Reform Retro!

This was noted in the BIAW Response to the 2008 PDC complaint in which they stated that they took a 10% cut with the other 10% going to the local BIAW affiliate. In reality the entire 20% goes back to BIAW shell PAC’s. But at least the BIAW statement of $5.5 Million in income in 2007 and $4.4 million in income in 2008 to the PDC can be used to determine 2007 and 2008 total Retro Refunds. They must have been $55 million in 2007 and $44 million in 2008.

Using the 10% rule, we can calculate the total Retro Refund for 2007 and 2008:

BIAW Retro Program, Best Guess 2002 to 2008 (in $ Millions)

Source: WA ST B&I Retrospective Rating Program, Refund/Assessment Summaries, July 1st http://www.lni.wa.gov/ClaimsIns/Insurance/Reduce/Qualify/FinInfo/default.asp

2007 and 2008 determined using 2008 PDC complaint Declaration from BIAW.

Thus the total BIAW Retro “Refunds” (which were really tax payer over-payments) during the past 7 years were $286 million. The refunds should have totaled $30 million meaning the cost to the tax payers for this 7 year period of time was $256 million or about $35 million per year in overpayments. 

But there is another even more credible source of information about BIAW income and that is from a study done by a University of Washington Associate Dean of the School of Business. This fellow is also an MBA , a CPA and Professor of Accounting at the UW. He used BIAW tax returns obtained as part of yet another lawsuit filed against the BIAW in March 2009, this time in Thurston County Superior Court. See Declaration of Professor Stephan Sefcik, http://www.smithandlowney.com/biawtrust/SefcikDeclaration.pdf).

The professor spent 20 pages trying to explain the complexity of the BIAW accounting systems and their failures to balance (being off by millions of dollars). The tax returns claim BIAW income was lower which is surprising since the professor also described additional interest payments not included in the PDC or L & I data. The interest payments are also tax payer money because the interest is from millions of dollars of tax payer money in BIAW accounts.

The Associate Dean of the UW School of Business professor was extremely critical of BIAW book-keeping practices. On page 18 of his 29 page Declaration, after spending many pages describing millions of dollars in errors and dozens of inconsistencies in the BIAW books and records, (the result of his six week investigation of BIAW books), the professor said:

“I sincerely doubt that these calculations could be deciphered and understood by anyone except the (BIAW) staff members who prepared them, and the documents suggest that even they do not fully understand and trust these calculations. Such calculations could easily conceal errors and further breaches of trust. Overall, I am left with the impression that there is considerable “slop” in the trust bookkeeping and little assurance of the accuracy of trust accounting. A comprehensive and independent accounting is necessary to determine the accuracy of the calculations and accounts. “

(See Declaration of Dr. Stephan Sefcik, BIAW TRUST lawsuit, March 19, 2009 http://www.smithandlowney.com/biawtrust/SefcikDeclaration.pdf).

The professor’s Declaration made me feel better about my own difficulty in understanding the BIAW money transfers. Things were apparently so complex that, in an effort to confuse everyone else about where their money was coming from and going to, BIAW also confused their own bookkeepers!

The following chart compares BIAW Retro Income (which when multiplied by 10 equal total BIAW Retro Refunds) from L& I versus 2008 Complaint versus 2009 lawsuit (which included BIAW tax returns from 2004 to 2007): (all in $ Millions)

Comments on Best Guess Estimate of Retro “Refunds”:

Normally I would go with the Tax Return as the Best Guess Estimate. But given BIAW failed to report correct income and expenses to the PDC, it is also likely that they failed to correctly report income and expenses to the IRS. It appears that BIAW under-reported their 2004 income by $2 million and their 2005 income by about $1.5 million for a total shortfall of about $3.4 million dollars. Because I trust the L & I bookkeepers more than the BIAW bookkeepers, I went with the L & I data for 2002 to 2006 and the PDC Complaint data for 2007 and 2008. But I am showing the tax return data in case you want to use that instead and also to show that it is not easy trying to figure out what is going on at BIAW. Like the UW professor, I have very little confidence in any of these figures.