Audit projects Risk Management to save $22 million

Privatization of the state’s self-insurance program is on pace to meet $22 million in projected net savings over five years, according to a legislative auditor’s report released Monday.

Three years into F.A. Richard & Associates’ handling of the business, the net savings total hit $15.9 million, just over 70 percent of the Office of Risk Management contract goal, the performance audit said.

“They are making progress,” said Emily Wilson, manager of Performance Audit Services.

The legislative auditor’s report reviewed the first three years of operations, through June 30, 2013.

The $22 million is the net savings anticipated after contract cost, claims and litigation payment savings as well as administrative and other costs savings are figured in.

The Jindal administration awarded FARA a five-year contract that began July 1, 2010, to privatize the state’s lines of insurance and loss prevention services, including workers’ compensation, medical malpractice, road hazard and auto liability-physical damage.

FARA guaranteed the state $50 million in claims and litigation savings over the five years. So far, the auditor said FARA has achieved approximately $34.2 million.

The legislative auditor said the savings got a boost in year three of the contract, as $13.5 million in savings from workers’ compensation claims were added to the calculation. That year, FARA received approval from Risk Management to start settling more workers’ compensation claims. Without that, the savings would have been only $20.7 million, the auditor said.

“They still have two more fiscal years to meet the $50 million,” Wilson said.

Wilson said the addition of the new type of claims savings was noted in the report to point out “what the savings would have been if they had not been that aggressive.”

The auditor put three-year FARA contract expenses at $30.2 million and Risk Management administrative savings at approximately $11.9 million of the $40 million needed to achieve the $22 million, five-year goal.

“ORM continues to monitor and pursue efficiencies in all aspects of its operations in order to reduce costs,” Office of Risk Management Director Bud Thompson wrote in response to the audit. In addition, he said, contract payments are “significantly lower” than originally projected.

“We are proud of what the program has achieved so far and will continue working toward a successful conclusion of the project,” Thompson said.

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