Red Flags Abound City of Tampa Fire & Police Pension IP: 72.187.56.94 Posted on January 17, 2013 at 11:38:49 PM by Webmaster
Forbes contributor: January 16, 2013
Edward "Ted" Siedle Financial Watchdog
Red Flags Abound at $1.6 Billion City of Tampa Firefighters and Police Pension
I have two words of advice for firefighters and cops who participate in the City of Tampa Firefighters and Police Pension: Watch Out. While I cannot say for certain that your pension’s assets are being mishandled without further investigation, there are ample “red flags” present and I believe an independent forensic review should be undertaken of the fund.
Based upon the documents that I have reviewed, in my opinion, it is impossible for participants in the fund to assess the integrity of the plan’s investments or the plan’s ability to pay benefits. The financial statements of the municipal pension available on its website say as much:
“Management has elected to omit substantially all of the disclsoures required by accounting principles generally accepted in the United States of America. If the omitted disclosures were included in the financial statements, they might influence the user’s conclusions about the Tampa Firefighters & Police Officers Pension Fund’s statements of net assets available for benefits, and the related statements of changes in net assets available for benefits. Accordingly the financial statements are not designed for those who are not informed about such matters (emphasis added).”
If the financial statements are not designed to provide assurances to pensioners regarding the fund’s ability to pay benefits, then what are the financial statements designed to do?
If you’re a participant in the fund, a taxpayer contributing to the fund, or an investor in City of Tampa municipal bonds for that matter, in my opinion, you need to know how the $1.6 billion pension is being managed. Your money is at risk.
If you’re looking for audited financials for the fund, you’re out of luck. In the financial statements the accountants state, “We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America.”
The accountant for the Tampa pension is the local firm of Nobles, Decker, Lenker & Cardoso. Why would a $1.6 billion municipal pension contract with a local accounting firm to provide a mere “compilation” and financial statements that are “not designed” to inform participants, as opposed to using a nationally recognized firm to do a true audit consistent with generally accepted accounting principles– audited financials that would be comprehensible to all? (According to guidelines applicable to CPAs, “compilations” are often prepared for privately-held entities that do not need a higher level of assurance expressed by the accountant. That hardly describes a $1.6 billion public pension.) I don’t know the answer to even that question but it gets worse.
In the 30 years I have been involved with public funds, I have never seen financial statements of a public fund wherein the accountants admit, “We are not independent with respect to Tampa Firefighters & Police Officers Pension Fund.” If the accounting firm is not independent, i.e., it is conflicted for some reason and is not actually auditing the fund, then what is the value, or indeed purpose, of the financial statements it has prepared? I believe stakeholders in the pension deserve an explanation as to why the accountants to the fund are not considered independent so they may assess whether that lack of independence is fatal. Further, why, out of all the accounting firms in the world, did the pension choose an accountant that was not independent?
There are more red flags here. 100% of the assets of the $1.6 billion pension are now and have for the past 39 years been managed by a single investment advisor, Bowen, Hanes & Company, based in Atlanta, Georgia. According to the firm’s SEC registration, Bowen, Hanes & Company manages a total of approximately $2 billion. That is, a single client, the Tampa pension, represents approximately 80% of the money management firm’s assets under advisory. So much for diversification of manager risk.
In my decades of professional experience, I have never seen a public pension fund with investment guidelines that would permit it to invest more than a limited amount of its assets, say 10%, with a single money manager. Further, the investment guidelines of public funds generally limit the percentage of a manager’s assets the fund’s assets may represent. Both of these investment restrictions are prudent.
In my experience, if a money manager has impressive investment performance, he will be able to attract additional clients—especially when a large public pension invests with him. It is a red flag, in my opinion, when a manager seemingly fails to attract additional clients over decades and remains dependent upon a single public pension.
So how have the Tampa pension’s investments performed over time? No one can know the answer to that question for two reasons. First, as mentioned earlier, there are no audited financials of the fund to rely upon. Second, the limited performance summary and investment history provided by Bowen, Hanes & Company on the fund’s website, in my opinion, raises at least as many questions as it answers. A forensic review is required to determine with certainty just how the fund’s investments have fared.
Tampa firefighters and police officers deserve better than abundant red flags and a paucity of reliable financial information related to their retirement savings plan.