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MendoCERA Audited Financial Statements

Impossible and Deeply Flawed Financial Statements Part 3



Stories and Evidence


Choices -

Who Done It?

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 1

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 2

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 3

San Diego - IRS - Excess Earnings

Increase Pensions When Already Deep in Debt

Staffing & Compensation Chaos

Deeply Flawed Pension Fund Financial Statements - Part 1

Deeply Flawed Pension Fund Financial Statements - Part 2

Deeply Flawed Pension Fund Financial Statements - Part 3

Retiree Healthcare

Assumed Investment Profits Too High

Plans to Increase Debt

County Puts Off Bad News

The Myth of 80% Funding

Numerous Financial Errors

 

4/28/09 - Joint Meeting BOS - Retirement Board
"It's the State Controller's Fault"

The Mendocino County Board of Supervisors and MendoCERA held a Joint Meeting on April 28, 2009 - about 5 weeks after the meeting on March 18 and 3 weeks after my article in the Ukiah Daily Journal.

Retirement Administrator Jim Andersen started the meeting with a presentation that included how money in the two Funds - Pension and Retiree Healthcare - is invested. He concluded by saying:

I sent this video with these excerpts from this meeting to the State Controllers Office (see below). Click if you'd like to see/hear for yourself.

For the past few years my understanding is MendoCERA has not made payments for retiree healthcare benefits.

There was something in the newspaper a couple of weeks ago (my article on the previous page) about the high level of earnings in Retirement Health that was much higher than the earnings on the Pension System itself. I hope we can see from this (the presentation he just gave) that's kind of an impossibility - that is an impossibility. It's not how the system works.

Supervisor McCowen immediately said:

But that's what was stated in the (audited financial) reports I believe.

Andersen's response:

In what reports?

(I find it very difficult to believe Mr. Andersen didn't recall which reports the Supervisor was referring to.)

Supervisor McCowen then reiterated the very different returns reported for the Pension and Retiree Healthcare Funds and said that if MendoCERA officials could explain why those errors occurred "that would be great". The following is a transcription from the video:

Former MendoCERA Administrator and County Treasurer-Tax Collector Tim Knudsen:

For a number of years (our CPA) separated out the amount of money reserved for health insurance and he tried to show how we arrived at that amount of money ... trying to do the best he could to comply with the State Controller's directions and to include that in his audit, and it just didn't work. We've had that discussion over a long period of time with the State Controller's Office - they want us to handle the health insurance in a certain way and we can't really do that and keep our records accurately.

He (the CPA) no longer does that (separating health insurance reserves) ... He has since contacted GASB, the AICPA, he has a peer review group that has told him "Don't do what you were doing before, just treat it (retiree healthcare benefit payments) as if it's part of the overall benefits paid to your retirees. Don't segregate it in any way.

Supervisor McCowen:

We do have a situation apparently where the State Controller's Office is asking for a break out between what's related to health care and what's related to the retiree benefits (pensions) and we say "Gee, it's too difficult for us to do it so we're not doing it".

Knudsen:

The State Controller wants us to consider that we have no health insurance payments coming out of our retirement system. We have a report where we need to fill in the blanks and we try to fill in the blanks to their (SCO) instructions but when they try to tell us to not include over $4 million that we pay for health insurance - act like it never occurred - we have a problem with that. So I've been working with the State Controller saying "You show us how to do this ... our change in our assets at the beginning of the year and our assets at the end of the year without considering we made a $4 million payment we'll be glad to do it and they haven't been able to do that. It's an ongoing situation we're trying to rectify with the State Controller.

Then current MendoCERA Administrator Andersen:

People in County government can appreciate this - we get a disk that we plug into the computer and the State Controller asks for certain information and it's got little boxes to fill in and frankly they can't work very well outside of those boxes. And we look at those boxes and we say "Those boxes don't accurately reflect our economic activity. How do we reconcile the two?"

So what's been happening is for probably a three or four year period we've been working with the State Controller's Office saying "We don't feel comfortable filling in a report when we leave financial information out" and we just can't seem to find a way to fit it in here that's satisfactory to you (SCO)."

I Don't See How That Explanation Wasn't a Fabrication

Screen Shot - Local Government Reports - State Controllers Office

This is a "screen shot" of the compilations of the finances of local governments produced by the Local Government Reporting Section of the State Controllers Office. You can access these reports by clicking here.

Ms. Yee was not the State Controller during the events I describe in this story.

I believe Mr. Knudsen and Mr. Andersen didn't know I had been "working with" the "Local Government Reporting Section" of the "Bureau of Reporting" of the "Division of Accounting and Reporting" of the State Controller's Office (SCO) over the previous 3 years. This "Section" produces a number of annual compilations of the finances of various types of local governments in California - cities, counties, special districts, public retirement systems, etc.

This is the part of the State Controller's Office to which Knudsen and Andersen referred.

When I say I "worked with" this Section I wasn't employed by them nor was I providing contractual services for them. I developed a database of financial data for special districts in California for my use. Although I wasn't focusing on public retirement systems, I became quite familiar with how this office produces these various annual compilations of the finances of local governments.

After the 4/28/09 Joint Meeting I contacted Betty Moya - Manager of the Local Government Reporting Section at that time. I sent her a video of the meeting (you can see it above) and a transcript of key segments. This is an excerpt from an email I sent to Moya on 10/8/09:

As we discussed on the phone today, Mendocino CERA officials told the Mendocino County Board of Supervisors in open session on April 28, 2009 that the reason MCERA Audited Financial Statements contained very significant errors from 1998 through 2002 was because of SCO requirements from your Section. Also - they reported they changed the form of their statements to no longer distinguish between the Pension Fund and Healthcare Fund and benefits largely because they would not be able to maintain their books correctly if they followed SCO requirements.

You confirmed today what I already thought - your office's interest is to produce the annual compilations of the finances of local governments in the State. Your directions don't have anything to do with how local governments - including County Retirement Associations - produce their annual audited financial statements - they only have to do with how local governments provide you the information you need for your annual compilation reports. (Emphasis added)

The Mendocino County's Board of Supervisors was told that SCO requirements directly led to significant errors in Mendocino CERA's audited financial statements and then led Mendocino CERA officials to change the form of those statements so that it is no longer possible to distinguish between the Pension and Healthcare Funds.

I believe it is fair to ask SCO to clarify whether or not SCO directions have anything to do with the format of Mendocino CERA's annual audited financial statements - and in particular if they could have "forced" Mendocino CERA to report significantly incorrect investment return values.

The Board of Supervisors needs to know.

I asked Ms. Moya to communicate what she told me to County officials. However, Ms. Moya said her office doesn't want to get involved in "local political issues".



 
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