Taylor Releases 2005-06 Ohio Bureau of Workers’ Compensation Audit

Monday, March 26, 2007

Columbus -

Today Ohio Auditor of State Mary Taylor released the 2005-06 audit of the Ohio Bureau of Workers’ Compensation and Industrial Commission of Ohio.  The audit contains four major findings that highlight the inadequate policies and procedures that existed within BWC that allowed for the illegal and inappropriate activity with public funds to occur.  The audit specifically notes the abuse of power by the former chief financial officer who has admitted to taking bribes in return for BWC investment work. 

“This is an important step toward restoring public trust and accountability within the Ohio Bureau of Workers’ Compensation,” Taylor said.  “The audit clearly reflects weaknesses in the system that escalated into major problems allowing for fraud, theft and corruption to occur.  The audit report recommends specific action BWC can take to ensure that proper checks and balances are in place to catch this kind of illegal and inappropriate activity. We will continue to work with the management team to help implement a strong system of internal controls to strengthen oversight, improve accountability and reform operations within BWC.”    

The four major findings by the audit relate to investments, the contribution rate setting process, internal communication and the abuse of power by a senior manager.  BWC Management’s response to the findings indicates they have already taken action to address a number of the issues raised in the following areas: 

  • Investments were not properly monitored by management
    The audit shows that private equity investments were not monitored appropriately by management.  This issue seriously compromised BWC’s ability to accurately track and value its investment activity and allowed inappropriate transactions by external investment managers to occur.  Auditors recommend that investments with external managers be monitored on a regular basis to ensure that all transactions are appropriate.
  • Internal controls were lacking over contribution rate setting process
    This finding is consistent with the results of a special internal audit previously performed by BWC that revealed deficiencies and an overall lack of control in the contribution rate setting process.  These inadequacies – the lack of policies, inadequate segregation of duties, and insufficient oversight – helped lead to an override process that is now the subject of an ongoing investigation by Ohio Inspector General Tom Charles and the Joint Legislative Ethics Commission. The Auditor’s Office is also conducting additional special audit procedures on the override system in conjunction with this investigation to determine if any manual overrides resulted in inappropriate or preferential treatment.  
  • Inadequate department communication
    The audit finds that there was a lack of communication between the legal and financial reporting departments within BWC that led to omissions in financial reporting requirements.  The audit recommends that an effective system be put in place to ensure that pertinent information is being shared properly by these departments so that complete and accurate financial reporting can be accomplished. 
  • Abuse of power by a senior manager
    The audit confirms that a former chief financial officer entered into inappropriate relationships with financial managers by accepting cash and other benefits in exchange for business with BWC.  The audit stresses the importance of promoting ethical behavior among all employees, especially senior managers.  

Another key finding relates to the reporting structure of the internal auditors inside the department.  The internal auditors currently report to the BWC Administrator, which has the potential to create a conflict of interest and prevent the internal auditors from accomplishing their goals and objectives. The audit recommends that internal auditors be independent of BWC management by reporting directly to the audit committee.  This would allow for any issues or problems to be reported and investigated properly.  Auditor Taylor is currently working on a proposal to improve the internal auditing process within BWC and other state agencies.

In addition, the audit reveals problems with the Bureau’s record retention policy.  During the course of the audit, the Independent Public Accountant was unable to obtain necessary documents because they were not available.  The audit recommends that BWC initiate a thorough review of record retention requirements and implement a policy that ensures that the organization is properly following the record retention schedule as set forth by Ohio law.   

The Ohio Auditor of State’s Office is one of the largest public accounting offices in the nation.  The office strives to ensure that all public funds are spent legally and appropriately and works aggressively to root out fraud, waste and abuse in public spending. Taylor encourages anyone suspecting fraud or misspending of public dollars to contact her office toll free at 1-866-FRAUD-OH (1-866-372-8364).

For an online copy of the BWC audit, please visit http://www.auditor.state.oh.us/AuditSearch/Reports/2007/Ohio_Bureau_of_Workers_Comp_06_05-Franklin.pdf