Citizens Audit Committee Meeting Report

Recently, Citizens Property Insurance Corporation (“Citizens”) held an Audit Committee (“Committee”) meeting to discuss the Open Items Policy, management letter comments from the external auditor and an update on Citizens’ Office of the Internal Auditor (“OIA”). To view the complete agenda, click here.

The meeting was called to order by Chairman Earl Horton with Committee member Richard DeChene presiding. Also in attendance were:

• Scott Wallace, Citizens’ President
• David Emery, Citizens’ Executive Vice President of Insurance Operations
• Joyce Bellows, Citizens’ Chief of Internal Audit
• Beth Brenneis from Carr, Riggs & Ingram (“CRI”), Citizens’ external auditor

Ms. Bellows provided an update on the OIA. Since the Committee’s April meeting, the OIA has completed several tasks, including:

• Hiring of a Senior Financial/Operational Auditor
• Open Items Policy and Procedures
• Open Items Report update
• Final resolution of the anonymous complaint
• Claims Task Force document request
• Audit Announcement memorandums for upcoming internal audits and management advisory services

To view the OIA update, click here.

Among other initiatives, the OIA is primarily implementing the 2008 Audit Plan. Other projects underway include the evaluation of an automated audit workpaper system and OIA investigation procedures.

Ms. Bellows then presented the OIA Open Items Policy for review and approval. Its main components include:

• Purpose and scope
• Acceptable documentation to close open items
• Non-reportable items
• Target date extensions
• Escalation of past due items
• Quarterly reporting

To view the Open Items Policy, click here. The Committee approved the Open Items Policy.

From 2003-2007, there were 302 open audit issues. As of March 31, 2008, 95 percent of those items have been resolved, leaving a total of 15 open items from the following external sources:

• The Auditor General
• Department of Financial Services Market Conduct Examination
• Carr, Riggs & Ingram
• HuffThomas

The OIA will monitor these open items until Management has provided documentation that corrective action has been taken.

Ms. Brenneis provided comments on the management letter. To view a copy of the letter, click here.

During its financial audit, CRI found no significant weaknesses or material problems, as detailed at the last Committee meeting. CRI did, however, find three areas for potential strengthening of internal controls and operating efficiency. These are:

1. Review and Approval of Endorsements to Policies

   Several underwriting errors were discovered as a result of using the incorrect wind zone. To correct this problem, Citizens’ Commercial Underwriting department implemented training procedures on applying the correct zones and purchased County maps for each regional office to assist in determining where a property is located.

2. Reconciliation of Investment Accounts

   An account was discovered with approximately $7.7 million in investments held at Regions Bank that had not been recorded in Citizens’ general ledger. These investments were part of the funds associated with the 1997 HRA bonds, which were paid off. However the remaining funds were never transferred. CRI recommends that Citizens’ staff reconcile all trustee statements at least quarterly to ensure no errors have been made and that all investments have been properly and accurately recorded.

3. Reserves for Reported Claims

   It was noted that in some instances, large loss payments were made subsequent to a claim’s closing. There also were instances in which claims had been left open that should have been closed. Inconsistencies also were noted among adjusters for the development of reserves, particularly with respect to claims that are in dispute. CRI recommends that documented procedures be developed and followed regarding policies for reserving, as well as a requirement for monthly follow-ups and reporting to supervisors on the status of open claims be implemented.

The meeting was then adjourned.

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

To unsubscribe from this newsletter, please send an e-mail to ccochran@cftlaw.com