November 18, 2016

Three agencies question OSI’s plan to collect $193 million owed to state

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Three state agencies expressed a lack of confidence Thursday in the Office of the Superintendent of Insurance’s (OSI) ability to collect millions of dollars back taxes owed to the state from health insurance companies.

State Auditor Tim Keller, Department of Finance and Administration State Budget Division Director A.J. Forte and Legislative Finance Committee Deputy Director Charles Sallee all expressed doubts in OSI’s plans to collect an estimated $193 million that it failed to collect from premium health insurance taxes from 2010 through 2015.

The comments came at an interim Legislative Finance Committee hearing.

“I think it’s very notable there are three oversight agencies looking at this,” Forte told state lawmakers. “There are too many inconsistencies for me to feel comfortable in this process.”

The controversy began when Keller’s office revealed the uncollected revenue in a special audit earlier this year.

Superintendent of Insurance John Franchini disputed the results of the audit and said his agency had its own calculations of uncollected revenue. Keller, Forte and Sallee all expressed doubts and confusion over the methodology used by OSI to dispute the audit.

“Unfortunately we’re in a situation where everyone wants to have high confidence in the ballpark figure we’re dealing in,” Keller said. “Unfortunately we don’t have that.”

Keller noted that the $193 million figure came from a special audit conducted by Clifton Larsen & Allen, an Albuquerque auditing firm, that Franchini’s own office commissioned and signed off on.

OSI dedicated some of its own staff to work with Clifton Larsen & Allen on the audit. But recently Franchini swapped that task from those staffers to others in his office. The new staffers came up with a different methodology and different numbers from Clifton Larsen & Allen.

“The entire staff which worked with auditors were not allowed to communicate with the auditor once the findings were made,” Deputy State Auditor Sanjay Bhakta told lawmakers. “They were deliberately excluded from exit conference. That staff is not allowed on this anymore and now they have new staff and new methodology, which is very concerning.”

It’s not clear whether the new OSI staff disputing the audit results came up with a final estimate of the amount of health insurance tax underpaid to the state. But Forte said an OSI estimate of taxes owed from one insurance company dropped nearly $100 million dollars—from $119 million to $33 million.

Franchini defended his agency’s work to lawmakers.

“I want to emphasize the fact that the whole world is not falling, the sky is not falling,” he said. “We collected $330 million this year, so we can’t be doing everything wrong as a state agency.”

The failure to collect the full premium healthcare taxes dates back to 2002, Franchini said. He emphasized that it was his idea to request funding from the state Legislature for the special audit to get to the bottom of the problem.

“And now I’m going to get steamrolled because I asked for help,” he said.

Franchini added that he welcomed the oversight from other state agencies but also said, “I think we have a good methodology in place.”

“We are functioning well, but we welcome the fact these other agencies can help on this issue,” he said.

Franchini also said his agency had not been negotiating the amount in owed in back taxes with health insurance companies. The statement apparently caught Keller and Sallee off guard, as both said they had head otherwise.

“People have said they’ve seen the process,” Sallee said. “This is another inconsistency that doesn’t make me feel comfortable with this process.”

Asked why he recently shifted work on the audit to different staffers, Franchini said the original staffers needed to work on “the normal business of what’s going on” at OSI.

“They don’t have time to do these audits,” he said.

The new staffers working on the issue are “certified examiners” with “masters degrees in accounting,” Franchini assured.

State Sen. Peter Wirth, D-Santa Fe, who as an attorney works as a mediator, suggested that another party intervene in and review the situation.

“I can’t help but see these different groups firing shots at eacher,” Wirth said. “It seems like you need a third party to take a look at methodology. Someone needs to look at this and get that piece and move forward.”

Keller suggested OSI refrain from sending any invoices for back taxes out to insurance companies until all parties are on the same page.

Franchini agreed with Keller on this and added that his office has yet to send any invoices out.

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