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NEWS RELEASE
For Immediate Release
Contact: Steve Halvonik 717-787-1381
Report Text

Auditor General Jack Wagner Finds Procurement Violations
During Investigation of State Workers’ Insurance Fund

HARRISBURG, (April 17, 2008) – Auditor General Jack Wagner today called on the Department of Labor and Industry (L&I) to improve its oversight of the State Workers’ Insurance Fund (SWIF) after a special investigation completed by his department revealed that SWIF violated state procurement laws and guidelines when it paid $2.9 million to two “emergency” contractors to process payments for medical services provided to injured workers who were insured through SWIF.

Wagner said that the procurement of emergency contractors is limited to 90 days, with a possible 90-day extension if such an extension is needed to secure the services of a qualified vendor through the state’s competitive request-for-proposal (RFP) process. However, by claiming the “emergency” exemption from competitive bidding, SWIF retained two emergency contractors for extended periods of time – a total of 18 and 19 months, respectively – between March 2005 and October 2006.

“We are not questioning whether there was an emergency that justified SWIF’s initial decision to use emergency contractors, but rather how SWIF went about procuring such services,” said Wagner. “The use of emergency contractors for periods considerably beyond the norm may limit opportunities for other qualified firms to obtain state contracts, including disadvantaged or minority- or women-owned business enterprises.”

Wagner noted that evidence gathered during the investigation indicated that the Department of General Services (DGS), which oversees procurements by state agencies under the jurisdiction of the governor, agreed that SWIF and L&I had not handled the contracts appropriately.

The investigation also found that SWIF awarded the two no-bid contracts without appropriately documenting the basis for the emergency, the identity of the emergency contractors, the price of the emergency services, the basis for the selection of the contractors, and the reasons for rejecting competitive proposals submitted in response to an RFP, as required.

SWIF administers a workers’ compensation insurance program for Pennsylvania businesses that do not choose private insurance companies to meet the requirements of the Pennsylvania Workers’ Compensation Act. SWIF, which is headquartered in Scranton, is administered by the State Workers’ Insurance Board and managed on a day-to-day basis by a director within L&I. SWIF is the largest provider of workers’ compensation insurance in the Commonwealth and has underwritten over $1.8 billion in insurance premiums from 2003 through 2007. As a state agency, SWIF is required to comply with DGS’s procurement policies and procedures.

The Department of the Auditor General’s Office of Special Investigations initiated this investigation following a complaint received from an unsuccessful bidder that alleged numerous procurement violations by SWIF in the awarding of the contracts at issue. “Our findings and recommendations are intended to address systemic issues that exist beyond this particular complaint,” explained Wagner.

Investigators found that a total of three RFPs were issued to find a contractor to provide medical billing services. All three RFPs were then canceled and subsequently filled through the use of emergency contracts. Although investigators could not take into account the quality of services provided, they found that SWIF may have spent $197,546 more than it would have if it had adhered to the RFP process and awarded the contracts to the complainant.

“As auditor general, I am responsible for making sure that state agencies handle taxpayer dollars appropriately and effectively,” Wagner said. “We will follow-up at the appropriate time to determine whether all of our recommendations have been implemented.”

Wagner made seven recommendations to L&I and SWIF, including:


  • Limit the use of emergency contractors to 90 days, with a possible 90-day extension if such an extension is needed to secure the services of a qualified vendor through the RFP process;
  • Refrain from the extended use of emergency contractors and attempt to contract for services at lower costs through the RFP process;
  • Maintain the required documentation for all future rejection of competitive bids and uses of emergency contractors; and
  • Provide written notice to each unsuccessful bidder setting forth the reasons for rejection.

Because the investigation required a review of certain procurement policies and procedures under the responsibility of DGS, Wagner also provided several recommendations for that agency to improve its oversight of state procurement issues.

A complete copy of Wagner’s report, including a response from L&I and SWIF, is available at www.auditorgen.state.pa.us.

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits, and special investigations. The Department of the Auditor General conducts approximately 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.

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