What If Amazon "Forgot" To Get Audited For 6 Years?
If a public company failed to get audited for years, regulators and investors would react swiftly. Ohio's Retirement Study Council failure to audit the State Teachers Pension? No consequences.
Publicly traded companies, such as Amazon, are required by law to issue financial statements each year audited by independent auditors. These auditors must be certified public accountants (CPAs) who examine the statements for conformity with U.S. Generally Accepted Accounting Principles (GAAP). If Amazon failed to meets its legally-mandated audit requirements, regulators and investors would not only panic, but take swift action including class action lawsuits to recovery losses from potential negligence or wrongdoing. In the Wild West of public pensions, audit failures are common and, even when exposed, these massive retirement funds are not held accountable for the resultant damage. The time to hold public pensions responsible for gross mismanagement is long overdue.
If a publicly traded company failed to meets its legally-mandated audit requirements, regulators and investors would not only panic, but take swift action including class action lawsuits to recovery losses from potential negligence or wrongdoing.
The Ohio Legislature created the Ohio Retirement Study Council (ORSC) to provide oversight of Ohio’s statewide public pension systems.
As of January 1, 2023, Ohio’s five state retirement systems had combined assets of approximately $225 billion with approximately 655,000 active contributing members, 1,100,000 inactive members, and 486,000 beneficiaries and recipients.
The Ohio Retirement Study Council (ORSC) was created to provide legislative oversight as well as advise and inform the state legislature on all matters relating to the benefits, funding, investment, and administration of the five state retirement systems in Ohio. Ohio's five public state retirement systems are the State Teachers Retirement System (STRS), created in 1920 for teachers in public schools, colleges, and universities; the Public Employees Retirement System (PERS), created in 1935 for state employees and expanded in 1938 to cover local government employees; the School Employees Retirement System (SERS), created in 1937 for non-teaching school employees; the State Highway Patrol Retirement System (SHPRS), created in 1944 by the withdrawal of all state troopers from PERS; and the Ohio Police and Fire Pension Fund (OP&F), created in 1967 after the consolidation of 454 local police and fire relief and pension funds.
For more than 50 years, the ORSC has supposedly been the eyes and the ears of the legislature on pension matters. Nevertheless, Ohio has been perpetually mired in public pension scandals.
ORSC is statutorily required to commission an independent fiduciary performance audit and actuarial audit at least every 10 years of each state pension. Mind you, the ORSC doesn’t ever have to actually perform any pension audits—all they have to do is commission others to do the audits. It’s that easy.
My 2021 forensic investigation of the State Teachers Retirement System of Ohio (STRS), The High Cost of Secrecy, revealed that it had been approximately 15 years since the last such audits of STRS. Somehow, the ORSC had forgotten to commission critical audits on the $90 billion fund.
Somehow, the ORSC had forgotten to commission critical audits on the $90 billion fund.
As I wrote in my 2021 forensic findings:
“When statutorily mandated, critical audits designed to protect the integrity of a $90 billion retirement plan are not commissioned, and delayed year-after-year, it is inexcusable. An investigation into the failure to audit by ORSC—as well as STRS’s failure to demand such audit results—is warranted, in our opinion. Any mismanagement or malfeasance which could have been exposed years earlier through timely audits has been allowed to persist, potentially resulting in great risk and cost to the plan. Worse still, the last fiduciary performance audit of STRS revealed multiple serious deficiencies which have never been addressed over the past 15 years.”
I also noted that the ORSC failure to audit was especially troubling because it indicated a lack of diligent legislative oversight potentially impacting all $225 billion in Ohio public pensions and over 2 million citizens.
Further, the fiduciary audit for Ohio Public Employees Retirement System was not performed by an independent auditor (as required under applicable law) and was three years late; the Ohio Police & Fire Pension Fund was only then (in 2021) requesting proposals for the fiduciary audit due 2016; and the actuarial audit of the Ohio State Highway Patrol Retirement System was 21 years overdue. Clearly, legislative oversight has been compromised for decades, I concluded.
In conclusion, the abject failure of the ORSC to perform its legal audit duties regarding over $200 billion in public pension assets did not cause any public outcry. No investigation into the causes of the audit failure was undertaken. No one was held accountable. No remedial action was taken.
The abject failure of the ORSC to perform its legal audit duties regarding over $200 billion in public pension assets did not cause any public outcry. No investigation into the causes of the audit failure was undertaken. No one was held accountable. No remedial action was taken.
Now comes word that the recently formed ORSC STRS Subcommittee will meet on Monday, July 8th to attempt to thwart transparency initiatives. That’s right— the very same legislative organization which STRS reformers exposed for failing to follow Ohio law is investigating the reformers.
The very same legislative organization which STRS reformers exposed for failing to follow Ohio law is investigating the reformers.
In the Wild West of public pensions—in Ohio, in particular—these legal perversities are commonplace. Publicly traded companies subject to our nation’s federal securities laws—which are required to be independently audited annually for the protection of investors—would suffer severe consequences for such outrageous behavior. The time to hold public pensions responsible for gross mismanagement is long overdue.