Financial Audit:

Pension Benefit Guaranty Corporation's 1992 and 1991 Financial Statements

AIMD-93-21: Published: Sep 29, 1993. Publicly Released: Sep 29, 1993.

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GAO examined the financial statements of the Pension Benefit Guaranty Corporation's (PBGC) Single-Employer and Multiemployer Funds for the years ended September 30, 1992 and 1991, focusing on PBGC: (1) financial condition; (2) internal controls; and (3) compliance with applicable laws and regulations.

GAO found that: (1) PBGC financial statements for the year ended September 30, 1992, were reliable in all material respects and represented fairly the funds' financial position in accordance with generally accepted accounting principles; (2) it was unable to audit the Multiemployer Fund's future financial assistance liability due to incomplete information on certain financially troubled pension plans; (3) the Single-Employer Fund's long-term viability is jeopardized by underfunding due to insufficient sponsor contributions and a not-fully-risk-related premium structure; (4) weaknesses exist in the scope and quality of employee benefit plan audits and internal controls plan reporting; (5) PBGC has made internal control improvements, but weaknesses in certain areas persist; (6) PBGC internal controls do not ensure that transactions are properly recorded, processed, and summarized in accordance with generally accepted accounting principles, but they do reasonably ensure that assets were safeguarded from material loss; (7) nonmaterial internal control weaknesses include the lack of audit or test controls over multiemployer plans' financial information, inadequate documentation of nonparticipant data, and inadequate monitoring of field benefit administrators; and (8) there was no evidence of material noncompliance with applicable laws and regulations.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To strengthen financial systems and corporate-wide financial accounting and reporting controls, the Executive Director, PBGC, should direct CFO to implement a process for audits and/or other tests of financial information of multiemployer plans requesting future financial assistance to provide reasonable assurance that the amounts provided are actually needed and used to pay guaranteed benefits and related expenses.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: PBGC implemented a program for performing audits of multiemployer plans that request financial assistance and is establishing procedures for performing other tests to obtain assurance that amounts provided to multiemployer plans are needed and used to pay guaranteed benefits and related expenses. During the audit of PBGC's fiscal year 1994 financial statements, GAO found that PBGC had obtained sufficient evidence from multiemployer plans requesting financial assistance to support the need for requested amounts and to demonstrate the amounts provided were used to pay allowable plan benefits and expenses.

    Recommendation: To strengthen financial systems and corporate-wide financial accounting and reporting controls, the Executive Director, PBGC, should direct CFO to implement a formal process that uses current and accurate financial information to: (1) monitor all financially troubled multiemployer plans; and (2) determine the fund's current financial exposure from those financially troubled plans that are likely to require future financial assistance.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: For FY 1993, PBGC initiated a more comprehensive assessment process to obtain the data needed to identify and monitor financially troubled plans and report its exposure to those plans that may require financial assistance. However, the internal controls over this process were ineffective, and GAO made recommendations on those weaknesses in its report on PBGC's FY 1993 financial statements. In auditing PBGC's FY 1994 financial statements, GAO found that, although improvements had been made, significant deficiencies existed in computer security controls for PBGC's Multiemployer Evaluation System and in certain supervision and review functions. PBGC completed computer system enhancements to address the security control deficiencies and assigned additional responsibilities to address the other deficiencies. PBGC is monitoring at-risk plans and calculating financial exposure from those plans likely to need future financial assistance.

    Recommendation: To strengthen financial systems and corporate-wide financial accounting and reporting controls, the Executive Director, PBGC, should direct CFO to require the preparation of financial statements more frequently that annually.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: Beginning for the second quarter of fiscal year 1994, PBGC has prepared quarterly financial data. Beginning for the first quarter of fiscal year 1995, PBGC enhanced this process by including additional key data, such as estimates of terminated and probable plan benefit liabilities and related losses, actuarial charges, and adjustments, so that the quarterly financial data represent interim financial statements.

    Recommendation: To strengthen financial systems and corporate-wide financial accounting and reporting controls, the Executive Director, PBGC, should direct CFO to implement a financial system improvement plan which effectively utilizes integrated financial systems to address current and anticipated information requirements.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: PBGC developed financial systems improvement plans and made significant progress integrating its financial systems and reducing risks from its financial systems which presently remain nonintegrated. PBGC implemented an automated Standard General Ledger system, which facilitated its financial statement preparation and the related reconciliations and internal controls. PBGC also implemented a revised Premium Accounting System, enhanced its Multiemployer Evaluation System, and continued other projects to enhance or replace its systems. In addition, PBGC took steps, including implementing certain compensating supervisory reviews and approvals, to reduce risks from systems not presently integrated. The Inspector General will monitor PBGC's continuing financial systems improvement efforts.

    Recommendation: To strengthen financial systems and corporate-wide financial accounting and reporting controls, the Executive Director, PBGC, should direct CFO to implement a formal system methodology to govern the consistent development and modification of computerized application systems and controls.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: PBGC is addressing this recommendation as part of its broader ongoing efforts to further integrate its financial systems, an area in which it has made significant progress. In contracting for its recent systems development projects, PBGC required its contractors to follow an appropriate systems development methodology. PBGC established a new division for systems applications and assigned it the primary responsibility for developing and implementing a corporation-wide methodology for system development and modification. PBGC plans for a methodology expert to head this task. The Inspector General will monitor PBGC's further systems improvement efforts.

    Recommendation: To strengthen financial systems and corporate-wide financial accounting and reporting controls, the Executive Director, PBGC, should direct CFO to require the use of security access software to limit and detect unauthorized access to computerized application software.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: The Corporation implemented policies and procedures to limit and detect unauthorized access to computerized application software. The Corporation implemented a computer security policy and reduced excessive privileges of systems programming personnel. However, immaterial internal control weaknesses continue to exist; for example, some programming personnel continue to have access to security privileges not necessary for their assigned duties.

    Recommendation: To strengthen financial systems and corporate-wide financial accounting and reporting controls, the Executive Director, PBGC, should direct the Chief Financial Officer (CFO) to establish controls over the development and use of personal computer-based accounting applications.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: PBGC installed a PC-based software package to provide formalized controls over the development and use of PC accounting applications. In addition, PBGC implemented procedures for the electronic transfer of data between PC-based systems and instituted procedures to require supervisory review and approval of such processes. Recently, PBGC installed a standard general ledger system that will accumulate trust and revolving account balances and prepare the fiscal year 1995 financial statements, rather than performing these functions on PC-based spreadsheets outside the general ledger systems.

    Recommendation: To strengthen financial systems and corporate-wide financial accounting and reporting controls, the Executive Director, PBGC, should direct CFO to implement the Inspector General's recommendations on strengthening internal controls over participant data and field benefit administrators as reported in Inspector General Report No. 93-6/23069-1.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Not Implemented

    Comments: During fiscal year 1993 PBGC strengthened controls over the activities of field benefit administrators by implementing procedures to perform audits of field benefit administrators and to reconcile benefit payment information provided by the field benefit administrators with other PBGC records. PBGC is implementing programs that will perform online edits of participant data. However, the audit of PBGC's fiscal year 1994 financial statements found that significant control weaknesses remained with respect to participant data. This recommendation is no longer applicable because the recommendations in Inspector General Report No. 93-6/23069-1 have been updated and superseded by recommendations in Inspector General Report No. 94-6/23079-1, which is addressed in an open GAO recommendation (GAO/AIMD-94-109).

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