Dear editor,
This letter is in response to your article in the paper on December 28, 2017, regarding the North Sunflower Medical Center and GASB 68. Although I am the lawyer for the Board of Trustees of the North Sunflower Medical Center, this letter is a personal letter.
In 2014, the Governmental Accounting Standards Board issued its GASB 68 accounting rule. The Governmental Accounting Standards Board (GASB) was established in 1984 and is an independent, private sector organization based in Norwalk, Connecticut. Its website says that it establishes accounting and financial reporting standards for U.S., State and local governments that follow Generally Accepted Accounting Principles (GAAP). The GASB website says that its “standards are recognized as authoritative by State and local governments, State boards of accountancy, and the American Institute of CPAs. The GASB develops and issues accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to taxpayers, public officials, investors, and others who use financial reports.” These are the claims of the GASB.
Sometime in 2014, this private group developed its GASB 68 rule. They apparently got the American Institute of CPAs to approve it, so every CPA in the United States feels obligated to follow it when they are doing audit reports for local governments and subdivisions of the State of Mississippi whose employees are PERS members. In a nutshell, GASB 68 requires these political subdivisions of the State to carry on their books a proportionate share of the unfunded liabilities of the Public Employees Retirement System of Mississippi. In some states, this may be correct where the particular subdivision of the State is liable for unpaid pension liabilities along with the State. This is simply not the case in the State of Mississippi.
In the 1950's, the North Sunflower County Hospital, now the North Sunflower Medical Center, agreed with the Public Employees Retirement System (PERS) that the hospital’s employees would be members of the State retirement system. Everyone should understand that PERS is an entity of the State of Mississippi, and not of the political subdivisions of the State whose employees are members of the State retirement system.
Several years ago, Billy Marlow and I started talking about the effects on the financial statements of GASB 68 and its requirements. We were told by the CPAs that do the annual certified audit for North Sunflower Medical Center that they could not give a clear audit opinion unless they took into account the requirements of GASB 68. Both Billy and I clearly disagreed with this matter.
However, we were told by the CPA firm that they felt required to include GASB 68 numbers in the financial reports and audits for the hospital. I quickly reviewed State law on this matter and read Section 25-11-133(2) of the Mississippi Code of 1972, as amended. The question was whether the hospital could be liable for a deficit in the availability of funds for payments due under the provisions of the Public Employees Retirement System. State law clearly provides that any such deficit is an obligation of the State, and is to be paid by an appropriation from the legislature. This Section clearly provides:
“In the event of a deficit in the availability of funds for payment due under the provisions of the Public Employees Retirement System, an appropriation shall hereinafter be made sufficient for the payment thereof as an obligation of the state.”
As you pointed out in your article, the Attorney General of the State of Mississippi agrees with my legal opinion about this matter. In Opinion No. 2017-00014 dated March 3, 2017, the lawyer for the Franklin County Memorial Hospital asked the office of Attorney General Jim Hood for a legal opinion. The first question was “Does the hospital have any statutory responsibility to fund any deficit in PERS benefits caused by investment losses or underfunding of PERS by the State of Mississippi?”
The Attorney General’s Opinion stated that “as a participating employer in the Public Employees Retirement System of Mississippi, the hospital is responsible for paying the employer contributions as established by the Board of Trustees under Section 25-22-123. Additionally, the hospital is responsible for causing the employee contributions to be deducted and remitted to PERS on behalf of the employee. The hospital has no obligation above or beyond the proper payment of these contributions.” A second question was “Must the hospital include in its audited financial statement any unfunded PERS pension obligation when there is no statutory obligation of the hospital to be liable for the same?”
The Attorney General stated that his office did not address accounting principles or an entity’s compliance or non-compliance with same by way of official opinion. In other words, that was not a legal question that the Attorney General could give a legal opinion on.
In a nutshell, the application of GASB 68 to the financial reports of the NSMC clearly distorts the financial condition of the hospital.
It appears that the Governmental Standards Accounting Board made a one size fits all rule that clearly isnot applicable to subdivisions of the State of Mississippi like NSMC. The claim of GASB that it develops and issues accounting standards through a transparent and inclusive process
intended to promote financial reporting that provides useful information to taxpayers, public officials, investors and others who use financial reports is simply not true as it relates to NSMC and other local governmental entities whose employees are members of the State retirement system PERS.
The application of GASB 68 to the hospital’s financial records is severely misleading and totally unnecessary. State law clearly provides that the payment of PERS benefits is an obligation of the State of Mississippi and must be paid by an appropriation by the legislature of this State.
In a nutshell, GASB 68 requires NSMC to account for liabilities on its balance sheet and expenses on its income statement that are not the obligations or expenses of the hospital.
The GASB financial statements of the hospital are not clear or transparent as the GASB claims but are severely misstated and not reliable. Sometime back, Billy Marlow asked the accounting department of the hospital to provide the Board with monthly financial statements which include GASB information and additional statements which do not include GASB information in order that the Board of Trustees can see the real financial situation of the hospital. The idea of the Governmental Accounting Standards Board that the use of GASB 68 creates clear and transparent financial reports is simply not true.
I look at it this way. If I am going to give a personal financial statement to a lender, I am going to show the fair market value of my assets and the current amount of my liabilities. I am not going to include liabilities that are not real and that I do not owe. If I did, my financial statement would be terribly misleading and confusing to a lender that I want to borrow money from.
The same situation applies to the North Sunflower Medical Center. The private Governmental Accounting Standards Board is not a governmental entity. It is a private group that, at least in this case, is applying a one size fits all accounting rule to North Sunflower Medical Center and other political subdivisions of the State of Mississippi whose employees are members of the Public Employees Retirement System of Mississippi. Please note the name of the retirement system.
The Board of Trustees of the North Sunflower Medical Center has no right to tell PERS how to run the State retirement system. That right is only held by the State of Mississippi under the Mississippi Code.
As stated by Attorney General Jim Hood, all North Sunflower Medical Center is liable for is to make the employer contributions and to deduct from the employees’ salaries and pay the employees’ share of the contributions to PERS. Other than that, North Sunflower Medical Center has no responsibility for any deficit which may or may not exist in PERS.
The purpose of GASB 68 is said to show what liability North Sunflower Medical Center has for unpaid benefits to PERS employees of the hospital. As set out above, any such liability is solely that of the State of Mississippi and not NSMC.
Applying GASB 68 to the financial reports of North Sunflower Medical Center is clearly using “fake accounting” which distorts the true financial condition and profitability of NSMC.
Very truly yours,
Lawson Holladay
