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Fraud investigators probe Calif. comp fund


SACRAMENTO, Calif.—The California Department of Insurance has dispatched fraud investigators to the State Compensation Insurance Fund as part of its "top-to-bottom" audit of the San Francisco-based workers comp insurer, whose corporate governance and management has recently come under fire.

About half a dozen fraud investigators from the department's law enforcement division are investigating whether any laws were broken in the payment of administrative fees in connection with SCIF's group insurance program, which provides discounted workers comp insurance for members of trade associations, a department spokeswoman said.

California Insurance Commissioner Steve Poizner ordered the audit and demanded structural and operational changes at SCIF, the state's largest workers comp insurer, following the abrupt firings last month of SCIF President James C. Tudor and Vp Renee Koren. SCIF attributed the firings to results of an internal review, which focused in part on its group insurance program (BI, April 2).

Two of SCIF's five board members resigned last year amid conflict of interest concerns over the role they played in placing and administering some group business with SCIF for which their companies received fees.

In addition to the fraud investigators, an audit team and a financial examiner also are part of the examination at SCIF, the California Department of Insurance spokeswoman said.

"Our audit is truly a top-to-bottom, wide ranging examination of all issues there including the administrative fee issue, including structural and operational issues and mismanagement issues," she said. "We will go to wherever the evidence leads us in this examination."

The spokeswoman added that Mr. Poizner received a letter Wednesday from SCIF in response to his directives to make structural and operational changes, including transferring internal audit oversight to the board or an independent audit team and immediately establishing the positions of chief financial officer and chief investment officer.

The commissioner gave SCIF 14 days to respond to his directives.

"It's our understanding that, based on this letter, the State Fund is moving forward to accomplish those (directives) and we will be monitoring very closely that they do deliver," the spokeswoman said.

A SCIF spokesperson was not immediately available for comment.