State Audit: Public Company's Dollars Used For "Excessive" Spending

5 years 1 month 4 weeks ago February 27, 2012 Feb 27, 2012 Monday, February 27 2012 Monday, February 27, 2012 3:06:00 PM CST in News
By: Danny Spewak

JEFFERSON CITY - A state audit of Missouri Employers Mutual claimed Monday the public insurance company spent money "excessively" for six-figure executive salaries, trips to Hawaii and thousands of dollars in Democratic campaign contributions. 

Pointing to MEM's approval process by Gov. Jay Nixon for board members, the audit claimed the worker's compensation company acts as a public agency and thus spends recklessly. The audit further expands on that idea, claiming the spending gives MEM an advantage over other insurance companies. State auditor Tom Schweich, a Republican, said the company's expenditures would be questionable even for a private corporation, a sentiment MEM CEO Jim Owen wholeheartedly disagreed with.

"That is very surprising [for Schweich to say that], because like you said, this is the first insurance company the state auditor has ever audited," Owen said. "And [Schweich] admitted that it was unique for the state auditor to ever be in an insurance company. That's highly questionable."

How MEM Spends Money

According to the audit, salaries of top executives at MEM average around $250,000 annually. The company spent more than $300,000 on a vacation to Hawaii in February 2010 called the "President's Trip," aimed to reward top performers in the company. Among thousands of dollars in other expenditures included trips to St. Louis Cardinals games ($17,000) and MU sporting events ($77,000). 

Owen, who described his company as an independent public corporation and not a state agency, defended high salaries and expenditures on vacations and sporting event tickets. He said they are simply used for business purposes to compete in the insurance market. He also said his company has remained in the 50th percentile for expenditures compared to other corporations in the market, with the exception of one year. In 2007, Owen said MEM ranked in the 90th percentile for expenditures, but he explained that spending as a reaction to a strong revenue year. 

"The figures [Schweich] used were comparing us to a state agency. And that's where we differ. Our compensation is based on comparisons with private insurance companies," Owen said. "We are an independent company set up to compete with private insurance companies."

After Schweich accused MEM's spending as "unreasonable" even if it were a private company, he told KOMU he did not actually compare MEM to any other private corporations.

"We have enough experience to know the answer to that question," Schweich said. 

Owen said he would ask Missouri's Democratic party to return his company's campaign contributions. He then said he would not comment further due to an investigation by the FBI.

Approval vs. Appointment

With regards to the approval process, Owen said Nixon has almost no role in the appointments of board members. He said Nixon simply signs off on candidates voted on by policyholders. Thus, according to Owen, MEM is an independent public company with the ability to spend money to keep up with competitors, rather than a public agency responsible to the state. 

Schweich said it is the General Assembly's job to determine whether or not the approval process violates state law. He said the auditor's office does not take an official position on the matter. However, according to Schweich's actual report, "this practice and MEM bylaws conflict with" state law.

When KOMU asked Schweich to explain whether the word "conflict" meant the process violated the law, he said it was a matter of semantics.

"Well, there's two different words," Schweich said. "There's no doubt about that."

The Next Step

Schweich deferred to the General Assembly several times Monday, claiming the legislature must now act to determine whether MEM is a public agency. Sen. Jim Lembke (R-St. Louis) has already introduced a bill to privatize MEM, a move Owen said his company would stand against. 

The bill would require MEM to establish a private "successor" company by January 2014, and it would erase the prior legislation which created the company in 1993. Currently, under that law, MEM does not pay federal taxes and did not need to report expenditures. 

Schweich's office struck a deal with MEM for a one-time audit, though. An MEM spokesperson said the company had already conducted internal audits. Now that he has announced the results, Schweich said the situation is out of his hands. 

"Really, this is an issue that has to be resolved by the General Assembly. Should MEM maintain its tax-exempt status?  That's a policy question," Schweich said. 

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