Providence, Rhode Island officials have misled municipal bond investors and pension beneficiaries for over 20 years through fraudulent accounting and theft from the city's pension fund. Starting as early as 15-20 years ago, city officials began illegally spending annual required contributions to the pension fund on other budget items instead. To hide this, they issued "IOUs" to the pension fund and falsely classified the unauthorized borrowing as a "pension asset." This overstated the assets of the pension fund. The true unfunded liability and poor funding ratio of the severely underfunded pension plan have now been revealed.

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. • 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. 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. 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. 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. 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. 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. 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. 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. No!

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. 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. Why ?????
I have not
been able to
find similar
accounting
anywhere in
the United
States

14. A look at how overstating assets affected Financial reporting
Overstated pension assets affect all
pension ratios and that misleads
Investors

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. Providence recognizes they owe the retirement
plan cash
Payable to retirement Plan
2014 CAFR

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. Providence Rhode Island Officials have issued false and
misleading financial Statements for decades !!!!

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. 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. 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. 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. Providence Pension funding ratio is 27%
Nationwide median = 74%
Boston
College
Research

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. Emphatically YES!!

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. YES !!!

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. YES !!
Repeatedly and to this very day
June 29,2015

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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”?