PBGC Audit Finds Fault with Internal Controls

November 22, 2011 (PLANSPONSOR.com) – Audits of the Single-Employer and Multiemployer Program Funds administered by the Pension Benefit Guaranty Corporation (PBGC) for fiscal years (FY) 2011 and 2010 found the 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.

The audit report from Clifton Gunderson indicated there were deficiencies in internal controls for benefits administration and payment department (BAPD) operations. The report noted that serious internal control weaknesses in the BAPD’s operations were also identified by the Office of the Inspector General (OIG) and others during FY 2011.   

Specific deficiencies included errors in valuation of plan assets, lack of documentation supporting benefit payments, errors in benefit calculations, and poor oversight of the Pension and Lump Sum System (PLUS).   

In response to weaknesses identified by OIG, BAPD is currently undergoing a strategic review that may address organizational structure and operational issues. BAPD stated it will develop a plan in FY 2012 that will address the deficiencies noted in the financial statement audit, Improper Payments Elimination and Recovery Act (IPERA) mandated review, and other internal reviews. This plan is intended to focus on fundamental issues such as internal controls, processes, contractor oversight, and training and staff competencies.  

The auditors recommended PBGC should develop and implement procedures to ensure that future contracts for plan asset valuations clearly outline expectations and deliverables in the statement of work, that plan asset valuations meet the regulatory standard of determining fair market value based on the method that most accurately reflects fair market value, that the results of valuation reviews are credible and reliable, and that errors in benefit determinations caused by deficiencies in plan asset valuations are identified and corrected.  

In addition, PBGC should develop and adopt explicit requirements to obtain and archive source documents, as well as a process to monitor and enforce these requirements to ensure documentation is maintained to support benefit payments. The agency should also strengthen controls over the determination of benefits to ensure the accuracy of the amounts paid and recorded in the financial statements.  

The PBGC recently released its annual report for fiscal year 2011, which shows the agency’s deficit increased to $26 billion as of year-end, a $3 billion increase from the $23 billion reported last year (see Some Positives Exist Amid Dire PBGC Financial Picture).  

The independent auditor’s report is at http://oig.pbgc.gov/audit/2011/pdf/FA-11-82-1.pdf.