Theft-insurance premiums waived
Posted on Sunday, November 30, 2008
Next year, for the second year in the past three, state and local governments won’t have to pay premiums to a state selfinsured program that provides bond coverage for the theft of money, securities or property by their employees.
Called the Self-Insured Fidelity Bond Program, it was created under Act 728 of 1987 to provide coverage on state, county, municipal and school district officials and employees and to save governmental entities money.
More than 1, 000 entities now are under the program, which covers actual losses suffered through any fraudulent or dishonest act committed by any official or employee, acting alone or in collusion with another.
Coverage is up to $ 250, 000 with a $ 1, 000 deductible per occurrence, said Alice Jones, a spokesman for the state Department of Insurance, which manages the program.
The program was created to provide coverage in lieu of blanket bonds that were required for various public officials and employees.
“It’s been a big tax saver,” said Don Zimmerman, executive director of the Arkansas Municipal League.
Insurance Commissioner Julie Bowman, who is chairman of the five-member Governmental Bonding Board that administers the program, said the board voted unanimously in October to waive premiums for 2009.
An economic downturn is under way, state revenue is projected to decline, and the board’s vote will assist state and local governments by eliminating that cost item for a year, she said.
The savings to state and local governments will be about $ 300, 000.
In October 2006, the board also waived premiums for 2007. It did so because it believed the program was fiscally sound and the board also wanted to provide some relief to state and local governments at that time, Bowman said.
Only in 2007 and 2009 has the board waived premiums in the program’s history, said Jones.
The program’s fund balance exceeds $ 3. 8 million. From 1988-2008, the program collected $ 5. 7 million in premiums and paid out $ 4. 5 million in bond payments, Jones said. Interest earned from investment of the funds totaled $ 1. 5 million, she said.
Courts ordered $ 3. 1 million in restitution. Of that, $ 1 million has been received and $ 563, 182 is no longer being sought because it is deemed to be uncollectible, she said. That leaves a balance of $ 1. 5 million of restitution owed, she said.
Premiums are based on, among other things, the number of employees of each governmental entity, its total number of losses paid during the past five years, and its losses paid minus any restitution received during the past five years, she said.
The highest premium charged to a governmental entity for the 2008 policy year was $ 15, 301. 60 to the University of Arkansas for Medical Sciences, Jones said.
About a dozen state agencies with one employee were charged the lowest amount, $ 2. 02, she said.
The five largest bond payments in the 20-year history of the program, Jones said, were: $ 249, 000 to the University of Arkansas in 1991. This payment resulted from an audit that said football concession sales were not deposited into a bank account. $ 249, 000 to the state Highway and Transportation Department in 2003. This payment was made after an audit said the section head of permits fraudulently sold oversize and overweight permits to trucking companies. $ 188, 670. 37 to the Department of Health and Human Services in 2004. An audit said an employee with the adoption assistance program inappropriately disbursed funds to her daughter. $ 161, 680. 91 to the city of Bradley in 2006. An audit identified “possible misappropriations” in the city’s water and sewer fund. $ 157, 646 to the city of Smackover in 2006. An audit said a former clerk acknowledged responsibility for water and sewer funds not being deposited.
The most the program paid in a single year was $ 653, 901 in 2003, according to program records. Beyond the $ 249, 000 to the Highway Department that year, the program, among other things, paid $ 86, 321 to West Memphis, $ 75, 061 to Brinkley, $ 74, 203 to Dumas and $ 57, 558 to Arkansas Tech University.
Since then, the program has made payments of $ 502, 482 in 2004, $ 132, 468 in 2005, $ 490, 311 in 2006, $ 246, 420 in 2007, and $ 292, © so far this year.
In 1990, the program paid out the least for a year, $ 47, 909. 61, including $ 18, 657 to the Quitman School District and $ 10, 934 to the University of Arkansas.
Besides the insurance commissioner, the president of the Association of Arkansas Counties (Johnson County Judge Mike Jacobs ), the president of the Arkansas Municipal League (Lake Village Mayor JoAnne Bush ), the director of the state Department of Finance and Administration (Richard Weiss ) and the director of the state Department of Education (Ken James ) sit on the board. State law requires the board to meet at least quarterly.
The program is a cooperative effort involving the Legislative Audit Division, the state treasurer’s office, prosecuting attorneys, and the Risk Management Division of the state Insurance Department.
With the approval of the Legislative Joint Auditing Committee, the legislative auditor is responsible for giving notice and proof of loss to the board on behalf of any public official, officer or employee when an audit reflects apparent unauthorized disbursements or unaccountedfor funds or property for which that person may be liable.
The board determines whether the loss is covered.
The legislative auditor is required to ask the appropriate prosecuting attorney or the attorney general to assist the state or governmental entity in obtaining restitution. Full restitution is required in any criminal prosecution when the official pleads guilty or no contest or is convicted.
The court also is required to order restitution for the audit investigation costs.
The state treasurer invests the program’s funds, the state Department of Finance and Administration collects the premiums, and the Risk Management Division for the Insurance Department manages the program.
Bowman said the program has “absolutely” worked as it was intended when created two decades ago.
Prior to this program, fidelity bond coverage was generally for specified government positions with a low limit of coverage, she said.
The premiums are significantly lower than what is available from the commercial market and the program provides broader coverage, protecting entities from theft by any employee, Bowman said.
The program doesn’t cover public officials’ faithful performance of their duties, nor does it cover malfeasance other than theft, Jones said. Justin Allen, chief deputy attorney general, said, for example, that the fidelity bond doesn’t cover when somebody is harmed by a public official or employee’s legal actions and is entitled to damages. In those cases, people make claims against the state in lawsuits, some of which are filed in state courts and some in federal courts. Others file claims with the state Claims Commission due to the state’s sovereign immunity, Allen said.
Where such claims are filed depends on the facts involved in the claim, Allen said.
Allen and Jones said they’re not aware of any state bond or insurance policy that covers misconduct by a public official or employee other than theft.
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