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Mo. Audit Criticizes State-created Insurance Firm

DAVID A. LIEB

JEFFERSON CITY, Mo. (AP) â¿¿ A state-created insurance company has built a competitive advantage by enjoying a best-of-both-worlds scenario â¿¿ avoiding federal income taxes by claiming to be a public corporation yet generally operating as a private entity and shelling out big bucks for executive perks, according to a report Monday by the Missouri auditor.

The federal tax-exempt status has saved Missouri Employers Mutual Insurance Co. an estimated $50 million since it was created under a 1993 state law, helping it to build a surplus of more than $160 million and become a dominant workers' compensation insurance provider in Missouri, Auditor Tom Schweich said. The Columbia-based firm qualifies for the tax break by categorizing itself as an "independent public corporation."

But MEM denies it is a public entity subject to Missouri's open-records-and-meetings law or the state auditor's office. Schweich recommended that lawmakers clarify whether it is appropriate for MEM to continue as a "public corporation" and, if so, whether restrictions should be imposed on employee pay and expenses.

"It is sort of a situation of having your cake and eating it too, but it's not illegal as long as the Legislature wants that," Schweich said.

The company said in a written statement attached to Schweich's report that it voluntarily agreed to a one-time review by the auditor's office "to clearly demonstrate that the company has proper internal controls in place."

Although Schweich's review found no significant problems with the company's internal controls, it said the company needs to improve its management practices. Schweich cited several cases of employee salaries, bonuses, severance payments, expenses and junkets that he said would be excessive or unreasonable for a public entity. For example, the company:

â¿¿ Paid nearly $1.6 million in severance or settlement payments to four former employees who resigned or were fired in 2009 or 2010 under employment agreements that Schweich said may have violated the Missouri Constitution.

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