AuditOfWCLegalUnit Lacityp 012006

Performance Audit of the Los Angeles City Attorneys Workers Compensation and Subrogation Program
Submitted to the
City Controller
Of the
City of Los Angeles

by
Harvey M. Rose Associates, LLC

1390 Market Street, Suite 1025 San Francisco, CA 94102 (415) 552-9292 (P) (415) 252-0461 (F) http://www.harveyrose.com
October 12, 2010
Table of Contents
Transmittal Letter Executive Summary .................................................................................................... i Controllers Accountability Plan ................................................................................x Introduction .................................................................................................................1 1. 2. 3. 4. 5. 6. 7. 8. Strategic Management ................................................................................................9 Budget and Organizational Transparency .................................................................19 Information Technology ...........................................................................................30 Workload and Performance Measurement................................................................41 Litigation Management .............................................................................................52 Fraud Detection and Investigation ............................................................................63 Subrogation Recoveries ............................................................................................72 Outside Counsel Selection and Oversight.................................................................79 Appendix A: Ranking of Recommendations ......................................................... A-1
October 12, 2010
Wendy Greuel City Controller City of Los Angeles 200 North Main Street, Room 300 Los Angeles, CA 90012
Dear Ms. Greuel: Harvey M. Rose Associates, LLC is pleased to present this Performance Audit of the Los Angeles City Attorneys Workers Compensation and Subrogation Program. The audit was conducted to evaluate the efficiency, effectiveness and economy of the City Attorneys management and oversight of workers compensation claims, including the use of outside counsel and investigations of possible instances of fraud. Thank you for providing our firm with the opportunity to conduct this audit for the City of Los Angeles. Pursuant to your request, we are available to present the report to the City Council or other responsible City officials.
Sincerely,
Stephen Foti Project Manager
Performance Audit of the Los Angeles City Attorneys Office Workers Compensation and Subrogation Program
EXECUTIVE SUMMARY
Background
The Los Angeles City Attorneys Office is responsible for defending the City in all litigated workers compensation claims brought before the State Workers Compensation Appeals Board (WCAB). Of the approximately 8,400 new claims filed in the City each year, we estimate that between 500 and 1,000 have historically been opened for litigation. Of the 15,392 litigated claims included in the City Attorneys litigation database at the time of this audit, 3944 were coded as open (approximately 25.6 percent). However, because closed cases may also have activity after settlement is reached, the 3,944 open cases is a conservative estimate of the Workers Compensation Divisions total active caseload during the period of the audit. Supplementing its litigation defense role, the City Attorneys Office also provides legal counsel to the Personnel Department and other City departments, as well as training and advice on workers compensation claims matters. In addition, all settlement proposals on litigated claims and matters referred for trial are referred to the City Attorneys Office for review and approval. The City Attorneys Office oversees outside counsel and investigates cases of potential workers compensation fraud; and is responsible for pursuing subrogation matters involving workers compensation claims, as well as other matters where a third party may bear some liability for worker injury or damage to City property. The scope of this performance audit was limited to those workers compensation and subrogation functions performed by the City Attorneys Office. However, because of the interrelationship between the City Attorneys Office, the Personnel Department, and a third party administrator (TPA) with which the City contracts for the processing of workers compensation claims filed by uniformed employees of the City, certain processes and activities conducted by both Personnel and the TPA were also reviewed. Within this context, the audit principally evaluates the management systems that have been established by the City Attorneys Office to ensure that the City Attorney, other City officials and the professional law office managers within the City Attorneys Office can continuously and effectively evaluate, monitor and improve upon the services that are provided. The performance audit does not examine or offer opinions on any aspect of the practice of law within the City Attorneys Office.
Executive Summary
Lastly, it is important to note that the current City Attorneys term of office began in July 2009. Therefore, many of the policies, procedures and practices of the Workers Compensation Division and Subrogation Unit had been developed and implemented prior to the beginning of the current City Attorneys term. Further, the evaluation of claim activity, data management, general record keeping, and other topics examined during the period of the audit primarily covered services provided during the prior administration. With this performance audit report, it is our intention to provide an independent assessment of the two programs reviewed, so that the current City Attorney has information and perspectives that can be used to develop a roadmap toward improving these important services. The audit was initiated by the City Controller to evaluate the efficiency, effectiveness and economy of the City Attorneys management and oversight of workers compensation claims, including the use of outside counsel and investigations of possible instances of fraud. The performance audit was designed to evaluate: 1) existing strategic management tools; 2) the organization structure; 3) the transparency and accountability of the Workers Compensation Division and Subrogation Unit staffing and budgeting decisions; 4) information technology systems and practices; 5) approach to workload and performance management, as well as an assessment of data limitations; 6) overall performance, given available data and technical limitations; 7) the investigation of alleged fraud in workers compensation claims; 8) efforts to secure workers compensation third-party recoveries; and, 9) outside counsel contracting practices. The following discussion summarizes the results of these performance audit efforts.
