The Commissioner is also empowered by statute to appoint a deputy receiver to act as the Commissioner's agent and to employ counsel, clerks, and assistants as may be necessary to administer a receivership. The Commissioner usually appoints a deputy receiver from the staff of the Insurance Bureau's Receivership Division.

For fiscal year 1993-94, the Division incurred total internal operating expenditures of $269,474 for the administration of insurance companies in receivership. This amount was billed to the individual insurance companies in receivership, along with all the other external costs of administering those receiverships, such as the costs for professional services firms.

As of September 30, 1994, the Division had 3 employees. They consisted of the Division director, an auditing specialist, and a secretary.

Conclusion: We concluded that the internal control structure was not fully effective. We noted the following two material reportable conditions:

 The Bureau did not have an effective internal control structure with respect to certain control procedures for receivership functions (Finding 1).

The Receivership Division agrees with this finding, but emphasized that some issues arose because of its limited staff.

 The Bureau did not have written policies and procedures for certain Division related responsibilities (Finding 2).

The Receivership Division agrees with this finding and informed us that it will develop written policies and procedures for certain Division related responsibilities to supplement the National Association of Insurance Commissioners Receivers Handbook and existing policies and procedures.

We also noted that the Division could improve its management practices by improving its planning and scheduling of work assignments, monitoring financial responsibilities at the receiverships, and reviewing Division expense allocation methodology (Findings 3 through 5).

Audit Objective: To assess the effectiveness of the Division's liquidation plans and the usefulness of its periodic reports to the Court and other reports, as they relate to the status of the liquidation.

Conclusion: We concluded that the Division's liquidation plans and its periodic reports to the Court need to be improved. Our audit noted one material reportable condition related to the effectiveness of the liquidation plans and the usefulness of periodic reports to the Court and other reports:

 The Division had not required written liquidation plans and revisions to the plans; periodic management reports; and the listing of an insurance company's assets (Finding 6).

The Receivership Division did not agree with this finding but informed us that it will attempt to develop written liquidation plans although not required by statute to do so. The Division has complied with the requirement to file a listing of assets with the Court. In one instance, when the requirement was first enacted, the Division prepared the listing of assets but did not file the listing with the Court.

Also, the Division's periodic reports to the Court did not include certain detailed financial information (Finding 7).

Audit Objective: To review the existence and completeness of contracts and court orders for professional services obtained on behalf of the receiverships.

Conclusion: We concluded that the Division had obtained contracts and the court orders for most of the professional services firms hired on behalf of the receiverships. However, the Division could improve its management practices by documenting its selection criteria, documenting remuneration rates for travel and other charges within the contracts, and effectively managing all contracts (Findings 8 through 10).

Audit Objective: To test selected expenditures for propriety.

Conclusion: We concluded that expenditures were reasonably proper. However, the Division could improve its management practices by requiring deputy receivers to obtain adequate supporting documentation (Finding 11).

To accomplish our specific audit objectives, we reviewed Insurance Bureau and Receivership Division policies and practices and documented the Division's approval and control functions for persons acting in the capacity of deputy receivers.

We visited four insurance companies, three in receivership and one in rehabilitation. We interviewed staff and reviewed invoices, cash disbursement journals, general ledgers, other financial records, engagement letters, and court orders. We also reviewed reports to the Court, correspondence, and other documentation. We tested selected expenditures and supporting documentation for compliance with various approval and control functions at the receiverships. We also observed the day-to-day activities of the deputy receivers at the receiverships.