Unmasking The CAFR Scam In Every City, USA

As more and more cities, counties, districts, and states across America falsely declare their near- insolubility, bankruptcy warnings, fiscal deficits, and budgetary quandaries, I am left with the sinking feeling that “the people” just can’t wrap their heads around how to point out these misleading and downright fallacious claims made by their councils, mayors, and professional con-men in places of public trust.

And personally, I’m tired of watching…

So today I want to share with you a simple way to factually stand before your local or state political “leaders” and give indisputable proof that, when stating the “facts” about their own budget shortfalls, limited choices, and necessary raising of your hard-earned monies as taxation (revenue) to “balance the budget”, your own little criminal syndicate of elected mayors and council men and women are lying bold-faced to the entire citizenry through the act of subterfuge and omission.

This little factoid is uniform throughout the entirety of the financial structure of government, as reported in the audited Comprehensive Annual Financial Report and required by Federal and State laws. It is always reported in the same fashion and under the same heading as all other governments (municipal corporations). The figures are not disputable. The truth is unshakable. And yet the doublespeak will never end… For even as you present this one simple line item to the scoundrels themselves behind their raised and protective pedestals, they will still attempt to deny what is undeniable, be it in ignorance or in deceit; usually a mix of both.

So, here it is… a tool for all people to easily use:

Step 1:

First of all, you must find your city/county/district/or state CAFR, which can sometimes be challenging in and of itself.

A search on your favorite search engine of “Your City” “Comprehensive Annual Financial Report” “Year” will generally do the trick. You may need to add the state after the city, or you may need to go to your government’s website to find these CAFR’s. If they are not to be found online, then your government is required to hand over a hard-copy or digital copy to you upon request. It’s the law, folks!

Now that you have the CAFR in front of you, you are probably overwhelmed with all of the nonsensical figures, financial wizardry, and creative accounting that is presented in over 100 pages of a pure accounting nightmare.

But don’t worry, you can ignore all that. For our purposes, we are only concerned with one single page of this entire report. And this page is specifically listed in the index as  the “STATEMENT OF NET ASSETS“. This page is generally in the first 10-30 pages of the CAFR report, and will always be listed in the index.

For the purposes of this lesson, here is an example CAFR from the City of Pacifica, Ca.I found this with a search parameter of “Pacifica Comprehensive Annual Financial Report 2011”, and clicked on the 5th link down which took me to the finance department of the “City Of Pacifica” website.

LINK –> http://www.cityofpacifica.org/depts/finance/cafrs/default.asp

Click on the “2011”  link to open the CAFR .pdf, and go to the index.

Here you will see, as with all other CAFR reports, an entry for the “STATEMENT OF NET ASSETS“, listed under the FINANCIAL SECTION, and under “GOVERNMENT-WIDE FINANCIAL STATEMENTS”. This tells us to go to page 17 of this particular Comprehensive Annual Financial Report to find our “statement of net assets”.

That’s it! This is the hardest part of the whole process.

Now breathe… it’s all simple from here on in – and quite an eye-opener!!!

Step 2:

Now that we are on page 17 (or your own CAFR page listing the “STATEMENT OF NET ASSETS” graph), we see a page full of large figures.

Don’t worry… you don’t need to know these. They are irrelevant to our goal. Fortunately, we are only concerned with the three or four line items that prove the budget lie and omission of the CAFR facts.

What we see here is a statement of three financial columns.

1. “Assets”

2. “Liabilities”

3. (Total) Net Assets.

In basic accounting, we add up the “ASSETS” and then subtract the “LIABILITIES”, which gives us our balance called “NET ASSETS”.

But we must remember, there is nothing at all “basic” about government accounting. In fact, it is the most complicated structure of obfuscation I’ve ever encountered. Berny Madoff would even be proud…

Step 3:

Now that we are familiar with the layout of this graph, and since we already know that comprehending government accounting is like untangling a mile-long set of Christmas lights that have been kicked around by a kindergarten class that just drank 20 gallons of Coca-Cola, we can fortunately find the few line items we actually need quite easily here.

