Starting next month, independent auditors from KPMG say they are preparing to closely scrutinize organizational and operational changes that State Compensation Insurance Fund (SCIF) is implementing. They note that workers’ comp in general suffers from adverse development on the claims front, and they want to make sure that internal changes at State Fund do not exacerbate this situation or cause it to lose track of how its own claims are developing.
“As we’re planning our audit and we’re in the middle of our planning, we go through our risk assessment process and we focus primarily on what’s changed within the company in the current year,” says KPMG’s Leigh Wilson. “For this year in particular we’re going to be looking at the workforce reduction and consolidation initiatives and any accruals related to those restructurings that will occur.”
Wilson notes that an even bigger issue is what’s happening on the claims front with losses and loss reserves. Wilson recently gave a presentation on KPMG’s plans to State Fund’s Board of Directors.
“For this year in particular we’re going to be looking at the workforce reduction and consolidation initiatives and any accruals related to those restructurings that will occur.”
—Leigh Wilson, KPMG
“Just in general within the workers’ comp market, we’re seeing adverse emergence in claims experience, increased medical cost inflation and things like that. So we’ll be looking at the impact of that on loss reserves, and also at the claims center consolidation,” she says, noting that KPMG will evaluate risks from any IT changes that could affect financial reporting. “There could be issues related to the actuarial data related to claims payments that comes from any significant change in process.”
Board member Francis Quinlan, who heads the Audit Committee, notes that IT will be an emphasis, not only for financial reporting, but also for broader corporate security.
“The [audit] plan highlights areas of emphasis and one that we continue to want to watch is IT, particularly the changes in technology, things like the Boardbook,” he says, referring to a new system for delivering materials to the board. Earlier, the board approved purchasing a cloud-based service through Diligent Boardbooks to deliver materials to the board electronically. “Plus, as IT begins to move a lot of its operations into the so-called cloud…they have been assisting us with change as it happens. It’s a high-speed environment that we’re in,” Quinlan says.
Other aspects of the annual independent audit are likely to remain the same. KPMG’s Wilson notes that on the financial front KPMG will audit State Fund’s valuation of loss reserves, investments and reinsurance recoverables. And it will continue to assess the risk for fraudulent activity at the company as part of its standard procedure.
KPMG says its final report will be issued in May.
(Filed by Brad Cain in San Francisco)