Minnesota Office of the Legislative Auditor
Financial Audit Division

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Report Summary
Department of Labor and Industry

Financial Audit

For the Fiscal Year Ended June 30, 1994;
Extended to fiscal years 1993 and 1995 for certain contractual services;

 

Public Release Date: November 3, 1995 No. 95-49

Background

The Department of Labor and Industry is responsible for processing and paying over $100 million of workers' compensation claims each year. The department's liability for these claims results from supplemental benefits, second injury responsibilities, and uninsured employers. The claims are paid from the Special Compensation Fund that is financed by assessments made on employers. Mr. John Lennes served as Commissioner of Labor and Industry from January 31, 1991, to January 31, 1995. The current commissioner is Mr. Gary Bastian.

Our initial audit scope focused on workers' compensation claims paid and assessments collected by the Special Compensation Fund for fiscal year 1994. Both financial activities were material to the state's financial statements and were examined as part of our 1994 Statewide Audit. We also expanded our work to examine certain contractual services purchased for the Special Compensation Fund during fiscal years 1993 to 1995.

Conclusions

We found that the department made overpayments in excess of $50,000 to an investigative services firm, Rgnonti & Associates. The overpayments resulted from a combination of weak controls in the department and questionable billing practices by the Rgnonti firm. The Ramsey County Attorney's Office and the U.S. Postal Inspectors also investigated certain aspects of the financial transactions between the department and Rgnonti & Associates. Neither law enforcement agency has filed criminal charges in this matter, however. We have referred our findings to the Attorney General's Office to consider the need for civil and criminal action in regard to the overpayments. The Department of Labor and Industry is also conducting personnel investigations to pursue potential misconduct by some of its employees who had direct responsibility for the contract with Rgnonti & Associates.

We cited several problems with the department's procedures for processing and documenting workers' compensation claims. We also found that the department negotiated a significant settlement with a self-insured employer, but had not established adequate policies or procedures to govern settlements.

 

Office of the Legislative Auditor ♦ Room 140, 658 Cedar St., St. Paul, MN 55155