Lawmakers May Intervene in La. Insurance Department Audit Dispute

An ongoing dispute between the Louisiana’s legislative auditor and insurance commissioner is marring Louisiana’s ability to certify its year-end financial statements.

Lawmakers on the joint House and Senate budget committee said they may intervene in the disagreement, worried that it could harm the state’s financial reputation and could negatively influence the state’s credit ratings.

“This is wrong, and this needs to be fixed because it has reverberations throughout state government,” said House Speaker Jim Tucker, R-Terrytown.

The books are officially closed for the budget year that ended June 30, but the financial report can’t be formally certified under national accounting standards because of an auditing dispute involving the state-run insurer of last resort.

Legislative Auditor Steve Theriot said he can’t complete an audit of the Louisiana Citizens Property Insurance Corp. because Insurance Commissioner Jim Donelon refused to provide certain documents, citing confidentiality agreements.

So, when Theriot looked at Louisiana’s comprehensive financial report for the 2007-08 budget year, he wouldn’t give a clean audit opinion – and instead qualified it to say that he couldn’t vouch for Citizens’ finances or their potential impact on the state.

“We don’t know what liability exposure the state may have in terms of Citizens Insurance and the Department of Insurance,” Theriot told lawmakers.

Lawmakers laid the blame on Donelon, saying he was not complying with state audit laws. Rep. Karen Carter Peterson, D-New Orleans, accused Donelon of malfeasance.

“It makes absolutely no sense that one individual’s version or interpretation of the law can hold up … and impede our ability to manage the state’s finances. Unacceptable,” Peterson said.

Donelon said his lawyers have advised that he is legally prohibited from giving certain documents to Theriot: personal e-mails, e-mails protected under attorney/client privilege and private insurer information that is proprietary and protected under confidentiality agreements.

But Donelon said he’s turned over every financial document Theriot has requested. Theriot “should have all the material he needs to do a financial audit,” Donelon said.

The issue has moved to court, with a Jan. 27 hearing scheduled.

“Let’s go to the judge and let him decide this issue. My lawyers tell me I’m not allowed to do what (Theriot) wants me to do,” the insurance commissioner said.

Lawmakers said if the dispute isn’t resolved by the regular legislative session, which begins in April, they likely will attempt to force Donelon to hand over the documents.

Afranie Adomako, director with the Office of State Reporting and Accounting Policy, said it was the third year in a row that problems with Citizens caused a qualified audit opinion of Louisiana’s finances.

Credit rating agencies haven’t indicated that they would downgrade Louisiana’s bond rating because of the inability to certify Louisiana’s annual financial report, Adomako said.

“But there is a potential if this continues that that could occur,” he added.

Citizens, a quasi-public company overseen by the state, has spent years digging out from financial and computer troubles that erupted in 2005 when hurricanes Katrina and Rita hit. State audits have found alleged fraud and mismanagement, plus misspending of company money. New management has been put in place.

“Next year, we hope that with the new management having had one year under their belt, we’ll have a financial statement that probably will receive the necessary opinion so we can more forward,” Adomako said.

Theriot said he’ll still need to be able to access documents in Donelon’s office.

In November, Theriot’s office issued a partial audit that said the state Department of Insurance might have broken state law in 2006 by cutting Citizens’ rates too low. State law requires Citizens rates to be 10 percent higher than private insurance company rates in a given area so the state-run company doesn’t directly compete with other insurers.

Donelon disagreed with the audit findings.