Citizens audit reveals fraud and abuse

By Rebecca Mowbray
Business writer

A long-awaited audit report on the troubled Louisiana Citizens Property Insurance Corp. found evidence of fraud and abuse on Monday by the state-sponsored insurer of last resort, which did not have enough money to pay claims after Hurricane Katrina.

The special investigation by Legislative Auditor Steve Theriot found that Citizens and related entities spent more than $1 million between 2004 and 2006 on travel, meals and entertainment even though Citizens isn't supposed to be recruiting business as an insurer of last resort.

The impact of the report may largely hinge on whether Citizens and its related entities are rendered public or private organizations.

The report details golf outings, fishing excursions, quail hunts, football tickets, gifts, airline tickets, hotel rooms and trips to Bermuda, New York and the beach in Alabama that were billed to the public through Citizens, the Property Insurance As! sociation of Louisiana and Louisiana Automobile Insurance Plan.

It also describes improper bonuses and severance packages, and hiring family members and lobbyists.

Theriot's inquiry places blame on Terry Lisotta, the former head of the agencies, who could not be reached for comment Monday and who declined to make written comments on the report.

"By claiming expenditures he did not incur and by expending public funds for personal purposes, Mr. Lisotta may have violated state and federal laws," Theriot wrote, citing state laws on theft, filing false public records, malfeasance and federal codes on embezzlement and misappropriation.

The situation is made worse, Theriot said, because property owners across the state will see special assessments for years to come because Citizens didn't have enough money to pay claims when Katrina hit.

Until recently PIAL, a fire-rating agency, provided all the staff for Citizens and accounted for most of i! ts expenditures; and LAIP, auto insurer of last resort, held L! isotta's contract even though it accounted for only a tiny portion of his responsibilities. Citizens has not been able to balance its books since Hurricane Katrina because of a massive computer crash. An effort to reconstruct the records is supposed to be completed later this year.

Theriot, who was out of the office and unavailable for comment Monday, said he has sent copies of his work to Jim Letten, U.S. attorney for the Eastern District of Louisiana, and to Paul Connick, district attorney for Jefferson Parish, where the offices of Citizens and its related entities are located.

Letten said he hasn't seen the report and was unable to comment. Connick's office confirmed that it had received the report, but said it was unable to comment.

The report comes amid Insurance Commissioner Jim Donelon's run for re-election. The insurance department does not have direct control over Citizens and the other agencies, but it has appointees on each board.

Donelon s! aid he found the abuses "egregious" and has taken steps to correct them by installing new management at Citizens and encouraging the groups to operate in a more transparent way.

"I'm pleased to say that we have aggressively addressed those issues, and I'm totally confident that we have the checks and balances in place, and the people in place, -- to prevent that type of activity in the future," Donelon said.

The ramifications of the report may ultimately hinge on whether Citizens and the other entities are deemed to be public or private.

According to the report, Lisotta told Theriot's auditors that the three agencies operated without regard to the state laws that govern public agencies because lawyers for the group advised him that the groups were private entities.

At Donelon's urging, new management at Citizens and LAIP have asked Attorney General Charles Foti for opinions about whether they are public, private or something in between.

!

Two weeks ago, Theriot issued a report saying that PIAL was! public, but on Friday the group filed suit in Baton Rouge challenging that finding.

PIAL Attorney A.J. Herbert said whether any laws were broken depends on whether the groups are considered public or private.

"Some of the expenses that the auditor has questioned would likely to be questioned if you're public or private," Herbert said, "but a great many of them hinge upon whether you're public or private."

Lisotta expenses in question

Of the $1,040,731 that Citizens, PIAL and LAIP spent from 2004 to 2006, Lisotta "was reimbursed and/or spent" more than a quarter of that, or $264,245.

Theriot audited only 10 percent of that figure, or $25,702, and found that in each instance "Lisotta was reimbursed for expenses he did not incur, expenses that did not have a legitimate public purpose and expenses that were personal expenditures."

More than half of Lisotta's expense reports either weren't signed by a board member or were signed after Liso! tta had reimbursed himself. "Because of poor record-keeping, we cannot confirm his total expenditures," Theriot wrote.

