It's now taking bids to have outside consultant determine size of problem.
About 850,000 North Carolinians have a stake in the fund which is worth approximately $70 billion.
The document highlights overpayments and system errors that include salary spiking - where workers get undue raises in their last few years to boost their pension - and so called return to work violations - where people already collecting a pension go back to work at the same time and collect a second paycheck.
The documents says "members and employers operate largely on the honor system..." and points out that there is "no dedicated staff to handle the monitoring and enforcement."
"It is disturbing that the State Treasurer - in very brief work on this at this point - has already found some indication that there may be different types of fraud waste and abuse and wants to see if a consultant can find even more violation," offered Mitch Kokai with the conservative John Locke Foundation.
North Carolina state Representative Richard Stevens told ABC11 that lawmakers are drafting a bill that would help deal with fraud in the system. It would also include a whistleblower provision.
"These are public funds," said Stevens.
Public funds because every year, the state kicks in hundreds of millions of dollars to keep the pension fund funded.
Steve Toole - who heads up the retirement system for Treasurer's Department - suggested the idea of an investigation to root out fraud.
"We identified nearly a million dollars in return to work issues," he explained.
That's for just last year alone.
"We take our role and our responsibility in being a fiduciary of this system very seriously, and it's our job to keep this thing viable the way it is today for many years to come," said Toole.
Bids on the outside review of the system are due back May 4.
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