(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 systems.”
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.
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