Calif. insurance official demands SCIF reforms

SACRAMENTO, Calif.--California Insurance Commissioner Steve Poizner has ordered an audit of the State Compensation Insurance Fund, citing "serious questions" about its corporate governance and management, and demanded that SCIF make structural and operational changes.

The Wednesday move came amid a brewing scandal at the state's largest workers compensation insurer that led to last week's firing of SCIF President James C. Tudor and Vp Renee Koren, which SCIF attributed to results of an internal review (BI, March 26).

At a state Senate Banking, Finance and Insurance Committee hearing on Wednesday, Jeanne Cain, SCIF board chair, told legislators that the board's ongoing internal investigation will not be complete for another 90 days.

The investigation centers in part on millions of dollars in administrative fees SCIF paid to two of its former board members who resigned last fall amid conflict of interest concerns raised by California Gov. Arnold Schwarzenegger's office.

Mr. Poizner said Wednesday he will conduct his own audit of SCIF.

"This audit will be an independent, thorough, top-to-bottom examination of SCIF to include a review of matter relating to the recent dismissals, as well as all aspects of the organization and its governance," he said in a statement.

The insurance commissioner also issued strong structural and operational change directives to SCIF, giving it 14 days to respond or face formal regulatory action that could include a public hearing.

Mr. Poizner directed SCIF to address the following issues:

• SCIF must transfer internal audit oversight to the board or an independent audit committee.

• Establish an audit committee comprised exclusively of board members to maintain oversight and communication with internal and external audit functions to ensure the integrity of SCIF's financial statements, internal controls, compliance with legal and regulatory requirements, and the findings of internal and external audits.

• Immediately establish a chief financial officer position and a chief investment officer position, neither of which currently exists.

• Limit the general counsel's responsibilities to legal services to maintain objectivity and avoid potential conflicts of interest.

• Immediately dismiss or place on administrative leave all members of SCIF's management who knew of, or who by virtue of their positions should have known of, improper payments made by SCIF.

• Adopt a clear code of ethics for board members and management staff to avoid the types of conflicts of interest that have occurred at SCIF in recent years.

Through a spokesman, Ms. Cain described Mr. Poizner's requests as "very reasonable."

"In fact, many of his suggestions are things we are already working to implement. We look forward to working cooperatively with his office," she said.