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Finalmgr providence fraudulent accounting and theft123june29

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Fraudulent Accounting and Default in Providence Rhode Island

Published in: Government & Nonprofit
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Finalmgr providence fraudulent accounting and theft123june29

  1. 1. Providence Fraudulent accounting and theft Providence Rhode Island is misleading its Municipal Bond Investors and has been for as many as 20 years. Misleading Municipal bond Investors is a violation of Federal Securities laws. MGR June 29,2015 rishrugs.blogspot.com
  2. 2. • Here’s a very likely Scenario of what happened • Sometime in the last 15 to 20 years Providence Rhode Island officials first began to secretly “borrow” from the pension Plan by illegally spending” ARC” contributions that were appropriated specifically for the Pension Plan. Instead the money it was spent on other items to operating the City .
  3. 3. Scam Scenario continued • Sometime during the year Pension managers likely asked where money for contributions was because the plan was drawing down and not receiving the ARC , but the city didn’t have any cash . The money had been spent. So at year end when the city still didn’t have it, the city gave the Pension fund an” IOU” and some unnamed official called that unauthorized borrowing a “Pension Asset”. • Providence has never paid off that “loan” if it ever even existed. • The Pension Plan has likely never approved that loan or the subsequent 20 similar “loans”. • On June 30 2015 this “asset” or “IOU” will be written off without the Pension Plans approval. That is a default. This” Loan” has cost the beneficiaries at least $62 million dollars or 20% of Pension Fund Assets.
  4. 4. A series of unusual accounting maneuvers in Providence Rhode Island that began at least 10 years ago has resulted in repeated false Pension accounting and abuse. Overstating assets is one form of accounting Fraud Some facts recently emerged . New actuary ,Segal Co., warned the Taveras Administration in January 2014 that Providence was overstating and falsifying assets in the pension plan. Over one year later, April 28,2015, the city was told by Segal Co that unless Providence paid $62 million to the pension plan as they had promised by June 30, 2015 the assets will be removed and written off. Providence has again not paid a dime and likely can’t pay back this illegally obtained loan from the Pension Fund.
  5. 5. Schematic Assuming 2004 was the start of scam • 2004 Providence has cash flow issues •No money goes to pension plan for investment by plan commissioners Providence misdirects Pension Arc Contribution •Providence Officials have already spent the pension money on “other” things •Providence officials decide to call unauthorized borrowing “a loan” Pension Fund is due money as year 2004 ends •Unauthorized loan becomes an “IOU” as Providence promises to reimburse Pension Plan in October 2005 for prior years missing payments •Its not clear whether this was ever approved by Pension plan October 2005 Providence gives Pension Plan the missing 2004 payments
  6. 6. Here is 2005 as scam continues • 2005 Providence has cash flow issues again •Again No new money goes to pension plan during 2005 for investment by plan commissioners Providence misdirects Pension Arc Contribution in 2005 •Providence Officials have again already spent the pension plans money on “other” things •Providence officials decide to call this new unauthorized borrowing “a loan” Pension Fund is due money as year 2005 ends •Unauthorized loan becomes an “IOU” as Providence promises to reimburse Pension Plan in October 2006 for prior years missing payments •Its still not clear whether this was ever approved by Pension plan October 2006 Providence gives Pension Plan the missing 2005 payments
  7. 7. Fast forward to year 2013 this “unauthorized borrowing” has now rolled forward for 10 years and New Actuary Segal Co warns the accounting is misleading because obviously the “IOU” will never be “paid off” • 2013 Providence has cash flow issues again • Again No new money goes to pension plan during 2013 for investment by plan commissioners • Segal hired as new Actuary Providence misdirects Pension Arc Contribution in 2013 • Providence Officials have again already spent the pension plans money on “other” things • Providence officials once again decide to call this new , but repeating unauthorized borrowing “a loan” Pension Fund is due money as year 2013 ends • Unauthorized loan again becomes an “IOU” as Providence promises to reimburse Pension Plan in October 2014 for prior years missing payments • Its still not clear whether this was ever approved by Pension plan • Segal warns to end misleading accounting Practice October 2014 Providence gives Pension Plan the missing 2013 payments Taveras fires Buck Consultants 2012 for “$700,000 error”
