JEFFERSON CITY A workers’ compensation company created by the state to help small businesses doled out millions of dollars in bonuses and perks to its executives, Missouri Auditor Tom Schweich said Monday.
Schweich also confirmed that a federal investigation is ongoing into $8,000 in political contributions made by the company — Missouri Employers Mutual Insurance — to the state Democratic Party, first reported last September by The Kansas City Star.
The audit found that, because of its federal tax-exempt status, the company has saved an estimated $50 million in taxes and amassed a more than $160 million surplus.
But while reaping the rewards of being a tax exempt “independent public corporation,” the Columbia, Mo.,-based firm does not comply with Missouri’s open records laws and is compensating employees at rates in excess of public-sector agencies, Schweich said.
“Basically, they claim they can have their cake and eat it, too,” he said.
Officials for the company maintain that it is not a traditional public agency and defended its spending.
“The state law that created us says we’re an independent public corporation, but not a state agency,” said James Owen, chief executive officer. “That’s in the statutes.”
Company officials also insisted that its compensation and expenses are “reasonable and necessary.”
The audit found that, in 2010 alone, the company spent more than $300,000 for an all-inclusive retreat to Hawaii; $80,000 for tickets and tailgating at University of Missouri athletic events; $80,000 on such functions as golf outings and retreats, and $17,000 for St. Louis Cardinals tickets — some of which went unused.
Company executives received other perks, including the use of company automobiles, five weeks paid time off, and paid dues for professional societies and athletic clubs.
The insurance company also paid $1.58 million in severance benefits to four former executives and employees who resigned or were terminated in 2009 and 2010. Such payments would be illegal if the company was a public-sector entity, the audit said.
Schweich would not divulge the names of executives who had received severance packages. And he would not reveal which former top executive received $8,000 to cover personal legal fees.
“Even if it’s a private entity, we believe several payments would be considered excessive and unreasonable,” he said.
Owen countered that those expenses “in an operation of our size … would be deemed by an auditor as immaterial.” But he added that the company has set up procedures to make sure those types of expenses don’t happen again.
Company officials said they uncovered the questionable practices Schweich cited in the audit through an internal investigation and turned that information over to his office.
The General Assembly set up the company in 1993 to spark competition and lower workers’ compensation premiums for employers, especially small businesses. The state provided a start-up loan of $5 million, which was repaid in 1999 with interest.
Schweich said the General Assembly now must determine whether Missouri Employers Mutual should continue to maintain its tax-exempt status and, if so, whether there should be restrictions on employee compensation and if it should be subject to the state’s Sunshine Law.
Sen. Jim Lembke, a Lemay Republican who chairs the Senate Governmental Accountability Committee, filed legislation last month that would require the company to transition into a private mutual insurance company by January 1, 2014.
The company began attracting attention after its former chairman, Doug Morgan of St. Louis, was indicted on unrelated federal bank fraud charges last April. Former company board member Karen Pletz was named in a separate 24-count federal indictment last March alleging theft, fraud and money laundering while president of the Kansas City University of Medicine and Biosciences.
Both Morgan and Pletz died last year.
In June, the insurance company fired its chief executive officer, former Missouri Gov. Roger Wilson, without explanation, although the audit noted that Wilson “resigned.”
By September, sources revealed to The Star that the FBI had launched an investigation into an $8,000 donation to the state Democratic Party to determine whether it was actually made by a St. Louis law firm and reimbursed by either Wilson or by Missouri Employers Mutual at his direction.
Schweich said he could not comment on the donation other than to confirm a federal investigation is ongoing. Wilson could not be reached for comment Monday. Last fall, he declined comment on the FBI probe.
In response to that controversy, the company agreed to a one-time audit by Schweich’s office.
Owen said the insurance company has asked that the $8,000 donation be returned “and it’s still in process.” Owen would not reveal who had been asked to make the reimbursement.
As part of the audit, Missouri Employers Mutual released minutes from the past two years of its board of directors meetings, but they were heavily redacted to exclude what company officials called “confidential, proprietary, personnel and attorney-client privileged information.”
Spokesperson Jennifer Peck said by email that she assumed any references to donations or political contributions “would have been redacted for one of two reasons: attorney-client privilege and/or confidential personnel matters.”