Now, under the ASSETS column, we see that TOTAL ASSETS  are listed as:

———————————————————

Governmental Activities: $103,806,744

Business-Type Activities: $57,517,150

Totals: $161,323,894

———————————————————

***Note: “Business-Type Activities” may also be listed as “Non-Governmental Activities” or similar language. This represents government acting in the capacity of a corporation offering a “service” to the people, but not as “taxpayers”. Instead, this is a business that earns money, and the taxpayers are instead “customers” of government. In this way, government wears two hats. Often, as in Utah with its self-proclaimed “Alcohol Monopoly” – were government controls and profits as the only legal seller of high content alcoholic beverages – or in the case of “State Lotteries” run solely by State Governments as a monopoly, the government is acting as any for-profit corporation might, and taxpayers voluntarily purchase this service and products from government as “customers”. Thus, these types of governmental activities are considered “non-governmental” or in Pacifica’s case “Business-type Activities”.  For our purposes, this is certainly important to understand but not necessary to our stated goal. It is simply a way to transfer money out of the taxpayer base and into the business-base of revenues, leaving the taxpayer budget short.

Under the Liabilities column, we see TOTAL LIABILITIES listed as:

———————————————————

Governmental Activities: $45,403,706

Business-Type Activities: $37,792,153

Totals: $83,195,859

———————————————————

We will come back to these figures in a moment, as the big lie is within this LIABILITIES section.

Finally, our TOTAL NET ASSETS are listed as:

———————————————————

Governmental Activities: $58,403,038

Business-Type Activities: $19,724,997

Totals: $78,128,035

———————————————————

Assets minus liabilities equals total assets. But we must now expose the fraud written into these so-called liabilities…

Step 4:

Now, since I have written extensively on what all of these facts and figures mean within the full report of the CAFR, we will not be reading between the lines today. Again, we need not understand the whole financial report to understand the crime of omission happening in every government across America (and the world for that matter). All we need to know is this one method of “creative accounting”, and with it we have more ammunition than we could possibly need to call foul on our elected holders of public trust. So for now, don’t worry about all this other red tape. If you want to learn more about all of this, you can scour my articles or watch my movies for explanations of this CAFR information. Again, we need not get sidetracked with anything but these few line items that prove massive fraud on a national level.

Listed here are the ways in which these “totals” are restricted, invested, and unrestricted. But again, this information is irrelevant to our goal, for it is based on the lie we are about to expose. Without the continuity of the big lie, these “restrictions” mean nothing.

In order to understand this lie, we must now go back to the LIABILITIES section.

Remember, we only need to read this one graph called “STATEMENT OF NET ASSETS”. Nothing else matters for our purposes of establishing basic fraud through omission and obfuscation. So for now, ignore the rest of the CAFR.

Under the LIABILITIES section, we see a line item titled “NONCURRENT LIABILITIES”.

In our Pacifica City Corporation CAFR, these are listed as follows:

Due Within One Year:

Governmental Activities: $4,283,958

Business-Type Activities: $2,458,072

Totals: $6,742,030

Due In More Than One Year:

Governmental Activities: $38,527,849

Business-Type Activities: $34,108,234

Totals: $72,636,083

And there it is… Perhaps you still don’t see it, and that’s OK. For most people have hope and faith that government has integrity and honesty even within its own required Federal and State accounting principals. Perhaps you have even heard your mayor, council members, and even your governor talk about their “intent” to do right by the people? But in reality, nothing could be farther from the truth. For intent means nothing until it is written down on a paper, signed, notarized, and filed as a legally binding contract. Only then can the true intent of politicians be guaranteed. And only then can the law be broken – for a broken promise of ones good intentions is not against the law!

So what just happened here that is so darn eye-opening, as I claim?

Glad you asked…

For it can easily slip past your cognition if you aren’t ultra aware of what you are reading. In this case, the City of Pacifica has just listed its current assets and compared those assets to its future liabilities.

Why is this significant?

Well, imagine if you were reporting your own assets and liabilities to the IRS after it informed you that it required this information for an audit. And let’s say you wanted to play a creative accounting trick on the IRS to hide your real current asset holdings. While this little trick would actually be illegal for you to do, in government it’s perfectly OK and legal, and even promoted in standards of practice. After all, government wont punish itself for its own lies – for the lie is the basic foundation of government accounting as recommended by itself!!!

So when Agent Smith comes a knocking at your door and asks you for your STATEMENT OF NET ASSETS, you give him your list that you made, which includes the same creative accounting methods used by government. On your list you itemize all of your assets, including your home, your car, your equipment, and any other property you might own. You then list your bank checking and savings accounts and any liquid investments you have in your investment portfolio, just like government does. And once you’ve listed everything you can possibly account for as one of your assets that you have right now at this very moment in time, you then begin to list your liabilities.

