Audit pins Pinnacol over spending
Concerns raised over bonuses, golden parachutes, travel and entertainment expensesPeter Marcus, DDN Staff Writer
Tuesday, June 8, 2010
http://www.thedenverdailynews.com/article.php?aID=8768The state's workers' compensation insurer 'of last resort' paid its executives and employees significantly high bonuses, created cushy so-called golden parachute agreements for executives, and allowed for travel and entertainment expenses that do not comply with the company's own policies, according to a state audit released yesterday.
Lawmakers were briefed on the audit of Pinnacol Assurance and later grilled officials with the state-chartered quasi-governmental agency during a meeting of the Legislative Audit Committee.
Pinnacol Chief Executive Ken Ross and Board Chairman Gary Johnson defended their company's practices as being necessary to stay competitive within the industry. A spokeswoman for Pinnacol also told the Denver Daily News that the insurer will take the recommendations and results of the audit to build a stronger company.
But Sen. Morgan Carroll, D-Aurora, who is a member of the Legislative Audit Committee and served as chairwoman of the Pinnacol Interim Committee, seemed shocked by some of the findings, especially that executives established golden parachutes that called for up to $4.3 million in payments over two years if lawmakers change the way the quasi-governmental agency operates. The agreements include guaranteed bonuses, salaries and benefits if lawmakers take over and executives are terminated.
The audit also reported over $1.9 million in bonuses to employees from 2007 to 2009; employee travel reimbursements of up to $500 per night to stay in luxurious hotels; and conflicts with Colorado law concerning rate-setting practices.
'I'm very concerned by the results of this audit,' Carroll said in a statement following the meeting. 'We found golden parachutes, the maximum possible executive bonuses every year, 75-percent violation rate of their own travel policies, and disregard for Colorado law when it comes to rate-setting for Colorado's small businesses.'
The audit found that Pinnacol's executive compensation was not 'unreasonable' in comparison to similar quasi-governmental agencies in Colorado and in similar markets. But the audit found that bonuses are 'significantly' high compared to other organizations.
The board regularly set bonus targets below the prior years' actual results between 2002 and 2008, allowing the company to pay executives maximum level bonuses under the plan almost every year over this period, according to the audit.
Pinnacol's journey through the public spotlight intensified last year when lawmakers attempted to raid $500 million from the company's surplus to close the state's budget shortfall at the time. Out of that conversation came the Pinnacol Interim Committee, which proposed legislation that increased transparency and government oversight of the agency. Republicans have maintained that the investigation into the company has been nothing but a 'witch hunt.'
The audit released yesterday comes just weeks after KMGH-TV in Denver reported that Pinnacol executives and board members, including Ross and Johnson, attended a five-day golf outing to Pebble Beach in California that cost thousands of dollars. Pinnacol has not released specific figures, despite an Open Records request.
In all, the company paid $1.5 million in travel and entertainment reimbursements in 2009. Many of the reimbursements violated Pinnacol's own policies, according to the audit, which said the violations 'border on abuse.'
The agency had about 55,000 workers' compensation policies in 2009, holding more than a 50 percent share in Colorado's workers' compensation insurance market. It has been the state's largest workers' compensation provider since at least 1996.
Pinnacol collected about $399 million in premiums last year and paid about $256 million for claims. It has about $733 million in surplus, according to the audit.
The company is known as the state's 'insurer of last resort' because it must provide insurance coverage to employers that have difficulty purchasing plans privately. As a result, Pinnacol enjoys exemptions from federal and state corporate income taxes, the state insurance premium tax, state sales and use taxes, and property taxes.
Suzi Stolte, spokeswoman for Pinnacol, said yesterday that the company is looking forward to implementing recommendations stemming from the report.
'There are a number of areas of opportunity that will help us achieve our mission,' said Stolte. 'We are all about taking care of policyholders and workers, and our vision is to be the best workers' comp company in the nation, and we just saw this audit as an opportunity — they pointed out some things to us that we can work on and we will be doing that …'
Sen. Carroll is looking for a fast response.
'Actions speak louder than words,' she said. 'We will reconvene in September and expect to see documented, tangible changes by then.'
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