Summary of Results
The performance audit addresses each of the audit objectives in the eight findings developed for this report. Overall, we found that the City Attorneys Office has not effectively managed its workers compensation activities. For example, the audit found that the City Attorneys Office has not developed the basic management tools needed to define its mission or to guide Workers Compensation Division and Subrogation Unit staff to ensure City resources are spent wisely. The absence of effective management oversight resulted in some attorneys routinely performing administrative tasks, and legal clerks and secretaries not consistently sharing tasks or responsibilities across work teams. Further, budget accountability and transparency has been weak, allowing the City Attorneys Office to flexibly use personnel within its broader organization, even though some positions were specifically approved and funded by the City Council to support workers compensation related activities. As demonstrated in the audit report, many of the positions authorized by City Council resolution authority have not been used for the purposes stated in the budget justification, including attorney and investigator staff authorized by the City Council over the past five years. Also, the role of the City Attorneys Office has not been strategically defined within the broader context of workers compensation, general liability and risk management activities performed within the City. The Citywide organization of workers compensation could potentially be strengthened by centralizing risk and claims management under a single risk management department that partners with the City Attorneys Office on matters involving risk management, workplace safety, legal compliance and advisory services, as well as litigation defense.
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Executive Summary
The Workers Compensation Division has not developed standardized language, internal controls, or quality controls to ensure the reliability of workers compensation case records in its automated case management system, A-1 Law. The Office provides limited A-1 Law training for its staff and relies heavily on only one employee and the developer for most of its more sophisticated program needs. Further, workers compensation claim information is managed inefficiently, with basic claim information entered redundantly into different programs by different City employees. As a result, there is no assurance that cases are managed timely and that reported information is accurate and reliable. The Office has not maintained verifiable records of attorney workload and is not in a position to see ongoing changes in trends or detect problems at the individual, Division, or interdepartmental level. Because of missing data and inconsistent record-keeping, even recent historic data cannot be used to reliably measure performance or establish baselines. Systems for reporting and monitoring on workload and performance have not been fully developed and do not conform with best practices identified during the audit; and, efforts to conduct qualitative case reviews were abandoned by management after attorneys objected. Based on sampling, the audit found that cases remain open for periods averaging 5.8 years, which is much longer than the one-year target suggested by best practices resulting in excessive workers compensation expenditures to the City. In addition, settlement and lien payments are not consistently or transparently recorded by the Personnel Department or monitored by the Workers Compensation Division management, masking penalties that could be amounting to as much as $1 million to $2 million per year. In addition, the effectiveness of the claim referral and investigation process for potentially fraudulent claims has not been demonstrated by the City Attorneys Office. Out of approximately 8,400 new claims per year, only 300-400, or approximately four percent, are referred to investigators each year and less than twenty of those are subject to a full fraud investigation. Referral rates of 17 and 21 percent were identified in two other jurisdictions reviewed for this audit. The audit also found that fewer than five of the investigated cases resulted in arrest or conviction in either 2008 or 2009. If fraudulent activity in the City of Los Angeles is equal to 4.2 percent of total benefit expenditures, the lowest level found in other jurisdictions and industry source estimates, the City could be paying up to approximately $5.4 million per year in workers compensation benefits that might otherwise be avoided. Although the City Attorneys Office has made progress pursuing a greater number of workers compensation subrogation recoveries in recent years, policies, processes and management practices have not been established to ensure that subrogation recoveries from third parties are being maximized. Using reported experience in other large public sector agencies, the City could be conservatively recovering as much as $5.2 million annually from insurance companies and other responsible third parties, rather than the approximately $2.0 million being reported by the City Attorneys Office. We also noted that no meaningful assessment of workload or performance impacts on the Workers Compensation Division was conducted when outside counsel cases were drawn inhouse, although significant outside counsel cost savings amounting to $4.7 million per year were realized through the efforts of the City Attorneys Office. Although the use of outside counsel
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Executive Summary
has declined significantly in the past five years, systematic processes have not been established since that time to monitor outside counsel case progress or to measure the quality of representation provided to the City. A more detailed discussion of the key findings in this performance audit report is provided below.
