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OIR Responds to Findings in Operational Audit

OIR Responds to Findings in Operational Audit

Florida’s Auditor General recently issued Report 2014-009 relating to its operational audit of the Florida Office of Insurance Regulation.  The Office of Insurance Regulation in turn has provided its responses to the audit findings.  The report identified the following four findings:

Finding No. 1:  Office policies and procedures should be enhanced to require that the reasoning and judgments supporting Property and Casualty (P&C) rate filing decisions be sufficiently documented.

Finding No. 2: The Office did not use existing accounting codes to facilitate the preparation of, nor had the Office prepared, detailed analyses comparing regulatory costs to the regulatory fees and taxes designated to cover those costs.

Finding No. 3:  Periodic information technology (IT) user access reviews had not been conducted by individuals knowledgeable of user roles and responsibilities.  Additionally, Office-specific procedures addressing Office IT applications had not been developed.

Finding No. 4:  The Office had not timely obtained and reviewed the independent service auditor’s report related to the controls designed and established by the National Association of Insurance Commissioners for the database that maintains the P&C insurer financial information used by the Office in its financial analyses processes.

The OIR responded to each of the findings.  Regarding the documentation of rate filing decisions, the OIR indicated that it will enhance its transmittal documents to provide additional details about rate decisions.  In addition, the OIR will consider engaging an outside actuarial consultant to assist in reviewing its procedures.

The second issue involving regulatory costs essentially relates to OIR expenses exceeding the corresponding revenue sources by $15.1 million for fiscal year 2010-11 and by $11.4 million for fiscal year 2011-12.  The OIR agrees that revenues have not been sufficient to cover expenses.  However, the OIR points out this is because the legislature decided to divert surplus lines premium tax revenue into general revenue.  The law diverting these funds expires June 30, 2014, which the OIR believes will alleviate the revenue shortfall.  In addition, the OIR mentioned that it regularly provides information to the legislature  about its revenue sources and the amounts of regulatory penalties under Florida law, many of which have remained underchanged for years.

The OIR agreed with the third recommendation and indicated that it will adopt written procedures to ensure that IT reviews are performed by appropriate staff.

Regarding the fourth finding relating to the NAIC database, the OIR notes that in recent years it has received copies of the relevant  SAS 70/SSAE16 reports from the NAIC.  In addition, the OIR points out that it has never seen any discrepancies between data available from the NAIC’s database and PDF versions of insurers’ audit reports.

Insurance Commissioner Kevin McCarty indicated that the Office of Insurance Regulation appreciates the Auditor General’s review and continually seeks to improve its operations and procedures.