As this year winds down, it is only appropriate that we have the ultimate wasteful story to help us go out with a bang. Insurance Commissioner Steve Poizner deserves many thanks for providing this story. If it weren’t for his direction of the Department of Insurance, hundreds of millions of dollars may have been squandered without notice. Fear not, “the Ghost of State Fund Past” has now come to haunt former Insurance Commissioner and current Lieutenant Governor John Garamendi in the form of the biggest audit released this year.
According to the Los Angeles Times (December 11, 2007), a hard-hitting state audit reveals that "California’s scandal-plagued government-run workers’ compensation insurance company spent more than half a billion dollars over the last decade for outside marketing help that often provided ‘minimal services’….[T]he report paints a picture of an obscure rogue operation with more than $22 billion in assets, little oversight, minimal public checks and balances, and indiscriminate spending with little attention until recently….”
Here’re just a few of the practices revealed in the audit: “[L]oose control of more than $300 million spent on technology vendors and unnecessary payments of nearly $20 million in penalties for delaying the processing of medical bills and disability benefits for injured workers. It also questioned the need for a fleet of 2,000 motor vehicles….” There also was the discovery of marketing groups that “were paid millions of dollars for merely sending members quarterly newsletters [and] providing few other services….”
In addition to paying exorbitantly for a whole lot of nothing, State Fund directed a large portion of its money to some of its lucky, high-paid board members. A couple of these members benefited doubly from lack of oversight: “About half that money went to organizations with direct financial ties to two former board members of the State Compensation Insurance Fund.”
Besides the fact that the money wasted between 1996 and January 2007, when Garamendi’s term as Insurance Commissioner expired, added to our current deficit woes, this waste affects the state on a deeper level: “A financially healthy State Fund is a crucial part of California’s economy because it serves as an insurer of last resort, especially for small and medium-sized companies, which have a difficult time getting affordable, legally required workers’ compensation coverage.”
State Fund took advantage of the minimal supervision of the private sector and the open pockets of the public sector. The combination of the two drained at least half a billion dollars of tax money, and the aftermath will linger for several years.
It looks like the State Fund under John Garamendi was far from Scrooge to its own…just to those it was designed to help and protect. We don’t know if “the Ghost of State Fund Past” has John Garamendi shaking in his boots. But, we do know the State Fund’s mismanagement under his direction will haunt the state for years to come.
For past issues of Waste Watch — click here.