Key Findings
The City Attorneys Office has not sufficiently defined the Workers Compensation Divisions management infrastructure, including its mission and vision statements, policies, procedures, performance criteria, goals, and objectives. For programs to be effective, management must clearly and strategically express and document organizational purpose, policies, procedures, performance criteria, goals, and objectives. In the City Attorneys Office Workers Compensation Division, these strategic management elements are particularly important, since the accuracy and timeliness of litigation can substantially impact the Citys finances. Furthermore, because objectives can have tradeoffs such as the approach to legal defense versus cost containment clear guidance is needed for staff. Staff manuals should define the work responsibilities of employees and partner organizations, such as the Personnel Department and TPAs. Manuals should serve as resources for navigating Californias changing and complex workers compensation laws and regulations. The City Attorneys Office Workers Compensation Division has identified only one performance-related goal and no performance-related objectives. Without clearly understood organizational priorities, work requirements can appear arbitrary or unreasonable, as when staff attorneys reportedly resisted and ultimately defeated efforts to establish a case review process within the Division. Without defined roles and clear directives for legal support staff, some attorneys routinely perform administrative tasks, and legal clerks and secretaries do not consistently share tasks or responsibilities across work teams. The Division has not fully defined its relationship to the Personnel Department, the Citys TPA, or outside counsel, confusing programmatic responsibility for performance outcomes. To craft a strategic and results-oriented Workers Compensation Division, the City Attorney must develop explicit management and planning documents that express the Divisions mission, vision, performance criteria, goals and objectives. Furthermore, the City Attorneys Office should define the administrative roles and responsibilities of support staff, as well as the interrelated roles and responsibilities of the Workers Compensation Division, Personnel, the TPA, and outside counsel. The City Attorneys Office has not clearly defined the Workers Compensation Division and Subrogation Unit functional organizational structures or maintained records that ensure budget accountability and transparency. The City Attorneys Office has not developed a budget statement that segregates Workers Compensation and Subrogation program costs from other Civil Liability Management Division activities; maintained records that ensure budget accountability and transparency; or
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Executive Summary
clearly defined the Workers Compensation Division and Subrogation Unit functional organizational structures. Many of the positions authorized by City Council resolution authority have not been used for the purposes stated in the budget justification, including attorney and investigator staff authorized by the City Council over the past five years. The rationale for the number of staff or for the ratio of professional staff to paraprofessional and support staff have not been well defined. Further, the cost of risk associated with litigated claims is not routinely collected, analyzed or linked to the staffing and other resource needs of the Division. Unless management regularly compiles and evaluates such information, personnel resource needs will be uncertain and the potential for identifying opportunities for efficiency will be hindered. The role of the City Attorneys Office has not been strategically defined within the broader context of workers compensation, general liability and risk management activities performed by the various departments within the City. Changes to the organizational approach to risk management should be considered as a mechanism for strengthening operations through centralization and creating greater linkages between program risks, exposures and costs. The City Attorneys Workers Compensation Division uses three separate databases for litigation, claims management, and document management functions. Each has technical limitations that diminish database usefulness, exacerbated by weak process management and insufficient training. The City Attorneys Office purchased its current electronic record-keeping and case management system in 2005, but did not sufficiently plan for its implementation. At the time, it did not develop standardized language, internal controls, or quality controls to ensure the reliability of workers compensation case records. The Office provides limited A-1 Law training for its staff and relies on one employee and the developer for most of its more sophisticated program needs. A-1 Law cannot interface with the Personnel Departments billing and claims management system, nor can it interface with the document management system shared by the Personnel Department with the City Attorneys Office. City Attorneys Office executive management did not involve Workers Compensation Division staff in an interdepartmental search for an integrated workers compensation system being spearheaded by the Personnel Department. We noted workers compensation claim information is managed inefficiently, with basic claim information entered redundantly into different programs by different City employees. The City Attorneys Office Workers Compensation Division spends hours each day working through document management system problems; basic case data is absent, inaccurate, or difficult to ascertain; and regular performance management reporting is cumbersome, delayed, or not performed. The Division is not able to accomplish necessary tasks in A-1 Law when its staff specialist is absent or otherwise occupied. Because many existing problems are not technical in nature, the functional improvements from system upgrades will be limited without sufficient planning and preparation.
