Report No. 2007-84
December 2007

Complete Audit Report

The following findings were included in our audit report on the Department of Insurance, Financial Institutions, and Profession Registration - Insurance.

The Department of Insurance, Financial Institutions, and Profession Registration – Insurance (DIFP-Insurance) does not adequately document all reconciliations of receipt and disbursement transactions. In addition, the DIFP-Insurance does not have adequate procedures in place to help ensure travel costs directly billed to the department were actually incurred prior to payment. Direct billed travel costs generally include commercial airfare and hotel expenses, and totaled approximately $200,000, $250,000, and $270,000 during the years ended June 30, 2007, 2006, and 2005, respectively. Also, the DIFP-Insurance does not transmit all receipts to the Department of Revenue (DOR) on a timely basis. A review of the February 2007 log noted 293 checks totaling approximately $308,000 were held an average of three days for checks that were returned to the payee and eight days for checks that were transmitted to DOR.

State laws provide the director of the DIFP with the authority to administer Missouri chartered insurance companies requiring rehabilitation or liquidation, commonly referred to as receiverships. As of June 30, 2007, there were two Missouri chartered insurance companies in rehabilitation and eleven in liquidation. Many of these receiverships have continued for several years with seven companies in receivership for at least 10 years. For those companies involved in the liquidation process, various expenses are incurred which decrease the overall assets available at final liquidation. Total disbursements for receiverships administered by the DIFP-Insurance or its contracted vendors exceeded $11 million for the three years ended June 30, 2007. We noted the following concerns during our review of expenditures of the receiverships:

 Contracts were not maintained to support some monthly expenditures.

 Rates were paid in excess of those allowed by court order.

 Supporting documentation did not always contain proper approval.

 Receipt and disbursement records were not always complete.

 An agent of the department was able to write checks to himself for services rendered without

    prior approval by the department.

A similar condition was noted in our prior report.

The department does not have adequate procedures in place to track and monitor compliance with reporting requirements for guarantee associations and self-insurers. Additionally, the department does not have procedures in place to document the review of reports received from self-insurers.

The DIFP-Insurance did not perform market conduct examinations of Health Maintenance Organizations (HMOs) as required by state law. During our audit period, 7 of 23 HMOs were not reviewed once every three years as required by state statute. In addition, adequate procedures are not in place to ensure companies are submitting required action plans to correct violations noted during examinations, or to reexamine companies who were issued fines or cure orders exceeding the tolerance ranges established by the National Association of Insurance Companies.

Missouri is one of only five states to allow insurance companies to receive tax credits for examination costs. For the tax years 2006 and 2005, examination tax credits claimed were approximately $2.1 and $1.9 million, respectively. For the tax year 2006, available credits were $13.4 million with a carryover of approximately $6.9 million. In essence, the state's General Revenue Fund is paying a significant portion of the examination costs instead of charging all costs to insurance companies as a part of doing business in Missouri. A similar condition was noted in our prior report.

The DIFP-Insurance receives a federal grant from the U.S. Department of Health and Human Services (DHHS), Centers for Medicare and Medicaid Services to contract with a not-for-profit foundation to provide insurance counseling services for senior citizens. As similarly noted in prior audits, the DIFP-Insurance does not always require the foundation to provide detailed documentation supporting amounts claimed for reimbursement under the grant agreement. Amounts paid to the foundation totaled approximately $600,000, $558,000, and $439,000 for the years ended June 30, 2007, 2006, and 2005, respectively.

State law allows the DIFP-Insurance to assess up to $1,000 for the first offense on late filings for surplus lines policies issued, and up to $2,000 for additional offenses. However, no penalties were assessed during our audit period. Due to the lack of tracking procedures, we were unable to determine the extent late filings occurred. Failure to track late filings and assess penalties could result in an increased number of surplus lines tax forms not being filed in a timely manner. A similar condition was noted in our prior report.

Complete Audit Report