Examples of lavish expense-account spending and poor auditing controls abound.

In February 2004, for example, Lisotta and then-Citizens Chairman Chris Faser flew to London on a reinsurance trip via Bermuda and New York. Lisotta billed LAIP $1,219 for his wife's airfare to Bermuda and New York and didn't pay it back. In Bermuda for the weekend when they weren't working, the Citizens reinsurance broker arranged for Faser to go fishing and for Lisotta to play golf. Lisotta billed PIAL for the golf and bought cigars.

Records indicate that Lisotta spent at least $1,631 in public money for personal business on the trip.

In September 2004, LAIP paid $600 for Lisotta to enter the Wally Pontiff Jr. Foundation Golf Classic. Lisotta was reimbursed $660 and then $720 for participating in the tournament. Even the original entry fee doesn'! t count as a "legitimate public purpose," according to Theriot! .

< p>The outing included former Louisiana Insurance Rating Commission member Steven "Rock" Ruiz, who declined to respond to the findings of the report.

In October 2004, Lisotta billed his employer $749 for a trip to Gainesville, Fla., to see a Louisiana State University football game with Insurance Department Chief of Staff Chad Brown, even though no business was conducted during the trip.

In written comments on Insurance Department stationery, Brown says that he paid for his own hotel stay and didn't know that Lisotta had billed taxpayers for his; Brown said that Theriot impugned his character by mentioning him in the report.

During the 2005 Mardi Gras, Lisotta billed LAIP for two hotel rooms at the Avenue Plaza Hotel in New Orleans for his daughters, and a room for himself at the Hotel InterContinental for a total of $3,227.56, and was reimbursed for $858.27 in expenses that he didn't incur, according to the report.

Lisotta also helped his daug! hter Rachel in July 2004 meet her cheerleading squad fundraising goal of selling 200 Zephyrs baseball tickets by buying 100 of them for a "staff function." The tickets then were distributed to PIAL employees.

Lisotta used his PIAL credit card to pay for trips in May and July 2005 for his daughter Megan to go to New York, where she attended New York University.

In the summers of 2004 through 2006, Lisotta's daughters earned $5,430 as part-time employees of PIAL, and sometimes worked from home without signing time sheets. An agency head is not supposed to employ immediate family members, the report says.

More problems within

Problems existed elsewhere as well.

In 2004 and 2005, LAIP spent $45,851 for annual meetings in Sandestin, Fla., that had been held since 1978 for "bonding, socializing and strategizing" purposes.

People in the information technology department spent $2,900 in public money for personal purposes, according to! the report.

Bonuses totaling $180,299 were paid by PI! AL to se nior management and other employees, a move that the report says may have violated the state Constitution. In addition, salary increases weren't properly documented.

The report also says that a severance package of $47,850 was paid to Caryl Mathes, former chief operating officer for PIAL and acting chief financial officer for Citizens, another violation of the state Constitution.

The agencies also paid $381,264 in property taxes to Jefferson Parish, even though public entities don't have to pay taxes.

Citizens has paid PIAL $1,248,351 for equipment, but ownership of the assets has not been transferred to Citizens.

In May, PIAL hired the law firm of Adams and Reese LLP as its lobbyist. Adams and Reese employs former Insurance Commissioner Robert Wooley, who had set up Louisiana Citizens.

Full audit predicted

Sen. Tom Schedler, R-Mandeville, chairman of the Legislative Audit Advisory Council, said he's not surprised that PIAL is c! hallenging the designation that it is public, because it's the only way out of the audit findings that could expose it to legal action.

Schedler said his group meets Wednesday and will probably ask the legislative auditor to perform a full audit of the group in light of the concerns raised in the report.

Schedler believes the report could spur the new governor and new Legislature to take another look at Citizens and its structure.

"I almost think they have to start from square one with this thing. I think they need to start from scratch," he said.

Rebecca Mowbray can be reached at rmowbray@timespicayune.com or (504) 826-3417.

Source: http://blog.nola.com/times-picayune/2007/10/citizens_audit_reveals_fraud_a.html
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