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REPORT DIGEST DEPARTMENT OF INSURANCE FINANCIAL AUDIT AND COMPLIANCE EXAMINATION For the Year Ended: June 30, 2004 Summary of Findings: Total this audit 3 Total last audit 2 Repeated from last audit 0 Release Date: March 31, 2005
State of Illinois Office of the Auditor General WILLIAM G. HOLLAND AUDITOR GENERAL To obtain a copy of the
Report contact: Office of the Auditor
General Iles Park Plaza 740 E. Ash Street Springfield, IL 62703 (217) 782-6046 or TTY (999) 261-2887 This Report Digest is also
available on the worldwide web at http://www.state.il.us/auditor |
SYNOPSIS · The Department made payments for efficiency billings from improper line item appropriations. · The Department did not receive all annual statements from viatical settlement providers licensed by the State. · The Department did not fully implement four of nine recommendations presented in the Management Audit of Group Workers’ Compensation Self-Insured Pools.
{Expenditures and Activity Measures are summarized on the reverse page.} |
DEPARTMENT
OF INSURANCE
FINANCIAL AUDIT AND COMPLIANCE
EXAMINATION
For
The Year Ended June 30, 2004
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EXPENDITURE STATISTICS |
FY 2004 |
FY 2003 |
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! Total Expenditures (All Funds).......................... |
$30,379,359 |
$32,661,109 |
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Personal Services.............................................. % of
Total Expenditures.................................. Average
No. of Employees............................. |
$16,141,375 53.1% 327 |
$18,008,145 55.1% 351 |
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Other Payroll Costs (FICA,
Retirement)............. % of
Total Expenditures.................................. |
$6,823,524 22.4% |
$6,820,803 20.9% |
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Contractual Services.......................................... % of
Total Expenditures.................................. |
$2,354,963 7.8% |
$2,938,500 9.0% |
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All Other Operations Items................................ % of
Total Expenditures.................................. |
$2,142,066 7.1% |
$2,306,589 7.1% |
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REFUNDS
TOTAL............................................... % of Total Expenditures.................................... |
$2,917,431 9.6% |
$2,587,072 7.9% |
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! Cost of Property
and Equipment........................ |
$4,537,390 |
$5,043,783 |
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SELECTED ACTIVITY
MEASURES |
FY 2004 |
FY 2003 |
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Financial/Corporate Regulation ! Financial
Statement Analysis................................... |
496 |
439 |
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! Field Financial
Examinations................................... |
122 |
104 |
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Consumer
Services ! Insurance Agency
Examinations............................. |
354 |
363 |
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! Closed Complaint
Files........................................... |
14,217 |
18,114 |
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! Market Conduct
Examinations................................ |
27 |
39 |
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Pension
Division ! Pension Fund
Examinations..................................... |
80 |
65 |
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AGENCY DIRECTOR(S) |
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During Audit Period: J.
Anthony Clark (July 2003 through February 2004), Deirdre Manna (Acting
Director, effective February 2004) Currently: Deirdre Manna |
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Department did not
receive guidance or documentation with the billings from CMS Efficiency
initiative payments were made from line items that had available monies
Efficiency
initiatives payments totaled $475,895 All annual viatical
settlement statements not received
Department
officials hope to adopt a new Act in the upcoming Legislative session Four of nine
recommendations not fully implemented |
INTRODUCTION
This Report
presents our State compliance examination for the one year ended June 30,
2004. In March 2004, the Governor
issued Executive Order #6 to reorganize agencies by the transfer of the
functions of the Department of Financial Institutions, the Department of
Insurance, the Department of Professional Regulation and the Office of Banks
and Real Estate into the newly created Department of Financial and
Professional Regulation. This
Executive Order consolidated the powers, duties, rights, responsibilities,
and functions of the four agencies into one new agency. The Executive Order was filed with the
Secretary of State on April 1, 2004 and went into effect on July 1,
2004. The Department of Insurance was
considered abolished as of July 1st, and is now part of the new
Department of Financial and Professional Regulation. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
