(November 21, 2011) – The Pension Benefit Guaranty
Corporation (PBGC) did not properly conduct benefits accounting, according to
an audit by Clifton Gunderson.
“PBGC did not have effective internal control
over financial reporting (including safeguarding assets) and compliance with
laws and regulations and its operations as of September 30, 2011,” according to
the audit. “Serious internal control weaknesses in PBGC’s programs and
operations resulted in three material weaknesses: (1) entity-wide security
program planning and management, (2) access controls and configuration
management, and (3) Benefits Administration and Payment Department operations.
A significant deficiency was also identified in integrated financial management
The PBGC is the pension-of-last-resort for millions of pensioners whose defined benefit plans have been
taken over by the Corporation.
The result, according to the audit: “[A]
deficiency in internal control exists when the design or operation of a control
does not allow management or employees, in the normal course of performing
their assigned functions, to prevent, or detect and correct misstatements on a
timely basis.” The agency’s traditional method of management and “decentralized
approach to system development and configuration management” exacerbated the
problem, the audit confirmed.
Regarding benefits miscalculations, Clifton
Gunderson asserted that “many of the weaknesses identified
as part of our financial statement audit stemmed from poor management of
contractors.” Because of poor outside vendors, plus poor oversight of these
vendors, “PBGC did not determine the fair market value of
plan assets at the date of plan termination in accordance with… regulation.”
The result: some beneficiaries from plans overtaken by the PBGC will have been
overpaid, while others will have been underpaid.
The report also showed that the pension insurer
had its largest deficit in history—$26 billion—as of September 30.