And here is where the creative part comes in – the act of obfuscation and trickery to fool IRS Agent Smith into believing that you have more liabilities that effect your asset balance than you actually do. Here’s how that works…

Firstly, you list depreciation of your property values if indeed the market or blue-book values have decreased over the last fiscal year. But this is another accounting trick we will ignore for now.

Second, you may account for assets that are “receivable” in the short term – say within one months time or so – in the form of payments, interest or capital gains, refunds due, rent due, etc. These short-term “future” assets can be considered “current” assets for the purposes of reporting total assets to government.

And finally you report your current liabilities that may affect your total stated list of assets. This may include “future” short-term loan payments, interest accrued within the next few weeks or in a fiscal month or quarter, capital losses, depreciation, and other forms of liabilities and/or write-offs.

At this point, you have now listed your CURRENT ASSETS and your CURRENT LIABILITIES to the best of your ability and integrity by law. And even though this figure includes some very short-term assets and liabilities, your report to the IRS is really an honest and to the best of your knowledge perfect representation of your CURRENT financial position. You have not omitted anything, and you have not purposefully attempted to hide your wealth from the IRS.

For this you get a gold star and a pat on the back for being such a good little debtor, filling governments bags with the proper amount of revenue in the form of taxation (extortion).

But government doesn’t do this, you see.

Because government is not reporting to the IRS as a taxpayer.

Government is the tax collector.

And government is a profitable business.

So how does government hide its wealth from the people?

The same way that you would hide your wealth from government… that is, if it was legal – like it is for government to hide its wealth from you.

If you were to follow the creative generally accepted financial accounting practices (GAAP) of government in your own financial accounting list, here is what you would have actually given to the IRS:

Step 1: Do exactly what you did as listed above, stating an honest and perfect representation of your CURRENT cash, property, and investment holdings, taking CURRENT liabilities away from that total.

Step 2 (Creative accounting): While reporting CURRENT ASSETS, hide the true value of today’s assets by subtracting your FUTURE LIABILITIES of tomorrow from your ASSET totals today.

That’s it! You’ve just hidden most or all of your current wealth and assets. You’ve successfully fooled the IRS into actually believing that despite your actual money, property, and investment totals that can be seen clearly listed on your report, you have somehow made that money, that property, and those investments magically disappear from your balance sheet and claim to not actually have that money, property, and investment capital in your accounts today!

Wait a minute!

Did we miss something?

How exactly did this happen?

Just how can I make my current assets magically disappear by listing my future liabilities?

The answer: Exactly like government does!

Here’s what you did…

Let’s say your home is worth $500,000 and your two cars are worth a combined total of $100,000. Not bad man! Your doing pretty good I’d say. Better than most now-a-days, right?

Oh, but wait a minute. We can’t forget that these little property assets called “capital assets” didn’t come for free. It turns out you are not so different than the majority of people out there, and you have bank loans which hold as collateral your “capital assets”. In other words, you’re up to your neck in DEBT!!!

Debt is a future liability.

And so with a total property value of $600,000 in current capital assets (the total current value of your home and cars as of today that you are reporting to the IRS), we see that unfortunately you also have a debt in the form of loan totals plus interest of about $400,000 that you must pay over the next 20 years. Suddenly wealth takes on a whole different meaning, and your debt is certainly a future liability – which means that the total asset value for your “property” as capital assets in the form of “equity” is only about $200,000 today when this debt is considered. Remember, this is the CURRENT ASSET VALUE for this day, which for your purposes is the end of your fiscal year as reported to the IRS.

For Pacifica, California, its fiscal year always ends by law on June 30 of every year. And this report was published for the dates spanning from July 1st, 2010 – to – June 30, 2011.

So you report that your assets are worth $600,000, and you report that your cash and investments are at $100,000 total.

In the end, when your future payments and interest are taken into consideration, you report the following to the IRS:

Property value: $600,000

Cash and investments: -$300,000

What?

How can you report a loss and negative balance on current cash and investments of –$300,000 if you have +$100,000 in the bank and in liquid investments?

This is how government financial reporting works, friends. All you’ve done is to create a false paradigm that utilizes the payments and interest payments of your future debt repayment amortization, including interest that hasn’t even been charged yet upon your balance principle in the future, and applied that negative liability to your current balance of assets.

