main recommendations of the audit: That ERS work to fix several serious problems that it continues to face.

"We've already identified, and are working to address, many of the issues raised in the report," Shimabukuro said.

The audit said ERS staff have failed to address a backlog in finalization of benefits that has caused an 18-month backlog in retirees knowing the amount they will receive on their monthly pension checks.

In the interim, retirees get estimated benefit checks. But often they are underpaid ­ typically between $280 and $7,000 a year, the auditor found.

ERS has not only failed to reduce the logjam since a previous audit released in early 2000, but the backlog has since grown, the new audit found.

ERS also faces problems with its oversight, the audit found. Investment advisor Callan & Associates has financial relationships with 14 of the fund's 16 investment portfolio managers, meaning it has a potential conflict of interest in recommending whether the fund retain, terminate or hire new managers, the audit said.

ERS should also examine its management structure, which differs significantly from that of other states, the audit said.