NAIC Objects to Antifraud Bill’s GAO Audit Provision

July 30, 2001

On behalf of the nation’s insurance commissioners, NAIC President and Kansas Insurance Commissioner Kathleen Sebelius is urging Congress to remove a provision from H.R. 1408, the Financial Services Antifraud Network Act of 2001, that gives the General Accounting Office (GAO) blanket audit authority over state insurance officials, programs and activities — even though these offices are established and funded entirely under state laws and constitutions.

Sebelius stated that the NAIC and its members believe the mandatory GAO audit authority set forth in Section 117 violates state sovereignty provisions of the U.S. Constitution. She added that while Congress has the power, if it chooses, to regulate interstate insurance commerce directly, it does not have the power to federally regulate the process of state regulation.

While lending NAIC support to the bill as a whole, Sebelius objected to Section 117, saying the sovereignty issues extend far beyond state insurance regulation. In a letter to House Judiciary Committee Chair Jim Sensenbrenner, R-Wis., Sebelius wrote, “If the effort to mandate federal audits of state insurance departments stands, it would establish a strong precedent for Congressional mandates to audit other state officials and agencies regarding the performance of their duties … and raises threats to the independence of state governors, attorneys general, and all officials elected under state laws and constitutions.”

In addition to raising Constitutional objections, Sebelius informed Chairman Sensenbrenner of the tremendous cooperation that already exists between insurance regulators and the GAO. “The audit provisions in Section 117 are unnecessary. The NAIC and most state insurance regulators have a long history of voluntarily cooperating with GAO audits and information requests in such areas as state solvency supervision, Y2K computer safeguards, insurance fraud investigations, implementation of the Gramm-Leach-Bliley Act and development of consumer privacy regulations,” Sebelius added.

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