Financial Audit:

System and Control Problems Further Weaken the Pension Benefit Guaranty Fund

AFMD-92-1: Published: Nov 13, 1991. Publicly Released: Nov 13, 1991.

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GAO reviewed the Pension Benefit Guaranty Corporation's (PBGC) fiscal year (FY) 1990 financial statements in accordance with the Government Corporation Control Act.

GAO found that: (1) serious financial system deficiencies and internal control weaknesses prevent PBGC from preparing reliable financial statements and affect Congress' ability to assess whether PBGC premium levels are adequate to meet its long-term obligation to pay timely and uninterrupted benefits on terminated plans; (2) PBGC system deficiencies and control weaknesses include its process for estimating its future benefit liability, processing and followup of premium filing data, and accounting operations; (3) although PBGC has initiated efforts to address these deficiencies, its success will depend on management's commitment to effectively implement the necessary improvements; (4) while PBGC has sufficient assets to meet its near-term benefit payment and obligations, it reported an operating loss of $780 million for FY 1990, and an accumulated deficit of $1.8 billion, indicating that it faces an uncertain future; (5) this deficit exists because PBGC has not received sufficient premium income to finance losses and other expenses; and (6) during economic downturns, the combination of declining investment values and an increased potential for losses from terminations of underfunded plans places PBGC financial condition at increased risk.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Corporation developed, documented, and tested new valuation systems for each of its estimation methods. Recent audit work performed as part of the FY 1993 financial audit has confirmed that methods are working as intended and are documented.

    Recommendation: Given the nature and extent of the identified system and control weaknesses, the Executive Director, PBGC, should take action to ensure that, with regard to liability estimation, each of the three estimating techniques is supported by current and accurate documentation.

    Agency Affected: Pension Benefit Guaranty Corporation

  2. Status: Closed - Implemented

    Comments: The Corporation has completed identifying, documenting, and supporting its actuarial assumptions. The Corporation used the results of recently completed experience studies to support PBGC-specific mortality, interest, and expense actuarial assumptions. The results of the Corporation's retirement age experience study, though inconclusive, were not inconsistent with the PBGC retirement age assumption. The Corporation will continue to monitor the assumption as more retirement experience information becomes available.

    Recommendation: Given the nature and extent of the identified system and control weaknesses, the Executive Director, PBGC, should take action to ensure that, with regard to liability estimation, assumptions underlying each estimating technique are properly documented and supported and include justifications for why each assumption represents the best estimate of the PBGC anticipated experience.

    Agency Affected: Pension Benefit Guaranty Corporation

  3. Status: Closed - Implemented

    Comments: The Corporation completed efforts to compare the accuracy of different estimation techniques. The Corporation compared its initial use of its plan-level estimating method with the results of its individual participant valuation method. The study revealed no material differences in the techniques.

    Recommendation: Given the nature and extent of the identified system and control weaknesses, the Executive Director, PBGC, should take action to ensure that, with regard to liability estimation, estimating techniques are periodically evaluated to ensure that estimates reasonably approximate the results that would be obtained from an individual participant valuation (IPV).

    Agency Affected: Pension Benefit Guaranty Corporation

  4. Status: Closed - Implemented

    Comments: The Corporation has completed reengineering of its IPV system software, including modifications to address previously reported software weaknesses. The Corporation has made substantial progress in reducing instances of missing participant data on the PLUS database. Efforts continue to find and enter remaining missing data; however, current levels of missing data are immaterial to liability valuation.

    Recommendation: Given the nature and extent of the identified system and control weaknesses, the Executive Director, PBGC, should take action to ensure that, with regard to liability estimation, weaknesses in IPV system software and missing participant data are corrected.

    Agency Affected: Pension Benefit Guaranty Corporation

  5. Status: Closed - Not Implemented

    Comments: Modifications and enhancements of the existing system were discontinued in March 1993. Instead, the Corporation has implemented a computer-assisted manual billing process as an interim process. The Corporation has awarded a contract for design and installation of a new premium accounting system, which the Corporation presently expects to be completed and in full operation by October 1995. The Corporation has assigned a team, under the direction of the Chief Financial Officer, to monitor the contract to ensure successful implementation.

