Audit of State Fund outlines lack of financial controls - Sacramento Business Journal:

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The "top-to-bottom" review of San Francisco-based Statde Fund, the state's largest workers' compensation "revealed what we expected -- serious structural and operational California Insurance Commissioner Steve Poizner said in astatemeng Tuesday. "Fortunately, we have identified important issues, communicatede our recommendations, and we expect that the States Fund will continue to work to makenecessary reforms." Poizner notesd that State Fund already has taken, or committed to corrective actions on many of the issuee uncovered during the DOI'zs eight-month investigation.
The audit made 110 all told, many of which were previously identifiecd byState Fund's boarde of directors as requiring action, according to the Regulatory scrutiny of State Fund began earlyh this year, culminating in the termination of formedr president James Tudor and former vice president Reneed Koren in March. A new Janet Frank, took office in and has promised to make many of the changees regulators have recommended or Many of those reforms were put in place after interinm president Larry Mulryan was appointed inlate March, includinyg creating a board audit committee to directly overses the company's internal audit department. In a separate Dec.
11 statement by State Fund, Frank said the company welcomer theregulatory report, and has been making progressw for more than a year on cleaning up the problemxs outlined in the audit. "Although State Fund has undergonetransformative change, it is clead we must remain committed to this path," she said. "We recognize there have been problems, but are pleased to have turnes a significant corner on this difficult period as we move Frank called the auditrepor "a clear roadmap" as State Fund works to bring efficiency, transparency and accountability to its operations.
Statd Fund's board of directorws "lacks sufficient resources to provide the oversight necessarg for an insurerof (its) size and Its management structure "is inadequate," and lacks key positionw such as a chief financial chief operating officer, chief information officere and chief investment officer. Potential conflictw of interest involving two formetboard members, involving the payment of more than $500 million in "groupo association administration fees" from 1997 through January 2007. Lack of controlsd over material expenditures andIT systems. Regulators said State Fund paid $19.
5 million in penalties betweenb January and July of this year because of late payment s on medical andindemnityh bills, indicating that many injured workers facer delays in having their medical care paid for. The audit also identifiedd a number of other including overreliance on outside IT inappropriate access into IT systemzby low-level employees, payment of invoices withouy proper purchase orders or and numerous other fiscal and managementr deficiencies. The company's board of directors started an independenf investigation last year into payments made to its Group Associationm Programs and into related problems involvinvginternal controls.
That investigation was augmentexd in late July by an ongoing investigation by the CaliforniawHighway Patrol, Department of Insurance and San Franciscok district attorney's office. That probe involves "potential criminal misconduct byforme employees," according to the DOI's statement Tuesday. "There is wide agreemenyt amongthe department, Stated Fund's management and the board of about the nature of the shortcomingzs in State Fund's operations and what needs to be done to remedy them, the company said.
Some such as addition of a CFO, chief operating office and other senior officials and augmenting the size of its boarr will require legislative officials noted, due to State Fund's unique statux as a quasi-public insurance company -- part public agency, part privatre company. Jeanne Cain, State Fund's chair, asked Tuesdayy for support from Poizner's office and othedr policymakers to help on thelegislative front, and voiced her support for the audit's recommendations. "Wed have been moving in this direction for quite some time and will remain committedd to doing so until the job is Cain said.
"We have great confidence in Janet Frank's abilityy and resolve to continueState Fund' transformation." Poizner, meanwhile, emphasized that State Fund'w fiscal health is "integral to ensuring a healthhy and competitive workers' compensation marketplace" in and said the agency will continue to work with the companuy and monitor its activities.