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Old Mendocino County Courthouse Around 1915

California County Pension Debt

 

End of Government Pension Financial Reporting "Fraud"



Major Reform - GASB 68



End of Pension Accounting "Fraud"


Choices -

Major Reform - GASB 68

Bill Gates-"It's Fraud!" Was He Right?

When Pension Expense Happens

GASB's Basic Principle Retirement Benefits

Fatal Flaw GASB's Old Rules

Major Changes Government Financial Statements

Three Ongoing Impacts Balance Sheets

Pension Expenses

Footnotes - Required Supplemental Information

GASB68 Prior Year Adjustment Important!

 

As I write this (Spring 2016) state and local governments all over the US are releasing their first financial reports that comply with major reforms to how they report pension benefit finances.

This section describes what these new rules are, why the old rules were so bad, and explores some of the issues and controversies about them.

•The XXXXX 21 Counties section shows how these new rules impacted the just-released financial statements of the 21 California counties that have independent County Pension Funds.

Governmental Accounting Standards Board

The The Goveernmental Accounting Standards Board (GASB) establishes the basic rules for state and local government financial reporting in the US Governmental Accounting Standards Board ("GASB" - pronounced "GAS-Bee") establishes "Generally Accepted Accounting Principles" ("GAAP" pronounced "Gap") for state and local governments in the US. (Note 1)

GASB does not set the rules for the federal government. When I say "government(s)" in this website you should assume I mean "state and local governments" - not the federal government.

GASB was organized in 1984. It inheritied a mish-mash of government accounting standards and rules. GASB began a decades-long re-organization those rules based on more clearly and accurately defined "Fundamental (or "Basic") Government Accounting Principles".

Even given the huge complexity of government financial issues GASB needed to "tame" - no aspect of government accounting was more difficult than "reforming" existing rules and practices about the reporting the finances of government retiree benefits. To date (April 2016) GASB has issued 81 Statements. Of those 21 focused solely on retiree benefits - a quarter of the total. (Note 2)

Here's the way GASB expressed its "evolved" fundamental principle about retirement benefits in 2004 and the huge failing of its then-current rules.

Einstein explains the ACCOUNTING FLAW in government pension financial reporting
Major Point!

If GASB had implemented this principle 20 years ago we wouldn't have hundreds of billions of unfunded pension and retiree healthcare debt today.

Major Change in Pension Financial Reporting Rules

GASB establishes its rules by publishing "Statements" that are sequentially numbered. Statement No. 1 was it's first, No. 2 it's second, and so on. Many earlier Statements have been amended or even superseded by later Statements.

GASB adopted two new Statements at the end of June, 2012 that hugely changed the way government pension finances must be reported.

  • GASB 67 defines how government Pension Funds must report their finances. They had to use the new rules for financial years beginning after June 15, 2013.
  • GASB 68 defines how state and local governments must report their pension finances. They had to comply in fiscal years beginning after June 15, 2014.
What These Changes Will Do - and What They Won't Do

GASB's changes are only about how governments report pension finances. GASB can't change how pensions are funded or structured. It can't force governments into bankruptcy. But government financial statements are showing us for the first time the massive, destructive, and irresponsible unfunded pension debt and expense that has crippled state and local governments for the next generation.

Major Point!

GASB can only make governments tell us the financial truth. It's up to us to use that truth to hold governments accountable.

The (admitedly) inflamatory title of this section is "End of Government Pension Financial Reporting Fraud". Let's get into that on the next page.

 

 

NOTE 1: This is from Facts About GASB published by GASB itself.

The Governmental Accounting Standards Board (GASB) is the independent organization that establishes and improves standards of accounting and financial reporting for U.S. state and local governments. Established in 1984 by agreement of the Financial Accounting Foundation (FAF) and 10 national associations of state and local government officials, the GASB is recognized by governments, the accounting industry, and the capital markets as the official source of generally accepted accounting principles (GAAP) for state and local governments.

The GASB is not a government entity; instead, it is an operating component of the FAF, which is a private sector not-for-profit entity. Funding for the GASB comes primarily from an accounting support fee established under the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as the sale of certain publications. Its standards are not federal laws or regulations and the organization does not have enforcement authority. Compliance with GASB's standards, however, is enforced through the laws of some individual states and through the audit process, when auditors render opinions on the fairness of financial statement presentations in conformity with GAAP.

NOTE 2: I suspect two major reasons so many Statements specifically focused on retiree benefits are 1) even though GASB long ago realized there were deep flaws in their rules they faced substantial resistance from defenders of the status-quo, and 2) there are HUGE amounts of money involved in retiree benefits that have major impacts on governments, employees and retirees, and the People and some in GASB probably thought sudden radical change could be hugely disruptive.

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