    Recommendation: Regarding premium operations, the Executive Director, PBGC, should ensure that: (1) all Premium Processing System deficiencies are promptly corrected; and (2) recent system modifications are closely monitored to ensure that they are operating effectively.

    Agency Affected: Pension Benefit Guaranty Corporation

  6. Status: Closed - Implemented

    Comments: The Corporation has substantially eliminated backlogs in premium collections. During fiscal years 1992 and 1993, PBGC collected $44 million in delinquent amounts.

    Recommendation: Regarding premium operations, the Executive Director, PBGC, should ensure that all processing backlogs are promptly eliminated.

    Agency Affected: Pension Benefit Guaranty Corporation

  7. Status: Closed - Implemented

    Comments: The Corporation has instituted procedures to ensure that all premium filings warranting further action are promptly investigated and followed up. These include procedures for investigating such filings, including the generation of billing documents for late filers and correspondence to nonfilers. During the 1993 audit, GAO found that the Corporation was carrying out these procedures and has plans to expand its collection efforts.

    Recommendation: Regarding premium operations, the Executive Director, PBGC, should ensure that all premium filings warranting further action are promptly investigated and followed up.

    Agency Affected: Pension Benefit Guaranty Corporation

  8. Status: Closed - Implemented

    Comments: The Corporation has implemented procedures for enforcement, including the generation of billing documents for late filers and correspondence to larger nonfilers for plan years 1986 to present. In addition, in July 1993, the Corporation formed a Collection and Compliance Division to facilitate collections. The Corporation is also using the services of its own attorneys and others, on a contingency fee basis, in seeking to enforce collections.

    Recommendation: Regarding premium operations, the Executive Director, PBGC, should ensure that all enforcement actions, including notifying and billing nonfilers for amounts owed, are promptly carried out.

    Agency Affected: Pension Benefit Guaranty Corporation

  9. Status: Closed - Implemented

    Comments: The Corporation implemented all major elements of the Financial Accounting and Reporting System (FARS). The Corporation also instituted procedures to facilitate the preparation of statements of cash flows in fiscal year 1993. Enhancements to reduce the extent of redundant manual data entry required for the preparation of the Corporation's financial statements were completed in fiscal year 1994. In addition, the Corporation's efforts are ongoing to improve its financial reporting process and related controls in certain areas which are not effectively addressed by the FARS system.

    Recommendation: Regarding accounting operations, the Executive Director, PBGC, should ensure that the Financial Accounting and Reporting System is promptly and effectively implemented, including the subsidiary functions such as accounts receivable and financial reporting.

    Agency Affected: Pension Benefit Guaranty Corporation

  10. Status: Closed - Implemented

    Comments: A recently completed audit of the Corporation's FY 1992 financial statements has confirmed management's assertion that basic accounting transactions are being promptly and consistently recorded in the general ledger systems.

    Recommendation: Regarding accounting operations, the Executive Director, PBGC, should ensure that all accounting transactions are promptly and consistently recorded in the general ledger systems.

    Agency Affected: Pension Benefit Guaranty Corporation

  11. Status: Closed - Implemented

    Comments: The Corporation has completed substantially all its efforts to develop and document accounting and financial reporting policies and procedures. Those efforts still underway are focused primarily on updating and improving existing policy documentation.

    Recommendation: Regarding accounting operations, the Executive Director, PBGC, should ensure that basic operating accounting procedures, including the procedures used to prepare and support PBGC financial statements, are promptly developed and documented.

    Agency Affected: Pension Benefit Guaranty Corporation

  12. Status: Closed - Implemented

    Comments: In response to this recommendation, the Corporation established a formal management tracking system that identified specific corrective actions, estimated costs, target and actual completion milestone dates. This system, which has been operational for more than a year, enables management to monitor the Corporation's progress.

    Recommendation: In light of the past ineffective commitment by PBGC management to establishing and maintaining internal control and financial systems, the Executive Director, PBGC, should take action to: (1) ensure that PBGC develops specific corrective action plans, with accompanying milestones, that will address the reported weaknesses; and (2) monitor PBGC progress in correcting the weaknesses.

    Agency Affected: Pension Benefit Guaranty Corporation

 

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