September 28, 2016

Official grilled over department’s failure to collect $193 million in taxes

Lawmakers questioned the State Auditor and the Superintendent of Insurance for the first time after the release of an audit that showed the state failed to collect nearly $200 million in taxes from insurance companies.

The pointed questions from the Legislative Finance Committee were all directed at the State Superintendent of Insurance John Franchini.

Franchini said he saw the audit that showed $193 million in uncollected taxes was constructive.

“We are able to take the recommendations into consideration and incorporate into our organization’s restructuring,” Franchini said of the Office of the Superintendent of Insurance (OSI).

He also said it should not be called an audit, instead a “review of our premium tax department.”

Meanwhile, Deputy State Auditor Sanjay Bhakta flatly contradicted several points Franchini made during his presentation to the legislators about problems with premium tax collection from insurance companies.

“You can call it a review,” Bhakta said. “But it was an audit.”

Franchini also told legislators he initiated the review and that he did so because he knew something was wrong with the premium tax collection.

Bhakta said that was new information to the Auditor’s office—and that as part of the audit process, management of a public entity should inform those doing the audit if they believe something is wrong.

“It’s the first time that I’m hearing that OSI thought there was something wrong in the process,” Bhakta said.

Later, when asked by Rep. Patricia Lundstrom, D-Gallup, Franchini said, before the audit, he had no hard evidence something wrong.

“It was a gut feeling as businessowner that it didn’t seem to be quite right,” he conceded.

Options to recoup money

State Auditor Tim Keller, meanwhile, laid out a number of options to recoup the uncollected taxes.

“There’s no doubt that the best option is for the superintendent to pursue money that’s due to the state,” he said.

Still, other options included specialized audits like a gross premiums audit, a fraud audit or even calling for a continuous audit.

A last-resort option would be the State Auditor’s office going to court to mandate the collection of payments.

Still, that would be very unlikely.

“It’s a complete waste of effort if it’s being done by the department,” Keller said, referring to OSI.

Keller said he thought  potential return for audits on the premium taxes would be “probably more than anywhere we have seen.”

“Do we want to invest a little bit to recoup a lot?” he asked.

Criminal investigation

There were many answers Franchini said he could not give because of a pending criminal investigation in this same area.

OSI has the legal authority to conduct criminal investigations on entities under its purview.

The criminal investigation, which Franchini said started as a civil investigation, appears to be in the same area as many questions from legislators, especially Lundstrom and Sen. George Munoz, D-Gallup.

Keller revealed that OSI initially opposed the release of the audit.

“Then they came back and said it’s OK,” he continued.

Franchini said OSI changed their mind on the audit release because, “That has been redacted somewhat and we were willing to do it with the redaction.”

Meanwhile, legislators couldn’t help but look forward to the prospect of the money coming in, given the current dire budget situation.

Rep. Luciano “Lucky” Varela, D-Santa Fe, noted that $193 million would be around one-third of the current deficit.

“We can damn sure use that $193 million now,” Munoz said.