The Need For A Public Sector SOX 2406

  • The following is reprinted from Pension Evasion: The Need For A Public Sector SOX
    There were two keen observations contained in a May 11th Washington Post article on state and local government pension funds: 1) they are massively underfunded; and 2) the extent of the funding shortfall can’t be determined ‘because of the range of methods they use to make their calculations, including practices that have been barred in the private sector for decades.’
    State governments admit to at least a USD750 billion funding shortfall while local governments also use similar accounting dodges ‘and face deficits that further contribute to what some investors and analysts say may be shaping up to be a massive breach of faith with a generation of public employees.’
    Many state governments ‘are taking out loans to restock their pension funds, which is akin to using a credit card to cover monthly mortgage payments. Others are passing the bill to future generations by using sunny projections of what their investments will return…’ Warren Buffet has described these strategies as ‘accounting nonsense.’
    The Post explains that ‘public pensions have broad leeway in their accounting methods because, unlike their counterparts in the private sector, they have no federal oversight. Private pension funds were forced by regulators starting a generation ago to use far more conservative forecasts in their pension calculations… a nonprofit body called the Governmental Accounting Standards Board sets guidelines but has no power to enforce them and little incentive to confront the states and localities that finance its budget.’
    The federal government’s refusal to hold governmental bodies to the same accountability and disclosure standards that are mandated for the private sector does no favor to either the civil servants whose pensions are at stake or to the taxpayers who will be expected to pay for the inevitable bail outs. The federal government protected investors from unscrupulous corporate accounting through the Sarbanes-Oxley Act. Similar rigorous, enforceable financial disclosure requirements are needed to protect taxpayers from deceptive government accounting.

  • Hi Winston and welcome to the forums :)%0AYes, government pension plans need protection , especially as higher energy costs impact budgets and create shortfalls that could create issues as described in the article. A recent decline in real-estate valuations (housing crisis in USA) could impact revenue providing a ‘double whammy’, although our county increased taxes by 6% this year anyway 8O %0A By law, corporate pension plans must be protected . While I believe some protection exists for government based pension plans, the article describes that control measures to ensure fiscal solvency don’t measure up to corporate plans.%0AIt’s interesting that the need for SOX-like controls was raised. We have seen some developments in government entities using partial SOX controls (e.g., OMB A-123) as documented below:%0A SOX requirements in schools and Government agencies? %0A copy this external link to browser:%0A Implementation Guide for OMB Circular A-123 %0AManagement’s Responsibility for Internal Control%0A http-and-#58;//

  • There are certain federal laws that seem to specifically exclude State Government pension plans. I am not sure why.
    I drew some attention of the US DOL OIG to some of State of Alaska’s floundering pension accounts in Early 2005. At that time it was at a 4.5 billion projected deficit. It is now upwards of about ten Billion .
    One of the contributing factors was a Legislator , Jim Duncan who proposed a solution to a waning state budget. It was called the retirement incentive progrem, appropriately called ‘RIP.’
    It was allegedly designed to get higher -paid state employees off the payroll by giving incentives and ability to retire early. The eventual result was that many retired, and returned to service, collecting pay and retirement simultaneously. Probably most of these were political favorites of Mr. Duncan’s and perhaps he had some ulterior motives there.
    I understand the Federal Grand Jury is still working on Alaska’s problem politicians both current and former, and hopefully they will asddress these issues soon. The courts are quite clogged with corruption trials now.
    Certainly there should be some Federal rules that require a closer watch on Public Employee retirements, too. Lots of accounting schemes and less than honest people can be associated with any retirement system.

Log in to reply