  8. 8. After Jan 2014 warning Segal reveals on April 28,2015 that Providence must actually pay $62 million it owes to Pension Plan by June 30 2015 or the stated “asset or IOU” or it will be “written off”. This “unauthorized borrowing” has now rolled forward for more than 10 years • 2014 Providence has cash flow issues again •Again No new money goes to pension plan during 2014 for investment by plan commissioners •Segal makes major accounting change wiping $62 million in Assets off pension books Providence still misdirects Pension Arc Contribution in 2014 •Providence Officials have again already spent the pension plans money on “other” things •Providence officials once again decide to call this a new , but repeating unauthorized borrowing “a loan” to pension plan Pension Fund is due money as fiscal year 2014 ends •The Unauthorized loan is now either paid off or written off .It is expected Providence can’t pay 2014 debt on June 30,2015 unitl October 2015. •Its still not clear whether this was ever approved by Pension plan •Segal declares end to misleading accounting Practice •Providence has already declined to pay suggested ARC 0f $70 million and has budgeted only $59.5 million. Fiscal 2016 Providence should contribute regularly to Pension Plan starting July 1, 2015 for fiscal 2016 ARC appropriation projected to be $70,000,000 2014-15 Segal declares Reported Pension Assets have been Overstated
  9. 9. Providence Rhode Island has misled Municipal Bond Investors , Citizens, Credit Ratings Agencies and pension Beneficiaries as to the true Financial Condition of Providence and its Pension Fund We believe that Providence RI finances should be investigated by various law enforcement agencies including the FBI, the SEC and US Attorney General
  10. 10. No!
  11. 11. “fiduciary funds are not reflected in the Government-wide financial statements because the resources of the funds are NOT available to support the City’s own programs.” Pension Funds are Fiduciary Funds From Providence CAFR 2014 According to Providence’s own reports Pension funds are not for City use
  12. 12. Providence’s highly unusual level of “other” assets on Pension Plan balance sheet led to my investigation of Accounting in Providence . “Other” = $63,058,000 Statement d-1 is found in every Municipal Comprehensive Annual Report and shows the allocation of assets in Pension Plan- “Other” = $63,058,000 It turns out this “asset” is Phony
  13. 13. Why ????? I have not been able to find similar accounting anywhere in the United States
  14. 14. A look at how overstating assets affected Financial reporting Overstated pension assets affect all pension ratios and that misleads Investors
  15. 15. “Payable to retirement plan” is shown on the City balance sheet as a “current liability” but never gets paid within one year.Every year back to 2006 shows Liability to the Retirement Plan . Here’s 2010 CAFR June 2010 Liability “to retirement plan"
  16. 16. Providence recognizes they owe the retirement plan cash Payable to retirement Plan 2014 CAFR
  17. 17. Segal Co April 2015 Actuarial Valuation Report shows elimination of “false” Asset Segal Reduces assets by $62 million in plan and adds to $62 million to unfunded liability
  18. 18. Providence Rhode Island Officials have issued false and misleading financial Statements for decades !!!!
  19. 19. Fraudulently Overstated Assets lead to Overstated Funding Ratio’s used by nearly every rating agency Providence funding ratio 27.4% not 31.39%
  20. 20. Providence Rhode Island Pension Plan has huge a cash flow problem Benefits cost $96 million ,members contribute $ 10.8 million City contributes $62 million…so earnings need to be $ 24 million to maintain assets
  21. 21. Its worth repeating that Fiduciary Funds are not reflected in government-wide financial statements because the resources of these funds are NOT available to support the City’s own programs.
