San Diego Union Tribune: Kroll report details misconduct that lead to financial crisis

“Consultants investigating the city’s finances issued a detailed and critical report Tuesday documenting misconduct by former and current City Council members and former top administrators.

“San Diego city leaders ‘fell prey’ to the same type of ‘corruption of financial management’ that afflicted Orange County before it sought bankruptcy and corporations like Enron before it collapsed, the 266-page report issued by Kroll Inc. stated.”

New York Times: San Diego Broke Laws in Pension Crisis, Panel Says

“Independent experts brought in to help San Diego dig its way out of a deepening financial hole said yesterday that city officials broke federal securities laws and other statutes as they tried to conceal their failure to put enough money into the city’s pension fund for police, firefighters and other public employees. The investigators, led by a former Securities and Exchange Commission chairman, Arthur Levitt Jr., recommended that San Diego be placed under the supervision of an independent monitor who would report to the S.E.C.”

Also see:

1. Key findings in Kroll report
2. Report of the Audit Committee of the city of San Diego

Unrelated to the Pension Crisis: Mayor calls accounting ‘sloppy bookkeeping’

“San Diego should reimburse its water and sewer funds more than $1 million to correct accounting errors that led to the city’s ratepayers being charged for work that should have been paid out of tax revenue, Mayor Jerry Sanders said yesterday.”

The New York Times published Public Pension Plans Face Billions in Shortages, the first in a series articles “that will examine actions of state and local governments that have left taxpayers with large unpaid bills for public employee pensions:”

Across the nation, a number of states, counties and municipalities have engaged in many of the same maneuvers with their pension funds that San Diego did, but without the crippling scandal — at least not yet.

It is hard to know the extent of the problems, because there is no central regulator to gather data on public plans. Nor is the accounting for government pension plans uniform, so comparing one with another can be unreliable.

But by one estimate, state and local governments owe their current and future retirees roughly $375 billion more than they have committed to their pension funds.

Some estimates have the funding gap at $500 billion or more. How could this occur?

Still, the lack of a national response to what would seem to be a nationwide problem underscores a peculiarity of the public pension world: like banks and insurance companies, the pension plans are large and complex financial institutions, but they face no comparable systems of checks and balances.

“There’s no oversight; there’s no requirements; there’s no enforcement,” said Lance Weiss, an actuary with Deloitte Consulting in Chicago who advised Illinois on its pension problems. “You’re kind of working off the good will of these public entities.”

Experts do not think that is good enough.

It’s another case of a complicated, technical problem (government pensions) caught somewhere between the experts (staff, bankers, lawyers) and the politicians who can’t be held accountable until calamity strikes. It took a whistle-blower in San Diego. Hurricane Katrina and failed levees in New Orleans.

What’s happening in your neck of the woods?

Fast Company: “Look beneath the surface of many great business successes, and you’re likely to find a trail of failures that preceded them. Describing the painstaking trial-and-error process that led eventually to the creation of the incandescent light bulb-and General Electric-prolific inventor Thomas Edison said ‘I have not failed. I have merely found 10,000 ways that won’t work.’”

My comment:

Failure isn’t a strategy, but I’ve read that something like 90 percent of well-conceived strategic plans are never successfully executed. And two-thirds of corporate change efforts fail. So we’re all failing, most of the time. Having witnessed failing, dysfunctional organizations up close and personal, what has struck me most is how many corporate executives and directors gloss over seemingly obvious failures, creating an environment that inhibits useful change efforts. Designed to Fail is the phrase that often comes to mind.

My heart goes out to all those suffering the devastation caused by Hurricane Katrina.

New Orleans Mayor Ray Nagin’s stunning radio interview provides a compelling, emotional window into the situation. Compare his comments with those of FEMA director and other officials and it’s clear that local, state and federal government officials are not on the same page.

As shown by the links below, the effects caused by this hurricane have been predicted for years. So you have to wonder how and why we have arrived at the monumental failure that is ongoing in New Orleans.

The Big Easy On the Brink: If it doesn’t act fast, the city could become the next Atlantis (Time, July 2000):

“A Category 5 hurricane would come barreling out of the Gulf of Mexico. It would cause Lake Pontchartrain, north of New Orleans, to overflow, pouring down millions of gallons of water on the city. Then things would really get ugly. Evacuation routes would be blocked. Buildings would collapse. Chemicals and hazardous waste would dissolve, turning the floodwaters into a lethal soup. In the end, what was left of the city might not be worth saving.”

The foretelling of a deadly disaster in New Orleans: FEMA ranked hurricane scenario highly likely in ‘01 (Houston Chronicle, December 2001):

”...earlier this year the Federal Emergency Management Agency ranked the potential damage to New Orleans as among the three likeliest, most catastrophic disasters facing this country. The other two? A massive earthquake in San Francisco, and, almost prophetically, a terrorist attack on New York City.”

Big Blow in the Big Easy (US News & World Report, July 2005):

”’If a hurricane comes next month,’ says Ivor van Heerden, director of Louisiana State University’s Center for the Study of Public Health Impacts of Hurricanes, ‘New Orleans could no longer exist.’”

Also see: Hurricane preparedness for New Orleans.

LeadershipIQ.com recently announced the results of its four-year study of why CEOs are fired or forced out. The study, based on interviews with 1,087 board members from 286 public, private, business and healthcare organizations, found that chief executives were fired, or otherwise forced out as a result of:

• Mismanaging change (31%)
• Ignoring customers (28%)
• Tolerating low performers (27%)
• Denying reality (23%)
• Too much talk, not enough action (22%)

The report says virtually every organization it interviewed has undergone change initiatives, noting:

“half of board members said that their change initiative did not go well. Most pointed to a failure on the CEO’s part to properly motivate employees and managers, and more specifically, to adequately sell the need to change course. Another group identified the CEO’s inability to follow-through and solidify the gains as the cause of failure.”

Other studies have shown that 70 percent of organizational change initiatives fail, often because the CEO isn’t committed to the change, doesn’t sell the need for the change or fails to follow through with execution. Similarly, up to 90 percent of strategic plans are never effectively implemented for the same reasons.
(Thanks to Lisa Haneberg for the link)