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An Audit Report on the Division of Workers' Compensation at the Department of Insurance

July 2010

Report Number 10-035

Overall Conclusion

The Division of Workers' Compensation (Division) within the Department of Insurance issues disciplinary orders when providers and carriers have not complied with laws regarding workers' compensation; however, the Division should correct weaknesses in its enforcement process. Specifically:

- As of April 2010, 661 pending workers' compensation enforcement cases had been open for an average of 467 calendar days. One case had been open since fiscal year 2006 and 58 cases had been open since fiscal year 2007.

- The case log that Division management used to monitor workers' compensation enforcement cases was not complete. Auditors identified 81 workers' compensation enforcement cases that were not on the Division's case log and 61 pending workers' compensation enforcement cases that the Division had assigned to individuals whose employment had been terminated the prior calendar year.

- The Division did not consistently conduct supervisory reviews of staff's work related to workers' compensation enforcement cases. According to the Division, from March 2009 to March 2010, the Division conducted only two supervisory reviews of cases that were progressing to disposition.

The Division and the Department of Insurance have successfully merged their management of information technology projects; however, another area of coordination between the Division and the Department of Insurance requires improvement. Specifically, the Division's workers' compensation enforcement team operates under the direction of the Commissioner of the Division through (1) the Associate Commissioner for Enforcement at the Department of Insurance and (2) an attorney team leader. The Associate Commissioner for Enforcement reports to the Commissioner of Insurance. While the Commissioner of the Division and the attorney team leader are both physically located at the Division's offices, the Associate Commissioner for Enforcement is primarily located at the main office of the Department of Insurance. This reporting structure makes it difficult for the Associate Commissioner for Enforcement at the Department of Insurance to monitor workers' compensation enforcement cases.

In addition, for two cases with the largest penalties assessed, the team leader of the workers' compensation enforcement team approved settlement amounts significantly less than the amount recommended by the staff attorneys assigned to the cases. However, there was no documentation justifying the reduced penalty amounts. According to Division procedures, settlement amounts and their correspondence should be documented.

The State Auditor's Office continues to conduct audit work regarding the Division's enforcement efforts and disciplinary orders and will present the results of that work in a future report. Auditors communicated other, less significant issues to the Department's management separately in writing.

Contact the SAO about this report.

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