  22. 22. Just how bad is Providence’s Pension health compared to all other plans? Providence pension system is in huge trouble ,even before the recent discovery of “asset Pumping”, and Fraud and the restatements suggested by Segal Co. and is arguably the worst funded plan of any city in the United States.
  23. 23. Providence Pension funding ratio is 27% Nationwide median = 74% Boston College Research
  24. 24. Providence required Contribution next year is $70 million dollars or 51% of payroll Officials are Still playing games as Providence’s new budget appropriates only $ 59.5 million
  25. 25. Emphatically YES!!
  26. 26. Providence City officials have Purposely Overstated assets and have purposely understated their Unfunded Liabilities and Funding Ratios for many years. Every year On this chart has misleading and incorrect numbers. .Providence knew his but published anyway
  27. 27. YES !!!
  28. 28. Providence Officials did not tell taxpayers of cash flow problem and that they were secretly borrowing from Pension plan at 8.5% The market value of the assets of the system as of June 30, 2007 on a “cash basis” was $413,539,963. To convert this amount to an “accrual basis,” this amount should be increased by the discounted value of the City’s contribution already appropriated for the July 1, 2007 - June 30, 2008 fiscal year ($55,328,995) but assumed not to be deposited until June 30, 2008. The discounted value of this contribution is $50,994,465. Therefore, the market value of the assets of the system as of June 30, 2007 on an “accrual basis” was $464,534,428. Dan Sherman Buck consultants June 2007 Does the City expect the taxpayers to do this calculation? Or should the borrowing and rate be clearly disclosed?
  29. 29. YES !! Repeatedly and to this very day June 29,2015
  30. 30. City officials Purposely Overstated assets and have purposely understated Providence Unfunded Liability and Funding Ratios for years. Every year On this chart has misleading and incorrect numbers. Providence knew this but published false reports anyway
  31. 31. Taveras and officials knew of this issue in 2012 prior to crisis commission and reform The category of “other assets” is quite evident to anyone with an accounting degree.
  32. 32. Taveras’s 13.4% pension return beats Raimondo’s 11.1% August 13th, 2013 at 2:48 pm by Ted Nesi under Nesi's Notes, On the Main Site Providence is significantly outpacing the state of Rhode Island in the battle of the pension plans. Providence’s $247-million pension fund, the second-largest in Rhode Island, earned a return of 13.4% during the 12 months ended June 30 – more than two percentage points better than the 11.1% earned by the $7.55-billion state fund over the same period, according to data obtained from the city by WPRI.com. In fact, Providence’s pension investments have consistently performed better than Rhode Island’s over the last decade, a period during which Providence’s Board of Investment Commissioners has been chaired by Mayors Angel Taveras and David Cicilline, as this chart comparing their returns shows: Providence’s 2012-13 investment return not only beat Rhode Island’s – it also topped the Massachusetts pension fund’s 12.7% return and the California Public Employees’ Retirement System’s 12.5% return. Providence officials were well aware of both the “ reported pension assets” and “the market value of assets” and alternately used both to provide Misleading numbers for Personal Political Gain Here we can see the Taveras administration and Ted Nesi use the Market value of assets $247 million to tout superior investment performance in the lead up to the 2014 RI gubernatorial campaign. 2013 Reported assets were $380 million.
  33. 33. Gina Raimondo and State placed great importance on funding Ratios • Retirement Security Act of 2011, Cont. • Municipalities with plans in critical status are required to submit to the Study Commission a reasonable alternative funding improvement plan to emerge from critical status within 180 days of sending critical status notice • Penalties for non-compliance include withholding of state aid (no aid withheld yet) • Does not apply to plans with a budget commission or receiver • Established 14-member Commission
  34. 34. Providence and Taveras did not even attend two years of Municipal Pension Commission Meetings http://www.golocalprov.com/politics/michael-riley-taveras- and-polisena-no-shows-at-pension-commission/ Michael Riley: Taveras and Polisena No-Shows at Pension Commission Tuesday, April 01, 2014 Michael G. Riley, GoLocalProv MINDSETTER™
  35. 35. Providence Elected and Appointed Officials,plus their internal and external Accountants repeatedly overstated Pension Assets since at least 2004 by as much as 20% !!!