Executive Summary
To overcome innate technical hurdles and limitations of the existing information technology systems, the City Attorneys Office should support the Personnel Department with efforts to fast-track the procurement and implementation of an updated, comprehensive management system. However, to ensure successful implementation, the Division must first develop data standards and controls, and identify performance expectations. The City Attorneys Office has not developed systems or processes to measure the Workers Compensation Divisions workload or performance, and Division management has abandoned previous efforts to conduct qualitative case review. The Workers Compensation Division does not report on its one articulated performance goal and does not routinely quantify core workload data. Although the Division reports on 14 workload and performance measures, only two of these conform with those that are recommended by the International Risk Management Institute. Relevant and available data is not being accessed, and the Division has not developed standards or internal controls to ensure data being captured is consistently calculated and recorded. Specifically, the City Attorneys Office has not demonstrated a goal-oriented, strategic understanding of Workers Compensation Division performance, at the individual attorney level or in the aggregate. The Office has not maintained verifiable records of attorney workload and is not in a position to see ongoing changes in trends or detect problems at the individual, Division, or inter-departmental level. Because of missing data and inconsistent record-keeping, even recent historic data cannot be used to reliably measure performance or establish baselines. The City Attorneys Office Workers Compensation Division should establish a range of workload and performance standards, measures, and criteria for program evaluation to better understand workload and performance. Workload and performance statistics should be collected and reported to upper management to continuously improve performance and ensure the Division is accomplishing intended goals and objectives. The Workers Compensation Division cases remain open significantly longer than best practices suggest is advisable. Settlement and lien payments are not consistently or transparently recorded or monitored by management; and some settlement practices may be obscuring fines and fees that would otherwise be due to the applicants as a result of performance lapses by City employees. Best practices suggest that workers compensation litigation managers should work to expeditiously close cases in order to reduce exposure. Jurisdictions have successfully tracked case aging and implemented case review procedures to ensure that cases are progressing appropriately, and industry leaders show that an aggressive workers compensation litigation effort can close most cases within one year. However, the Workers Compensation Division does not produce or report case progress records, payment information, or cost data in a manner that fosters appropriate management oversight, or the relationship between litigation management and cost containment
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Executive Summary
We noted that some employees of the Personnel Department and City Attorneys Office have a practice of adjusting disability payments by a few percentage points, which could be masking processing errors that cause penalties on the order of $1 million to $2 million per year. Also, although Division attorneys have called for an increase in the City Attorneys settlement authority limit of $50,000, our analysis of settlement payment experience suggests that maintaining lower limits may be providing claimants with an incentive to settle claims at a lower cost to the City. By establishing guidelines and standards of operation in key areas, as well as improving record-keeping and monitoring of certain key activities, the City Attorneys Office managers would improve the accountability of the Workers Compensation and Subrogation functions and increase understanding of workload and performance, at minimum cost and potentially great savings. Decreasing settlement payments by correcting errors that lead to penalties could, by itself, cut costs and increase revenues by millions of dollars. The effectiveness of the claim referral and investigation processes for potentially fraudulent workers compensation claims has not been demonstrated by the City Attorneys Office, and identification and investigation of potential provider fraud is generally not performed. The City Attorneys Office maintains an Investigation Division that investigates potentially fraudulent workers compensation claims referred to them primarily by the Personnel Departments and Third Party Administrators claims adjusters, claimant supervisors, and through calls to the Citys workers compensation fraud hotline. Out of approximately 8,400 new workers compensation claims per year, only 300-400, or approximately four percent, are referred to investigators and less than twenty of those receive a full fraud investigations. Referral rates of 17 and 21 percent were identified in two other jurisdictions reviewed for this audit. In the City of Los Angeles, fewer than five of the investigated cases resulted in arrest or conviction in 2008 and 2009. Assuming the level of fraudulent claims being paid by the City is 4.2 percent of total benefit expenditures, the lowest level found in other jurisdictions and industry source estimates, the City could be paying up to approximately $5.4 million per year in workers compensation benefits if its anti-fraud efforts are not effective. Restitution amounts ordered as a result of City Attorneys Office investigations have been $210,000 or less per year. Our review disclosed that little performance data is maintained or analyzed by the City Attorneys Office or Personnel Department management to assess the number and quality of claims referred for investigation by the Claims Adjusters and the quality of the investigations themselves. Investigator staff report that most referrals come from the Citys workers compensation hotline, indicating that, even with training provided by the Investigation Division, claims analysts and departmental supervisors are generally not referring claims for investigation. Data is not maintained and systems are not in place to identify and track referrals for recurring patterns in fraud cases and to use this information to analyze the Citys claims database for potentially fraudulent claims. City Attorneys Office training provides little guidance on detecting potential provider and claims administration employee fraud.
