The New York State Comptroller has charged that the Superintendent of Insurance and a unit of the New York Insurance Department (NYSID) responsible for handling liquidations have refused to cooperate in an audit of its $3 billion operations, forcing the comptroller to issue subpoenas.
After the Liquidation Bureau of the NYSID allegedly refused to allow the his office to conduct a routine audit, Comptroller Alan G. Hevesi said he issued subpoenas requiring the bureau to provide documents for examination and officials for questioning.
“The liquidation bureau claims it is not a state agency and not subject to our audit authority. That’s absurd,” Hevesi said. “The bureau is part of the state insurance department. The head of the insurance department is automatically head of the liquidation bureau.”
According to the state Constitution and Sections 8 and 111 of the State Finance Law, any monies under the control of a state official are subject to audit by the comptroller, Hevesi maintains. His office audited the bureau in 1976, 1983, 1990, 1994 and 1998.
“The liquidation bureau manages more than $3 billion in assets and in 1999 had a payroll of $38 million and paid law firms $13 million in fees. When an agency with so much responsibility blocks routine oversight, the obvious question is what does it have to hide?” Hevesi said.
The bureau is responsible for protecting policyholders and claimants when an insurance company becomes financially impaired or goes out of business. The bureau takes over and administers the failed insurance company’s assets and pays claims. It either rehabilitates the company or liquidates its assets. The bureau hires law firms and legal consultants to aid in its operations.
According to Hevesi, on January 12, 2004, he sent a letter to Superintendent of Insurance Greg Serio announcing that his staff was planning an audit of the liquidation operation. A February 2 follow-up letter confirmed the department’s agreement to an audit entrance conference on February 9 and requested specific documents. Hevesi maintains that when four auditors arrived for that conference, they were informed that, at the direction of the Serio, the insurance department was refusing to allow them to conduct the audit. On March 2, Hevesi sent a letter to Serio demanding access and setting a March 19 deadline, after which subpoenas would be issued. On March 9, the Serio ordered an internal audit of the liquidation bureau. On March 22, the comptroller’s issued subpoenas.
The last completed audit of the bureau was issued in 1998. According to Hevesit, among its key findings were the following:
• The bureau was operating without state oversight and without proper internal controls.
• The bureau contracted for legal and consulting services without a competitive process and without appropriate documentation to support selections. It paid those firms $27.7 million in 1995 and 1996, the vast majority of which went to a relatively small number of firms. The bureau entered into contracts without specific costs and parameters, and often without any written contract or agreement at all, which was like giving some firms a blank check.
• Of the 20 highest paid employees hired by the bureau since January 1, 1995, only nine met the qualifications recommended by the bureau itself for their specific positions.
• Some bureau employees stated they could lose their jobs or be harassed if they were more open with auditors, or if they were to provide auditors with additional information.
• During the 1990 audit, the comptroller’s identified possible questionable relationships and conflicts of interest thanks to discussions with bureau managers and staff. Such discussions were blocked in the 1998 audit.
• At the end of 1996, the former superintendent of insurance and one of his deputies went to work for a consulting firm that did business with the bureau. While that superintendent ran the bureau, that firm received $3.6 million in fees, more than three times what that firm received before he served as superintendent.
• The bureau was not transferring unclaimed funds to the state’s unclaimed funds account, as required by law.
The last time it was audited, the bureau had 452 employees with salary of $22.4 million and other administrative expenses of $15.8 million. It spent $13 million on legal fees and paid $131 million to settle 3,916 claims in 1999. As of December 31, 2002, the liquidation agency was administering the affairs of 64 companies in rehabilitation, liquidation or conservation with $3.4 billion in assets.
Was this article valuable?
Here are more articles you may enjoy.