Financial Audit: System and Control Problems Further Weaken the Pension Benefit Guaranty Fund

The Corporation developed, documented, and tested new valuation systems for each of its estimation methods. Recent audit work performed as part of the FY 1993 financial audit has confirmed that methods are working as intended and are documented.

The Corporation has completed identifying, documenting, and supporting its actuarial assumptions. The Corporation used the results of recently completed experience studies to support PBGC-specific mortality, interest, and expense actuarial assumptions. The results of the Corporation's retirement age experience study, though inconclusive, were not inconsistent with the PBGC retirement age assumption. The Corporation will continue to monitor the assumption as more retirement experience information becomes available.

The Corporation completed efforts to compare the accuracy of different estimation techniques. The Corporation compared its initial use of its plan-level estimating method with the results of its individual participant valuation method. The study revealed no material differences in the techniques.

The Corporation has completed reengineering of its IPV system software, including modifications to address previously reported software weaknesses. The Corporation has made substantial progress in reducing instances of missing participant data on the PLUS database. Efforts continue to find and enter remaining missing data; however, current levels of missing data are immaterial to liability valuation.

The Corporation has substantially eliminated backlogs in premium collections. During fiscal years 1992 and 1993, PBGC collected $44 million in delinquent amounts.

The Corporation has instituted procedures to ensure that all premium filings warranting further action are promptly investigated and followed up. These include procedures for investigating such filings, including the generation of billing documents for late filers and correspondence to nonfilers. During the 1993 audit, GAO found that the Corporation was carrying out these procedures and has plans to expand its collection efforts.

The Corporation has implemented procedures for enforcement, including the generation of billing documents for late filers and correspondence to larger nonfilers for plan years 1986 to present. In addition, in July 1993, the Corporation formed a Collection and Compliance Division to facilitate collections. The Corporation is also using the services of its own attorneys and others, on a contingency fee basis, in seeking to enforce collections.

The Corporation implemented all major elements of the Financial Accounting and Reporting System (FARS). The Corporation also instituted procedures to facilitate the preparation of statements of cash flows in fiscal year 1993. Enhancements to reduce the extent of redundant manual data entry required for the preparation of the Corporation's financial statements were completed in fiscal year 1994. In addition, the Corporation's efforts are ongoing to improve its financial reporting process and related controls in certain areas which are not effectively addressed by the FARS system.

A recently completed audit of the Corporation's FY 1992 financial statements has confirmed management's assertion that basic accounting transactions are being promptly and consistently recorded in the general ledger systems.

The Corporation has completed substantially all its efforts to develop and document accounting and financial reporting policies and procedures. Those efforts still underway are focused primarily on updating and improving existing policy documentation.

In response to this recommendation, the Corporation established a formal management tracking system that identified specific corrective actions, estimated costs, target and actual completion milestone dates. This system, which has been operational for more than a year, enables management to monitor the Corporation's progress.