February 22, 2017

Audit finds big problems at state insurance office

An audit of the embattled Office of the Superintendent of Insurance could not offer an opinion on the fiscal health of the department because of a lack of information.

On Wednesday, the New Mexico Office of the State Auditor released the most recent OSI audit.

“The annual audit highlights areas throughout the agency where safeguards of public funds are not adequate or existing rules aren’t being enforced,” State Auditor Tim Keller said in a statement. “These are critical areas that concern the collection and administration of hundreds of millions of our tax dollars each year. They need to be addressed for the financial health of our state. We appreciate management’s request for additional audit work this year and hope the findings will help them right the ship.”

The auditor gave OSI a “disclaimer of opinion,” which is negative and means “auditors were unable to obtain sufficient appropriate audit evidence on which to base an opinion” according to a letter Keller sent to John Franchini, the Superintendent of Insurance.

The letter tells Franchini that nine findings repeated from the previous year’s audit and 22 new findings, along with separate problems with premium tax collection, “depicts an agency with a deficient control environment.”

One problem included employees not following the OSI policy on travel reimbursements. The previous year’s audit found a more widespread problem.

The audit also noted that because checks sent to OSI are not “logged and receipted” when received, the auditor was unable to determine if the agency was following the state law that requires depositing all cash receipts within 24 hours, with limited exceptions. The audit said this could lead to “lost or misappropriated” cash receipts.This applied to $300 million in deposits.

The audit also revealed problems with the Patient’s Compensation Fund. That fund is supposed to be for money in medical malpractice claims, and—according to OSI—“provides an excess layer of coverage to doctors, hospitals, and other health care providers who qualify under the provisions of the Medical Malpractice Act.”

The audit found the PCF has a deficit of over $35 million, which has been increasing annually. The audit found $1.9 million in claim audits went unrecorded before auditors found them.

In addition, the computer system OSI uses to track several state funds “is outdated, inaccurate and dysfunctional.” In several cases, the system sent half of funds received to the State Fire Fund and the other half to the State General Fund. Instead, two-thirds should have been allocated to  the state fire fund and one third to the State General Fund, with 10 percent set aside for the Law Enforcement Protection Fund.

This all is separate from a previous problem with premium tax collection from insurance companies.

For several months, the department has been under fire for the nearly $200 million it failed to collect from insurers between 2010 and 2015. An audit released in September of 2016 found that uncollected money. Later that year, three state agencies voiced skepticism over OSI’s plan to collect the overdue money.

A special audit of the tax revenue collection at OSI is still ongoing and is separate from the 2016 audit released Tuesday.

The full audit is available at http://osanm.org/media/audits/440_Office_of_the_Superintendent_of_Insurance_FY2016.pdf.