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Executive Summary
Medical and legal provider fraud has been found to be significant in some other jurisdictions, including Los Angeles County Policies, processes and management practices have not been established to ensure that subrogation recoveries from third parties responsible for employee injuries are being maximized, resulting in a potential loss of over $3 million per year. The City Attorneys Office has made progress pursuing a greater number of workers compensation subrogation recoveries in recent years. However, The Subrogation Unit is only collecting third-party reimbursements on two-tenths of one percent of workers compensation claims, and less than six percent of claims flagged by claims adjusters as having subrogation potential. Using best practice standards as an indicator of subrogation potential, the City may be missing opportunities to recover some third party payments. Applying an industry subrogation recovery benchmark of four percent of paid benefits to the Citys approximately $129.2 million in paid workers compensation benefits for Fiscal Year 2008-09 would result in $5.2 million in recoveries per year, as compared to the $2.0 million or less estimated by the Office to be currently recovered. Effective subrogation recovery efforts require inter-departmental coordination, training and procedures to ensure that all appropriate claims are being referred to the City Attorneys Office for possible subrogation recovery. While the Personnel Department and Third Party Administrator claims analysts receive training on the topic once a year from the Subrogation Unit, no procedures have been established by the management of these departments to track referrals and compile the results to measure the effectiveness of staff efforts. For example, 1,257 claims were flagged as potential subrogation cases between 2005 and 2010 but only 77 were pursued by the Subrogation Unit. City Attorneys Office staff should analyze these flagged claims to determine why so few were appropriate for the Subrogation Unit to pursue, so that future claim referrals will provide a greater possibility of obtaining recoveries. No meaningful assessment of workload or performance impacts on the Workers Compensation Division was conducted when outside counsel cases were brought inhouse, and systematic processes have not been established since that time to monitor outside counsel case progress or the quality of representation provided to the City. The City Attorneys Workers Compensation Division has established fixed fee contracts for outside counsel and significantly reduced the number of cases referred to contract attorneys in an effort to lower contractor costs. Although the Division has saved a net amount of approximately $4.7 million annually after adding attorney staff to replace contractors, no meaningful assessment of workload or performance impacts on the Division has been conducted. In addition, contract attorneys have historically represented the City on thousands of cases carrying millions of dollars in workers compensation claims exposure. Nonetheless, no systematic processes have been established to monitor outside counsel case progress or the quality of representation being provided to the City. When decisions were made in FY 200708 to draw outside counsel cases in-house, 5,499 cases needed to be returned by contract
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attorneys and reviewed by Division legal staff before City Attorneys Office managers had a clear understanding of case status. Prior to this review, the Division did not have full knowledge of outside counsel caseload, the extent of the Citys exposure in those cases, or whether the cases were in process or had been closed. The City Attorney should direct management staff to conduct a full assessment of the use of outside counsel to augment workers compensation litigation staff activities, reevaluate the compensation being paid to outside counsel in order to maintain a more viable resource pool and update processes established in prior administrations for outside counsel selection. In addition, City Attorneys Office management staff should be directed to develop procedures to monitor outside counsel case activities and progress, using general management principles and modeled after best practices in other jurisdictions. Implementation of these recommendations would provide the City Attorneys Office with a clear rationale for using contract attorney resources, update and clarify outside counsel selection processes, maintain a stable outside counsel resource pool and ensure that contract attorney activities and services are being carried out in accordance with City policy.