But in order for this to work, you must not take into consideration your future income, investment returns, and other forms of revenue that will come into your total asset balances in the future. In other words, you report your future liabilities and ignore the future assets that will ultimately pay for those liabilities.

If you were really devious, you could then file bankruptcy and get those future debts eliminated from your record while retaining your current assets and equities.

Welcome to government creative CAFR and budget accounting!!!

–=–

Now, back to the City Of Pacifica Municipal Corporation CAFR…

Again, our liabilities are listed as:

Due Within One Year:

Governmental Activities: $4,283,958

Business-Type Activities: $2,458,072

Totals: $6,742,030

Due In More Than One Year:

Governmental Activities: $38,527,849

Business-Type Activities: $34,108,234

Totals: $72,636,083

To be fair, we will treat the listed liabilities that are “due within one year” as a legitimate line item, and to cover any type of short-term future assets that this government corporation might have actually reported.

And so, we have a total left over in the “due in more than one year” category of $72,636,083.

When we look at the line items in the “Assets” section, we see no reporting mechanism for the declaration of future assets due in more than one year”. The “long-term pre-paid pension asset” is an investment into the pension system, and not a future asset in the form of revenue. Thus, we have no hint or clue of a reporting on how much this City will collect in future revenue or what will be collected via taxation or business income, which would obviously be what pays for the future debt liability payments that are reported here.

In other words, the City corporation just used FUTURE liabilities to hide its CURRENT assets.

If the fact that future assets to be collected as revenue were reported in this graph, the $72,636,083 that is reported as a liability effecting the current asset balance would be cancelled out into a zero balance. All future liabilities would be accounted for with all future assets.

But this is not the case.

If this true accounting were to be stated here in the Statement of Net Assets, then the Total Net Assets would change from this:

Governmental Activities: $58,403,038

Business-Type Activities: $19,724,997

Totals: $78,128,035

To this:

Governmental Activities: $58,403,038 + $38,527,849

Business-Type Activities: $19,724,997 + $34,108,234

Totals: $78,128,035 + $72,636,083

This gives the municipal corporation of Pacifica, California a sudden increase in its actual CURRENT ASSETS to a total of $150,764,116, almost double what it actually reports within its Statment of Net Assets.

And there you have it – creative accounting at its finest. This, ladies and gentlemen, is the financial scam being perpetrated over you in every city, district, county, and state, USA.

And this can be used by anyone to call out your council, mayor, and any other financial planners that try and bullshit you into believing that your government has no money. And this is only the tip of the iceberg…

Remember, this in no way represents the total gross wealth of your government, but only shows one single method amongst many methods to legally cover up the true financial situation of your government entity. This can also be applied to other balances listed in the CAFR, including the “Statements Fund Balances” and within Pension Fund CAFR schemes.

–=–

Finally, to test this instruction sheet for accuracy and to prove my claims herein, lets randomly select a few other CAFR’s from governments around the country…

I just sat for a moment and thought of what should be the only City in America that may be an exception to this rule, a government that actually may be in dyer financial trouble. And the name Detroit came to mind…

Here is a link to the City Of Detroit municipal corporation (incorporated 1806) CAFR for fiscal year 2011 on the Detroit City Government website:

LINK–> http://www.detroitmi.gov/Portals/0/docs/finance/CAFR/2011%20Detroit%20CAFR%20Final.pdf

Detroit lists its Statement of Net Assets on page 37 of this CAFR. And this City lists the following Net Assets:

Total Assets (and Deferred Outflows): $10,030,113,247

Total Liabilities: $10,059,121,604

Total Net Assets (Deficit): ($29,008,357)

So here the City of Detroit is reporting that after all CURRENT ASSETS and LIABILITIES are considered, the City is running a deficit of over $29 million dollars.

But what happens when we look closer at the liabilities section line items and apply the “creative accounting” lesson we just learned?

Amazing things, folks. Amazing things happen…

Listed as “LONG-TERM OBLIGATIONS” here, Detroit lists the following under its “TOTAL LIABILITIES” section:

Due Within One Year: $313,944,768

Due In More Than One Year: $8,366,493,713

It also lists certain liabilities in the form of toxic debt instruments as:

Derivative Instruments – Swap Liability: $612,067,105

Now, though we wont include this in our total, the fact that your government is even in the investment schemes of derivatives trading, including toxic mortgage backed securities, should be enough to storm the gates and handcuff your political leaders. But we’ll save that discussion for another time, even as your governments collectively invest in this type of securities crap!

