Audit Reports Affecting Multiple Agencies
A Report on The Statutory Audit of Liquidation Oversight and The Texas Insurance Guaranty Associations
December 4, 1996
Report Number 97-019
Overall Conclusion
Receivership management controls are generally effective and improving within the four entities
responsible for liquidation of insolvent insurance companies. These entities include the Texas
Department of Insurance (Department), which has primary oversight responsibility; the Texas
Life, Accident, Health & Hospital Service Insurance Guaranty Association; the Texas Property
and Casualty Insurance Guaranty Association (Property Association); and the Texas Title
Insurance Guaranty Association (Title Association).
All the entities previously visited by the State Auditor's Office have addressed shortcomings reported in prior reports. Although management controls within the liquidation process are generally effective, we found opportunities for further improvements at the Property Association, the Department, and the Title Association.
Key Facts and Findings
- The Property Association has a continuing pattern of not using competitive bidding for some of its significant expenditures. More than $1.6 million in purchases involving five contractors since 1993 were not competitively bid. Property Association management has revised the purchasing policy to strengthen the contractor selection process.
- The Property Association's investment policy emphasizes longer-term investments and allows higher-risk investment in mortgage-backed securities. This policy contributed to $3.3 million in investment losses (offset by $13.3 million in investment earnings) experienced in 1994 due to rising interest rates. The Board of Directors has reduced the percentage of mortgage-backed securities in the $285 million portfolio and intends to change policy to also limit portfolio duration.
- The Property Association has implemented prior-year recommendations saving $88,000 annually. Additional opportunities exist for potential annual savings of $191,000.
- Liquidation Oversight (within the Department) can further improve special deputy receiver (SDR) monitoring by auditing contract compliance reports prepared by SDRs. In addition, Liquidation Oversight should revise the standard SDR contract to clarify which travel and administrative expenses are reimbursable with estate assets.
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