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When it comes to the way public employee retirement funds are handled, some lawmakers believe the system is out of control.

A legislative audit released Monday supports that theory.According to the report, auditors recently found payroll records were altered, employees were asked to work on managers' personal property, employees earned unusually high salaries and benefits, building space was wasted and investments with retirement funds were doing poorly.

Considering the audit was done to see if problems uncovered in a 1982 report were corrected, its results angered state lawmakers on the Legislative Audit Subcommittee.

The retirement office acts independently of the state, under the direction of a seven-member board, and legislators worry no one is related to payroll officials or others in management positions.

Many payroll records were altered without explanation. Retirement system employees appeared to be uncooperative at times with auditors.

"Payroll records which were being audited were removed from the files and placed in a location known only to the administrative service director," the report said. "Nearly a week later, the director returned to work and admitted to moving the payroll records even though subject to review. When time sheets were finally reviewed, some were missing and others had been changed. The general lack of control made it impossible to determine when and why these rec-ords had been altered."

Auditors said they found that employees were working on each other's personal property, including one employee who acted as the general contractor to build a home for another employee. The work apparently was done after hours, but auditors said the practice fostered an attitude that it was all right to take advantage of the system.

The report also cited problems in the control of travel expenditures, noting that the office's expenses for out-of-state trips averaged $31,400 more than those of other retirement systems surveyed.

On the bright side, the report noted that the retirement office has shown recent improvement in the returns on its investments.

Lawmakers, however, are not satisfied. Committee members voted to keep the report on the agenda for their next meeting and to begin proposing new state laws to eliminate problems with the system.