CTPF Audit

Teachers Pension Fund Agrees to Forensic Audit

By Jim Vail

The Chicago Police Pension Fund is so under-funded that a group of
retired officers are conducting a forensic audit.

When Mary Cavallaro took over as the interim director of the Chicago Teachers Pension Fund last October, the trustees voted unanimously to conduct a forensic audit.

A forensic audit is a detailed report on how all the monies are spent to make sure all spending is accounted for in a pension fund that manages more than $12 billion.

It is a normal practice, especially when a new director takes over and wants to make sure he or she is not accused of theft if accounting errors are discovered on the previous director's watch.

The motion to hire a forensic auditing firm to do an audit of the fund subject to final contract negotiations was passed by a vote of 10 - 0 at the October 2020 pension board meeting.  

However, a motion to authorize the Internal Audit Director to retain BDO to conduct the first part of phase 2 of a forensic audit which would not exceed 280K passed, but not unanimously, at the May 2021 meeting.

The trustees who voted in favor of continuing the audit were retired trustees Lois Nelson, Maria Rodriguez and Mary Sharon Reilly, and teacher trustees Gervaise Clay and Tina Padilla.

The trustees who voted against the audit were President Jeffery Blackwell, Principal trustee Jerry Travlos, CPS board trustee Dwayne Truss and teacher trustee Jaqueline Price-Ward.

Three trustees abstained - CPS board trustee Miguel Del Valle, and teacher trustees Jim Cavallero and Phil Weiss.

The vote pattern was similar to the battle taking place between President Blackwell and three minority female trustees. Blackwell introduced a motion to censure trustees Clay, Padilla and Rodriguez and reprimand Reilly for conduct they deemed unprofessional and disrespectful.

The trustees who supported Blackwell to mandate public apologies from the three minority female trustees and Reilly also joined Blackwell to either vote against the forensic audit or abstain.

When Blackwell first voted in favor of the forensic audit last October he was only a trustee, while his vote against the audit in May was cast while he is serving as the interim executive director of the fund until a permanent director is named.

Phil Weiss ran on the Members First ticket to upset Core in last fall's teacher pension election and won possibly as a protest vote since the fund has been experiencing problems. This is what he said as a pension trustee candidate:

"I am running for Trustee of the CTPF because I am concerned about keeping our pension assets Safe and Fully Funded. CTPF is the oldest pension pension in Illinois, however, our assets are only funded at 47.5%. That is an undeniable fact. Our liabilities outweigh our financial commitments. Many stakeholders believe that our pension is funded at an acceptable level. I do not share that belief. I also do not believe that our overall Return On Investment is at a level demonstrating Maximization of Profits. The CTPF mission is clear, to provide, protect and enhance the economic well-being of our members. Are we truly meeting our mission? The answer is NO."

So then why would Weiss not vote for the forensic audit to make sure there are no problems with the fund? 

Second City Teachers asked Weiss about his vote to abstain - neither a yes or no vote - and he replied: "I respectfully have to refer you back (to) Michelle Hollemann."

Hollemann is the director of communications for the Chicago Teachers Pension Fund.

Forensic audits are important and more and more pension funds across the country are conducting them.

A recent forensic audit of the Ohio Teachers' Pension Fund revealed widespread failures and mismanagement, according to Forbes.

The forensic investigation of the $90 billion-plus State Teachers Retirement System of Ohio commissioned by the Ohio Retired Teachers Association found a lack of transparency, little to no legislative oversight of the pension, Wall Street firms pocketing lavish fees with little scrutiny, investment costs that were misrepresented.

"Billions that could have been used to pay retirement benefits promised to teachers have been squandered," the report stated, according to Forbes. 

Pension experts noted that it is unusual for public pension trustees to possess financial expertise. That is why audits are important. 

"It's exceptional when public pension board members take their fiduciary duties seriously and speak out about issues such as lack of transparency and mismanagement of investments," the Ohio investigator said. "The teachers, school employees, and taxpayers of Pennsylvania should know how each and every penny of their money is being invested."

Another area of concern for the Chicago Teachers Pension Fund is overpaying retirees. A forensic audit of a Massachusetts police pension fund discovered that they overpaid its retirees by hundreds of thousands of dollars over 10 years, according to the Boston Globe. 

The state investigation found officials mishandled the benefits of dozens of former transit police staff and that the fund operated for years with no system to track and end payments to retirees when they are no longer eligible to receive them, the Boston Globe reported.

Trustees are questioning whether CTPF has a system to track retirees here when some retirees who were dead were still receiving pension fund checks.

Forcing recipients still alive who received extra payments is extremely stressful to the retirees when they need to repay thousands of dollars on a fixed retirement income.

Some retired Chicago policemen formed a group called the CPD Pension Board Accountability Group to conduct an independent forensic audit of the Chicago Police Pension Fund - one of the worst funded public pension plans in the U.S. with a funding ratio of only 23 percent.

One problem the unfinished Chicago police audit discovered is that 35 percent of its investments were liquid (blue-chip stocks, cash and treasuries) and 35% are illiquid, which are considered more risky alternative investments with hedge funds, private equity and real estate. Those type of investments have come under increased scrutiny for their performance numbers and excessive management fees, Forbes reported. 

The CTPF has stopped investing with hedge funds.