So again, if we simply consider that the future liabilities (due in more than one year) of the City OF Detroit will be paid with future assets collected by City Of Detroit from its taxpayers and customers (totals include “Governmental” and “Business-Type Activities”), then the City government of Detroit actually has CURRENT assets which should be listed like this:

Total Current Assets (and Deferred Outflows): $10,030,113,247

Total Current Liabilities: $1,692,627,891

Total Current Net Assets: $8,337,485,356

So the City Of Detroit is covering up more than $8 billion dollars in CURRENT assets by its creative accounting of future assets due more than a year away that will be paid for by future assets that are creatively not reported in its own audited CAFR. If I was a resident of Detroit, I’d say it was time to hold certain lying councilmen and the mayor accountable to the people. And in gangland Detroit, the word accountable would and should be a very frightening thought to those crooked political figures in power over the trust of the people!

The lies know no end in government accounting standards and practices…

–=–

Ok, how about one of the largest Cities and Counties in the nation, Los Angeles.

By some accounts, L.A. is one of the largest 20 economies in the world. So let’s see what just the City proper and the separate County proper is holding within its CAFR as CURRENT Net Assets.

Here is the link to the 2011 City CAFR for City Of Los Angeles: http://controller.lacity.org/stellent/groups/ElectedOfficials/@CTR_Contributor/documents/Contributor_Web_Content/LACITYP_019904.pdf

And here is the link for County Of Los Angeles: http://file.lacounty.gov/lac/cms1_141548.pdf

Starting with the City, the Statement of Net Assets lists:

Total Assets: $48,314,850,000

Total Liabilities: $27,828,798,000

Total Net Assets: $20,486,052,000

But again, in the LIABILITIES section, is listed “NON-CURRENT LIABILITIES”:

Due In More Than One Year: $23,808,794,000

And so the actual CURRENT NET ASSETS total for Los Angeles City government is in fact $44,294,846,000.

–=–

And now the County of Los Angeles:

Total Asset: $26,447,190,000

Total Liabilities: $10,317,696,000

Total Net Assets: $16,129,494,000

But again, in the LIABILITIES section, is listed “NON_CURRENT LIABILITIES”:

Due In More Than One Year: $7,224,245,000

And so the actual CURRENT NET ASSETS total for Los Angeles County government is in fact $23,353,739,000.

And so in just these two governments within Los Angeles, we have quickly and easily uncovered over $31 billion in hidden assets. With this simple technique, you and your friends can show anyone out there how government is lying to the people through omission of accounting facts. This is organized crime, indeed…

–=–

Here is a random School District called Minnetonka, in Minnesota, showing this scam in even the smallest of districts and cities:

LINK–> http://www.minnetonka.k12.mn.us/administration/Budget/Documents/District_Audit.pdf

On page 33 is the Statement Of Net Assets:

Total Asset: $161,323,894

Total Liabilities: $83,195,859

Total Net Assets: $78,128,035

And when we realize that most of these liabilities are what are called “NON-CURRENT LIABILITIES” on this report, we see that of these listed liabilities:

$72,636,083 is listed as “Due In More Than One Year”

This nearly doubles the actual CURRENT ASSETS to a total of $150,764,118.

Yet another example of the endless sea of lies and obfuscation that has for generations been pulled over the eyes of the public.

–=–

I hope that this information will be of use to your future endeavors in trying to understand the actual financial position of your local or state government. I’d say its time to get up and go to a council meeting near you. Any one will do… all you need is a few minutes to find and add up these figures, and you are good to go create a firestorm of citizen outrage that needs to be spread through the actions of people like you.

As a homework assignment, why not pull up your own City CAFR and amaze friends and family with your new magic trick. Before today, only the Federal Reserve could pull millions or billions of dollars out of its butt! And while your at it, please leave a comment below about what you have found. Include the amount in millions or billions hidden under future liabilities, and also the link to your CAFR so that others may enjoy. Please pass this on and let’s see how many we can post here. That would be great!!!

Be well, and stop playing the fool!!!

.

–Clint Richardson (Realitybloger.wordpress.com)
–Wednesday, February 27, 2013

Posted by realitybloger on February 27, 2013

https://realitybloger.wordpress.com/2013/02/27/unmasking-the-cafr-scam-in-every-city-usa/