Auditors, Court Battles At R.I. Comp Insurers

The chairman of the quasi-public insurer providing workers' compensation coverage to most Rhode Island employers has resigned, and auditors are probing complaints from a secret whistleblower that the chairman cheated the company.

The activity--by a forensic auditing team sent by the Department of Business Regulation (DBR) to probe the Beacon Mutual Insurance Company--has kicked off a court battle after investigators asked to copy the contents of the Beacon management's computer hard drives.

At the time of this article's posting, the issue of whether DBR's audit team could view the drive data and other material remained unresolved

Richard Berstein, executive counsel for the DBR, said his department had begun a routine market conduct examination of Beacon in February 2005 before the whistleblower made allegations against Chairman Sheldon Sollosy (who resigned last month) and Beacon President and Chief Executive Officer Joseph Solomon.

While the DBR exam was underway, an external audit of Beacon was also being conducted, and that group heard from an anonymous caller that Mr. Sollosy owned a temporary employment firm which misclassified clerical workers as laborers to lower premiums.

The external auditors reported they found that from 1998 to 2003, Mr. Sollosy had refused to allow detailed reviews of his firm's payroll records so the risk classification of workers could be verified by premium auditors.

According to the external audit team, no action was taken against Mr. Sollosy's firm even though the standard Beacon procedure for non-cooperating employers is to cancel their policies or raise premiums up to 100 percent.

On a separate matter, the auditors said they could not find evidence that a construction firm was given a break on its workers' comp insurance after doing work on CEO Solomon's home.

Mr. Berstein said that while audits and reviews were going on, the Beacon board had been busy trying to secure passage of a bill that would privatize the company and reduce public oversight.

That activity disturbed an ex-officio member of the Beacon board, State Labor Director Adelita S. Orefice, who serves in Gov. Donald L. Carcieri's cabinet. As she wrote the governor on Jan. 27, she was given no backup material to support the need for the measure, and the board had kept from her that they had taken the proposal to legislators.

She sent along the external audit report to the governor, noting a "serious ethical and management issue," and said she had "grown to distrust both the president and chairman of the company."

Mr. Berstein said after learning of the report that his department had sent in the forensic auditing team, which was blocked from getting hard-drive data when the company ignored a subpoena and secured a temporary injunction from Superior Court Judge Melanie Wilk Thunburg.

He said Beacon's information technology department had inadvertently turned over a Lotus Notes Journal with company e-mails for the past 14 months, but the injunction prohibited the forensic team from examining it.