Audit Report on the Financial and Operating Practices of the Local 333 Insurance Fund for the New York City Employees

AUDIT REPORT IN BRIEF

We performed an audit on the financial and operating practices of the Local 333 Insurance Fund for New York City Employees (Active Fund) for calendar year 2004. The Active Fund, which was established to receive contributions from the City of New York, provides health and welfare benefits to eligible active City employees and their dependents. The Active Fund is required to conform with Comptroller’s Internal Control and Accountability Directive 12, Employee Benefit Funds—Uniform Reporting and Auditing Requirements (Comptroller’s Directive #12), which sets forth accounting, auditing and financial guidelines for City welfare funds and their boards of trustees. As of December 31, 2004 the Active Fund reported $374,779 in contributions from the City of New York and net assets of $472,776.

Audit Findings and Conclusions

The audit disclosed that the Active Fund was not in compliance with the procedures and reporting requirements of Comptroller’s Directive #12. In addition, the Active Fund had no written benefit-processing or accounting procedures and made benefit payments totaling $94,560 to ineligible individuals and/or without supporting documentation. Furthermore, the Active Fund spent a significantly larger percentage of its City contributions on administrative expenses when compared to other, similarly-sized welfare funds. Specifically, the Active Fund:

• Did not receive the proceeds from stock issued by Prudential in 2002 until 2004 because the Active Fund’s trustees failed to distribute the proceeds in a timely manner.

• Misstated benefit and administrative expenses on its Directive #12 filing.

• Failed to solicit bids to procure insurance services, as required by Directive #12.

• Did not maintain time records for its employees as required by Directive #12.

• Had no written procedures governing the processing of benefit payments.

• Paid claims for dependents whose eligibility was not documented.

• Did not have a formal agreement with its accountant.

• Is owed $895 by the Union.

• Is owed $1,339 by the Retiree Fund.

• Did not properly authorize checks.

• Spent a significantly larger percentage of its City contributions on administrative expenses when compared to other, similarly-sized funds.

Audit Recommendations

Fund trustees should:

• Immediately discontinue its practice of depositing Fund assets in Union accounts.

• Recoup the remaining $79,337 from the Union, determine a final allocation between the Active and Retiree Funds, and distribute the proceeds to the respective funds.

Additionally, the Active Fund should:

• Submit its Key Ratio Schedule and ensure that administrative and benefit expenses are recorded accurately on its Directive #12 filing and accurately calculate its key ratios, in accordance with Comptroller’s Directive #12.

• Solicit bids for all its insurance services, as required by Directive #12. This may allow the Active Fund to acquire insurance services where retention costs would be more in line with those of other funds.

• Create and implement written time keeping procedures and maintain daily attendance records and records of leave balances for its employees.

• Create and maintain written procedures governing the processing of benefit payments. These procedures should include maintaining an up-to-date list of eligible members using City contribution reports and requiring supporting documentation for all benefit payments. The eligibility list should be used by the Fund to update the insurance company’s headcount; to verify member eligibility before approving and paying claims; and to monitor the Active Fund’s Annuity Fund administrator.

• Require that its members submit all documentation to substantiate eligibility of dependents.

• Maintain copies of all documentation in members’ permanent files.

• Ensure that all services, especially its accounting services, are formalized in written agreements specifying the services to be rendered, the amount and method of compensation, and the period covered.

• Discontinue paying the Union expenses and recoup $895 from the Union for the improper payments cited in this report.

• Discontinue paying the Retiree Fund expenses and recoup $1,339 from the Retiree Fund for the improper payments cited in this report.

• Ensure that only authorized personnel sign program checks.

• Strive to accomplish its mission in an efficient and economical manner by bringing administrative costs more in line with those of other funds of a similar size.