California Liquidation Office Criticized By State Auditor
Californias official auditor has issued a sharply critical study–again–of the section of the Department of Insurance that seizes and operates insolvent insurers, saying the department doesnt adequately supervise the office and doesnt sufficiently protect insurers assets.
The study also says the department has spent at least $6 million on an automated claims-handling system that doesnt meet its needs.
The July report by the Bureau of State Audits is the latest in a series of studies targeting the Conservation and Liquidation Office. Earlier audits, released in May 1994 and April 1996, were also critical of the operation, which is at the heart of the departments regulatory and enforcement functions. The office also was the subject of a separate, private audit.
The Joint Legislative Audit Committee commissioned the study, at the request of Insurance Commissioner Harry Low. The joint committee examines state operations on behalf of the legislature.
“During our current audit, we found that the department and the CLO have not addressed many of the issues addressed in our previous two audit reports, nor have they corrected some of the problems identified by the other external auditor,” said the latest report by State Auditor Elaine Howle.
She said the office doesnt adequately supervise assets that come under its control, doesnt effectively manage its contracts, has never adopted a comprehensive conflict-of-interest policy for employees and contractors, and has not engaged in adequate competitive bidding.
The audit also noted that the office doesnt maintain an equitable system of allocating fixed costs to insurers and doesnt track its expenses. In one case, for example, a contractor was overpaid $43,000.
“It has unfairly burdened some insurers while undercharging others,” the audit noted. In another example, an insurer was charged $55,000 when the correct charge should have been $900, and the CLO failed to charge another insurer $4,000 in fixed costs.