  36. 36. Only a broke city would go to the effort of creating fraudulent assets , then cover it up for decades and then continue to illegally borrow from pension fund paying exorbitant above market interest rates in order to hide cash flow problems from ratings agencies and regulators. Providence is broke
  37. 37. What is Justice ? What should happen next? • There should be A full scale investigation into Providence Accounting by regulator or Law enforcement • The Police & Fire pension plan should be reimbursed with A full repayment of $62 million plus any interest due. • Providence should restate the past 20 years of misleading financial statements notifying all municipal bond holders and also all taxpayers in Providence detailing asset overstatements and all misleading accounting • Providence should Produce a full disclosure of results of regulators investigation and deliver in writing to Pension Beneficiaries. • Providence should Institute New Pension procedures that guaranty Placement of all pension monies into a trust with a board of trustees.
  38. 38. Huge Questions remain about Providence’s lack of controls and checks and balances • Who should have caught this? • Where was the controller, internal auditor, finance director and hired actuaries and auditor? • Where was/is the State Auditor General? • Why didn’t the Investment Commission realize money was missing? • Who decided on unauthorized borrowing? • Who signed off on loan ?( two parties to loan) • Why didn’t Taveras Crisis Commission catch this? • What was the role of the Cicilline Administration and Director of Administration John Simmons? • Why haven’t rating agencies reduced Providence to Junk?
  39. 39. Possible regulators questions from Michael G Riley indicating a need For further Investigation supported by subpoena power. • Since $62 million is being removed as an asset from their pension fund. Why hasn’t Police Union or Fire Union sued? • Why would the City secretly borrow from the pension fund at 8.5% ? Isn’t it either Desperate , dumb or both? • Who made the decision to borrow at 8.5% ? and why didn’t any accountant, finance Director, City Council Member, Mayor ,Treasurer or hired accountant, including The “Taveras crisis commission” suggest cheaper borrowing as a way to save millions annually? What's the real story? • Will Providence once again borrow from pension fund at 8.25% in fiscal 2016 ?
  40. 40. Sources used for this report • Providence CAFR 1992-2014 http://www.providenceri.com/finance/financial-reports • Actuarial valuations of Pension Plan Buck Consultants 2000- 2011 • Actuarial Valuation Segal Co 2013-2014 • Providence Investment commission meeting minutes and reports http://www.providenceri.com/open-pvd • Boston College Center for retirement research http://crr.bc.edu/author/alicia-munnell/ • Morningstar Pension Report http://www.gabrielroeder.com/morningstar-releases- 2013-state-pension-plans-report/
  41. 41. Presentation goals and thoughts Outline for presentation  Defining the transaction most associated with “misleading” taxpayers , Municipal Bondholders and pension beneficiaries.  Define the extent to which Fraud may be involved and reasons for “misleading” bond investors.  Is misleading bond investors, Citizens, retirees, rating Agencies and accountants/actuaries a crime?  Is signing Official documents while aware of illegal accounting and or loan a crime?  Define the dollar amounts and the effect on various stakeholders pre and post impending write-off on loan.  Describe the length and depth of accounting deception and who would be involved.  Show evidence of distress and motive for hiding true financial condition of City.  Describe who allowed Pension Plan to accept a “false asset “ rather than cash on Pension Plan books.  Discuss who the regulators are and how they may or may not overlap State Regulation.  Discuss notion of Statute of Limitations.  Discuss how the accounting has misled various stakeholders even without regard to how the “loan default “ is handled or resolved.  Who has the right to “write off” this loan or accept the “write-off”?

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