Can OPEB numbers be trusted?

In theory you should now be able to go to audit reports and total up all Net OPEB Obligations (NOB) to get an estimate of how much Health Benefits for retired public employees will cost taxpayers.  For example, if you were to go to the 2010 Audit Report for the County of Union you would pick off a NOB of $34,612,000.  From that you could even estimate by population to get a national NOB of $80.8 billion {$34,612,000 / 536,000 (UC population) x 313,000,000 (US population) x 4 (levels of go’t)}.

However, in this case you would be wrong because the auditors were very, even comically, wrong and understated the NOB by $106,283,000.  Allow me to explain with a timeline.

Pre- 2004: The costs of health benefits for retirees were escalating and it was not appearing as a liability on government books.  Accountants believed that these costs should be accounted for at the time they were earned so they came up with…

2004: GASB Statements 43 and 45 forcing governments to account for these Other Post-Employment Benefits (OPEB) starting in…

2007: if they wanted to have GAAP approved financials*.  So the county hired Brown & Brown Consulting out of Philadelphia (a future Musicfest sponsor) for $20,000 who in…

May, 2009: came up with their report which was not thorough enough for me to verify the underlying numbers but it had enough estimates in there for the accountants to pick up for their audit reports.  Unfortunately, they picked up the wrong numbers and as of…

12/31/10: reported a Net OPEB Obligation of $34,612,000 whereas, accepting all other calculated numbers as reasonable, it should have been $140,895,000.   That’s because the Net OPEB Obligation is cumulative by definition as the people doing the books in Sussex, Monmouth, and Passaic Counties know but apparently Union County can’t come up with another Musicfest sponsor that grasps this concept.

It makes you wonder.  How could this obvious error get past the county financial people, the auditors, and even a ratings agency?   Are there other, maybe worse, errors in these audit reports?

I think so and in my next blog I’ll get into what I see as financial chicanery which may not be illegal (keep in mind this is New Jersey law) but should be banned.




* New Jersey localities need not follow GAAP and the rating agencies know it:

5 responses to this post.

  1. Posted by Tough Love on January 5, 2012 at 7:59 pm

    If you are correct, and Brown & Brown Consulting are a licensed auditing firm (e.g., CPA), it sounds like they should be disciplined (for incompetence/negligence) by the licensing Board which governs their profession.


    • It’s not really Brown & Brown. Though they did charge $20,000 for a report susceptible to misinterpretation, they did get the NOB concept right in their Appendix 4.

      The lesson I take from this is that a lot of people in this chain – from taxpayers to politicians to the county finance people to the auditors to the rating agencies – who almost always pretend they understand what they’re looking at according to their station, sometimes don’t.


  2. Posted by Javagold on January 5, 2012 at 11:13 pm

    Bibi Taylor is a fraud !


  3. Posted by muni-man on January 8, 2012 at 11:14 am

    This video appears to be legit and has comments from a neurosurgeon and a health care worker. If enacted on a broad spectrum, these types of changes will shrink life spans, along with pension, S.S. & OPEB costs dramatically, in the years ahead. I’m virtually certain some form of medical rationing is on the horizon (call it whatever euphemism you want). Looks like the first real opening salvo in the entitlement wars may not be far off now. The fighting will be FIERCE!!


  4. Posted by Dave S on January 9, 2012 at 11:39 am

    The state now requires that individuals over 65 convert to Medicare as the primary insurer. They also have eliminated duplicate coverage for spouses. Except for police, most new hires now are based on an age 65 retirement. The reform aspect is to base retirement on age 65 for all public employees. Those retiring earlier should pick up a larger portion of their health care benefits. Its unclear if local and county governments are following the state here yet. It also appears that the state is paying the secondary insurer the same (or nearly the same) for those over 65. Those without lifetime coverage are charged nearly the same post 65 – so they drop out of the system and pick up private insurance. This suggests the state should renegotiate with the insurers for employees and retirees over 65. And the charges to those over 65 should be competitive. The audit reports referred to do not give a full and transparent picture, and their scope should be greatly extended.


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