An audit of the New York facility that administers assets of bankrupt insurers has found 84 areas of past deficiencies, about half of which have been addressed by the current administration.

Insurance Superintendent Eric Dinallo, in an announcement yesterday concerning the release of the audit by Amper, Politziner and Mattia, P.C., noted it was the first full audit to be performed on the 99-year-old Liquidation Bureau.

Among the findings revealed by the Report on Internal Controls:

o The Bureau lacked formal processes to review and reconcile balances between underlying financial reporting systems.

The Bureau said it expects, however, that reconciliations will be completed by the time it issues its 2006 financial statement audit (covering the year ending Dec. 31, 2006).

o Personal information of claimants and policyholders was managed by outdated IT processes that could have compromised security.

NYLB said it has completed certain legal steps, including training sessions and updating policies, and is in the process of correcting the other deficiencies.

o The audit said heavy reliance was placed on third-party consultants for functions such as reinsurance billing systems without appropriate oversight or backup procedures.

The Bureau said it is in the process of migrating these functions back to an enhanced in-house staff.

o Procedures for transitioning new estates into the Bureau were found to be outdated or absent, potentially causing delays in payments, estate closings, or returning companies to the marketplace.

The Bureau said it has updated many of the procedures in question and expects to complete the updating within the next few months.

Special Deputy Superintendent Mark Peters, who is in charge of the independent agency, said among other steps, “we recently achieved a key goal in enhancing NYLB's transparency with the adoption by the NYS Legislature of new statutory language that will institutionalize some of our reforms by requiring the Bureau to provide fuller public disclosures.”

Under the measure, endorsed by the Insurance Department and NYLB, NYLB will provide the governor, legislature and public with more comprehensive annual reports, with an opinion provided by an outside auditor, including detailed information of the status of the New York domiciled estates in liquidation or rehabilitation.

Mr. Dinallo's announcement of the audit release, which is online at www.nylb.org, noted that the Liquidation Bureau's unique role as a statutorily created entity that receives no taxpayer funding contributed to the department's decision to release the audit report.

His statement said that despite a court ruling that the Bureau is not subject to audit by the New York State Comptroller, Mr. Dinallo and Special Deputy Peters nevertheless agreed with the Comptroller's assertion that an audit should be conducted.

The NYLB is the Superintendent of Insurance's receivership operation responsible for the liquidation or rehabilitation of more than 60 insolvent or impaired insurance company estates and conservations under its control.

It is responsible for insurance payouts to “thousands of New York policyholders each year,” but according to Mr. Dinallo, the NYLB's management of more than $3 billion in assets had previously been largely hidden from public view.

Mr. Dinallo said reform of the Liquidation Bureau “has been a top priority.”

He said when he appointed Mark Peters to head the Bureau in April 2007, they agreed that his first order of business was to evaluate the Bureau's practices, personnel and finances.

The report and actions under way to remedy the Bureau problems “are a crucial aspect of our reform efforts” he said.

Mr. Peters said that releasing and distributing a report to the policyholders, creditors and public that discloses internal weaknesses “is a key step in rehabilitating the Bureau's reputation and improving the Bureau's transparency, accountability and, ultimately, its effectiveness.”

The audit, released yesterday, is the first stage in the larger review being conducted by Amper.

The second stage, an audit of the Bureau's financials and the fiscal position of the liquidated insurance company states as of Dec. 31, 2006, is said to be due for release shortly.

The third stage, the 2007 financials, will be released in the fall of 2008.

Since Mr. Dinallo took over management of the Bureau it has been aggressively pursuing claims against reinsurers owed to the liquidated operations.

Special Reports /

Liquidation Bureau Audit Results Aired

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