Audit Finds New Problems in Workers’ Comp System

Los Angeles’ troubled workers’ compensation system, which has been undergoing a major overhaul for more than a year, is not yet out of the woods, according to a city controller’s audit released Thursday.

City Controller Rick Tuttle said the audit, conducted in the wake of a highly public 1994 scandal, reinforced the findings of several earlier studies and “discovered several new areas of concern.”

Among the new revelations is evidence that the city may have lost $1.1 million through unnecessary payments because it was slow to start injured employees in vocational rehabilitation programs. Based on a review of eight cases, the audit found that delays ranged from 16 to 91 weeks, adding to the time employees were off work and on the workers’ compensation rolls.

Other findings included a lack of separation of duties, management laxity in insisting on full documentation of claims, payments of bills for ineligible injuries and failure to implement earlier audit recommendations.

The Personnel Department, which oversees the workers’ compensation program, has been striving to revamp the system since revelations of a major fraud ring involving a department employee caused a sensation in mid-1994. Until then, a series of warnings that the system was badly flawed had largely been ignored.

Earlier this year, Mayor Richard Riordan and Councilman Joel Wachs won City Council approval to hire private firms to handle claims filed by uniformed police and Fire Department employees. Claims by these workers represent about half the cost of the city’s $55-million workers’ compensation system.

In addition to lightening the Personnel Department’s caseload, the move will help gauge whether private firms can do a better job at lower cost, supporters said. Studies commissioned by the mayor’s office found that the city’s system costs were up to four times higher than those of other government agencies.

The city is just beginning to turn over much of its workload to outside firms and is in the process of hiring additional employees to improve oversight of claims, Tuttle noted.

“These structural changes, and increased attention by management to the need for better employee training and internal controls, should go a long way to saving the city millions of dollars in unnecessary costs,” Tuttle said.

But he expressed frustration at the pace of the reforms.

“We’ve been pounding away on this for some time now, and there are still problems. Internal controls are still weak,” Tuttle said. Until the department fully embraces all the recommendations for change, “the opportunity for fraud will continue and waste will remain.”