State auditors blast Pinnacol for luxe spending

Enraged Schultheis: ‘You could have heard me shouting blocks away'

By Joseph Boven
6/8/10
http://coloradoindependent.com/54932/state-auditors-blast-pinnacol-for-luxe-spending

In presenting its findings Monday, a state audit committee all but confirmed news reports that Pinnacol Assurance, Colorado's quasi-government health insurance company, lavished executives with suspect bonuses and paid for high-flying executive travel and entertainment expenses.

Drawing on a report commissioned by the legislature last year, auditors said the company delivered bonuses 80 percent of the time since 1995 even though executives failed to notch year over year performance targets. Pinnacol board members agreed with the criticism leveled at its spending and said it had already adjusted practices and was in the process of reviewing the audit to take additional steps to bring executive compensation under control.

"If you would have been at my house when I read this, you would have heard me a few blocks away," said Senate Chair of the Committee Dave Schultheis, R-Colorado Springs. "You look at the meals allowances and the way that approvals are done, where you sometimes have subordinates approving [the spending]. Those are not appropriate policies at all."

The auditors found that in respect to violations of travel expenses and entertainment policies Pinnacol violated its own policies 75 percent of the time in the sample group it chose for evaluation. Ninety-six percent of the total dollars spent violated those policies. The auditors said the spending "borderlines on abuse" under the Government Auditing Standards.

According to the report, Pinnacol encouraged conflicts of interest by having executives' subordinates review their expenses and that policies moderating alcohol, meal and lodging reimbursements were ignored. A typical problematic expenses cited by the auditors, for example, was a $500 a night hotel room paid for in Colorado Springs, where the prevailing rate is $88 a night. Pinnacol board members were also reimbursed for expenses incurred by their spouses, another violation of the companies policies.

"The comment by the state auditors that this borders on abuse…really bothers me," Representative Dianna Primavera , D-Broomfield, said, agreeing with Schultheis.

Bonuses paid to executives, many of whom underperformed according to targets set by previous years, often totaled 52.5 percent of their salary, sums they received virtually every year.

Board Chairman Gary Johnson said Pinnacol accepted the recommendations of the audit committee and would work to change the company's policies by the end of this year.

Last month, TV news CALL7 exposed a five-day golf outing by Pinnacol execs and board members to swank Pebble Beach in California. Pinnacol CEO Ken Ross blew up on camera and had to be restrained in his confrontation with reporter Tony Kovaleski. Lawmakers, horrified by the spendthrift behavior and the patrician disdain for transparency, called for members of the governor-appointed board to resign, including Chairman Johnson and members Debra Lovejoy and Ryan Hettich.

Sen. Shawn Mitchell, R-Broomfield, who has been a rare Pinnacol defender, criticized the audit report, saying it failed to compare compensation packages at Pinnacol to those of similar companies operating in the wholly private sector. He said the audit was the product of legislation that looked to find fault with Pinnacol, a sort of corporate-executive witch hunt.

"This is a financial and operational exam of a company without much real world context to know what that information might tell us and what might make it better," Mitchell said. "That is a disappointment. That is a missed opportunity on the part of the legislature and the agenda of the legislation that produced this audit."

Throughout the meeting, Mitchell contended that it was not the place of the legislature to be criticizing the company, as it is privately run.

Printable Version of this Page