Audit Faults Policies, Operations of California Workers’ Comp Insurer

An eight-month audit of California's workers' compensation insurer of last resort is set to wrap up on Tuesday with the release of a report that blasts State Compensation Insurance Fund's management practices, marketing agreements and other issues, the Sacramento Bee reports (Chan, Sacramento Bee, 12/11).

The audit stems from State Fund's agreements with associations to market workers' compensation insurance policies that prompted some to allege conflicts of interest because leaders of two groups sat on the insurer's five-member board.

Since November 2006, those two board members have resigned, and the insurer's president and vice president for group sales were fired (Lifsher, Los Angeles Times, 12/11).

State Fund writes about a quarter of workers' compensation insurance policies in California.

The audit by Insurance Commissioner Steve Poizner (R) criticized State Fund for:

• $19.5 million in penalties for late payment of medical bills and disability benefits from January to July;
• Inadequate security protections for information technology systems;
• Paying invoices without purchase orders or contracts;
• Contracting for more than $300 million in IT consulting services since 2004; and
• Maintaining a fleet of 2,000 vehicles for 8,000 employees.

On Monday, State Fund leaders agreed with the findings of the audit and restated their commitment to overhauling the insurer's operating practices. Changes under consideration include:

• Expanding the board from five members to 12 or 14 members; and
  
• Creating new executive positions, including CFO and chief investment officer.