Detroit emergency manager: Audit reveals 'questionable' practices by pension boards

Report says more than 100 unemployment compensation claims are 'likely fraudulent'

By Halston Herrera - Digital news editor , Rod Meloni - Reporter, CFP ®

DETROIT - Detroit Emergency Manager Kevyn Orr on Thursday said a new joint 39-page report by the city's auditor and inspector general reveals "questionable practices."

READ: Full audit report on Detroit employee benefits

The investigation included the Detroit General Retirement System, The Detroit Police and Fire System, health care and unemployment benefits.

The first troubling finding came in the unemployment compensation.

According to the report, of the 1,484 unemployment compensation claims processed during the audit's review, 13 percent (or 192) are "likely fraudulent."

Additionally, the report said personal service contractors were receiving unemployment benefits -- since they are not city employees, they don't qualify.

On pension issues, the audit found "questionable interest rates applied to annuities, the possibility of bonuses being included in annuity account holders and overtime pay included in average final compensation. While the City Charter does not prohibit these items, we question the wisdom of these practices."

Orr's spokesman, Bill Nowling, said there's another expansive pension problem.

"They have lost over $79 million in real estate holding investments in the past decade. We want to get at the issue of that because we think that is out of sync with what other pension funds are doing," he said.

Related story: Emergency manager issues order to Detroit pension officials to release financial records

Orr is looking to freeze the city's pensions -- meaning any employee who is vested, or have 10 years or more with the city, would get to keep it. Under 10 years would mean the employee would be moved to a 401K-type plan.

The pension board has released this statement:

"We believe it is unseemly and disingenuous to present a proposal involving a new benefit structure that will affect the pensions of our members, beneficiaries and city employees not vested, without seeking out input, suggestions, knowledge and expertise."
Video: Area leaders weigh in on Kevyn Orr's progress

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