PAYMENTS WERE MADE FOR EFFICIENCY INITIATIVE BILLINGS FROM IMPROPER LINE ITEM APPROPRIATIONS The Department made payments for efficiency initiative billings from improper line item appropriations and funds. Public Act 93-0025, in part, outlines a program for efficiency initiatives to reorganize, restructure, and reengineer the business processes of the State. The State Finance Act details that the amount designated as savings from efficiency initiatives implemented by the Department of Central Management Services (CMS) shall be paid into the Efficiency Initiatives Revolving Fund. The Act further requires State agencies to pay these amounts from line item appropriations where cost savings are anticipated to occur. The Agency did not receive guidance or documentation with the billings from CMS detailing from which line item appropriations savings were anticipated to occur. According to Agency staff, they received no documentation or information from CMS detailing the nature and/or type of savings that CMS anticipated. The only guidance received was the amount of payments that should be taken from General Revenue Funds versus other funds for the September 2003 billings. The Agency made payments for billings not from line item appropriations where the cost savings were anticipated to have occurred but from line items that simply had available monies to make payments. The Agency used: · $217,433 from its contractual services, commodities, travel, printing, and telecommunication line item appropriations to pay for the Procurement Efficiency billing. · $254,140 from its contractual services, commodities, equipment and printing line item appropriation to pay for the Information Technology billing. · $4,322 from its operation of auto line item appropriation to pay for the Vehicle Fleet Management billing. (Finding 1, pages 11-13) We recommended the Agency only make payments for efficiency initiative billings from line item appropriations where savings would be anticipated to occur. Further, we recommended the Agency seek an explanation from the Department of Central Management Services as to how savings levels were calculated, or otherwise determined, and how savings achieved or anticipated impact the Agency’s budget. Agency officials accepted our recommendation and stated the Agency made the efficiency initiative payments from line items for which it anticipated obtaining savings that would least affect the Department’s ability to meet its statutory requirements. The Department will also continue to seek from CMS specific information identifying these savings. FAILURE TO ENSURE RECEIPT OF ANNUAL STATEMENTS FROM VIATICAL SETTLEMENT PROVIDERS The Department failed to receive annual statements from 13 of the total 16 viatical settlement providers licensed by the State for the calendar year ended December 31, 2003. The Illinois Insurance Code requires viatical settlement providers to file with the Director on or before March 1 of each year an annual statement containing such information as the Director may prescribe by rule. (Finding 2, pages 14-15) We recommended the Department adopt formal rules requiring the submission of annual statements from viatical settlement providers. We further recommended the Department seek remedies for a provider’s failure to submit the required forms, such as fines or penalties. Department officials do not dispute the finding, however they noted the annual statement is not a financial statement, but rather a report indicating the status of completed viatical settlements. The Department is hoping to adopt a new Viatical Settlement Model Act and Regulation which contains a penalty for any violation of the act that will then allow the Department to promulgate a rule requiring the filing of annual statements in the future. RECOMMENDATIONS PRESENTED IN THE MANAGEMENT AUDIT OF GROUP WORKERS’ COMPENSATION SELF-INSURED POOLS NOT IMPLEMENTED The Department did not fully implement four of nine recommendations presented in the Management Audit of Group Workers’ Compensation Self-Insured Pools. We noted the following issues raised in the audit which have not been fully implemented: · Pools in liquidation and some active pools included members with dissimilar risk characteristics. Legislation enacted effective January 1, 2001 requires all pools to be comprised of members with homogenous risks. · 12 of the 23 pools licensed at December 31, 2001 either reported gross annual payrolls under $10 million or did not disclose payrolls in their annual statements. Effective January 1, 2001, the Illinois Insurance Code requires the Department to evaluate the financial strength of pools and consider the gross annual payroll of members. · Seven examinations were adopted subsequent to the Management Audit. Of these seven, three were adopted within statutory time limites, three were adopted 34 to 57 days after the 60 day mandate, and one 250 days after the 60 day mandate. The Illinois Insurance Code requires the Director to enter an order adopting or rejecting the final examination report or calling for an investigative hearing to obtain more information within 60 days of the receipt of the examination report. · The Group Self-Insurers Workers’ Compensation Fund assets do not appear sufficient to cover estimated claims against the fund. (Finding 3, pages 16-21) We recommended the Department enact final rules to define homogenous for pool membership and to allow waiver of the gross payroll requirement for pools in runoff. We further recommended the Department conduct all required financial examinations and adopt them in a timely manner and seek a statutory increase to the Insolvency Fund assessments or show cause as to why such an increase is not considered necessary. Department officials stated that significant efforts have been made to address every one of the Auditor General’s recommendations as five recommendations have been fully implemented and the other four findings have been at least partially completed or implemented. In addition, Department officials also noted while they are making progress on these issues, they are, obviously, working consistently on hundreds of other company issues, most of which are far more significant in size. These other issues demand that they prioritize accordingly and that means they cannot make the group self-insured pools their top priority. AUDITORS’ OPINION Our auditors report the Department of Insurance’s financial statements of the Security Deposit Fund – 1109, as of and for the years ended June 30, 2004 are fairly presented in all material respects. ___________________________________ WILLIAM G. HOLLAND, Auditor General WGH:JSC:pp SPECIAL ASSISTANT AUDITORS Sikich Gardner & Co., LLP were our special assistant auditors for this audit. |
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