Review of Report
A draft report was provided to the City Attorney's Office on July 9, 2010. We discussed the contents of the report with City Attorney management at an exit conference held on August 3, 2010, and considered their comments when finalizing our report. Management indicated general agreement with the findings and recommendations. Harvey M. Rose Associates, LLC would like to thank the management and staff from the City Attorneys Office and Personnel Department who participated in this performance audit.
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Office of the Controller

Audit of the City Attorneys Workers Compensation and Subrogation Program Controllers Accountability Plan
Mayor Action Reqd Council Department Action Action Reqd Required
Recommendation
SECTION 1: STRATEGIC MANAGEMENT The City Attorneys Office should: 1.1 1.2 1.3 1.4 Revise the Divisions mission statement to include cost-control and timely case resolution components. Develop workload measures and performance criteria, goals and objectives to focus Division success. Include the roles and responsibilities of all legal support staff in policy manuals. Fully define the Divisions relationship to the Personnel Department, other City departments, and TPA workers compensation effort. Define the Divisions relationship with and oversight over, outside counsel. Replace or supplement its hard-copy policy manual with an electronic, living document that is routinely updated to reflect changes to workers compensation laws and regulations.
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SECTION 2: BUDGET & ORGANIZATIONAL TRANSPARENCY The City Attorneys Office should: 2.1 Routinely produce documentation for management purposes that segregates the Workers Compensation and Subrogation units organization, staffing and costs from other functions assigned to the Civil Liability Management Division. Eliminate the Supervising Attorney position assigned to oversee the Workers Compensation Division and the Subrogation Unit, and transfer the Subrogation Unit elsewhere within the Civil Liability Division. Annually evaluate the number and mix of personnel required to perform workers compensation and subrogation functions assigned to the City Attorneys Office by critically analyzing needs based on workload and process demands. 28 City Attorney
2.2
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2.3
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Controllers Accountability Plan

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Recommendation
2.4 Determine the appropriate manager and supervisor to staff ratios for the Workers Compensation Division, based on numbers of professional, paraprofessional and support staff and their assignments. For purposes of budget clarity, annually report to the Mayor, City Council and City Administrative Officer on the utilization of staff assigned to workers compensation and subrogation functions, including those staff that have been authorized to augment baseline staffing, pursuant to City Council resolution authority. Work with the City Administrative Office Risk Manager to annually report on the cost of risk associated with workers compensation litigation defense activities, linking activities of the City Attorneys Workers Compensation and Subrogation units to risk exposure and cost of claims.
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The Mayor and the City Council should: 2.7 Evaluate and consider alternative organization structures that may result in a strengthened risk management and claims administration framework, including placing both in-house and contract claims administration under a centralized risk manager, based on models employed in other jurisdictions (Note: This recommendation would be consistent with workers compensation contract claims administration alternatives presently being considered by the City). Evaluate and consider mechanisms for charging departments for workers compensation claims administration and litigation defense, as a means of instilling greater ownership of the process by department managers and producing incentives for reducing claims exposure. X X
2.8
SECTION 3: INFORMATION TECHNOLOGY The City Attorneys Office should: 3.1 Work with the Personnel Department to fast-track the procurement and implementation of a new, comprehensive case management and information system. Develop standardized language, mandatory data fields, and other specifications for the fields that are shared between departments. Identify litigation-specific deadlines and time-based
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Recommendation
performance goals and objectives to be added to the system. 3.4 Identify deadlines that are shared between departments in litigated workers compensation cases that should be automatically flagged in a new system. Develop a written protocol for identifying a master claim. Provide formal training on the new comprehensive management system for all current and future members of the City Attorneys Workers Compensation Division. Develop a regular schedule of refresher trainings geared toward specific legal and legal support roles. Configure the program to standardize language where appropriate and validate required data. Activate database alert functionality for all relevant deadlines and time time-based goals and objectives.
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3.10 Configure the program to automatically generate reports that summarize individual and program-wide performance. SECTION 4: WORKLOAD & PERFORMANCE MEASUREMENT The City Attorneys Office should: 4.1 Commit to calculating and reporting all 13 workload and performance measures recommended by the International Risk Management Institute. Identify additional workload and performance measures that are of key importance. Build adopted performance measures into the reporting functionality of A-1 Law system or any planned replacement. Record, report, and monitor workload and performance measures on a monthly basis, and incorporate review of monthly performance measures into regular City Attorneys Office management meetings and the Divisions weekly attorney and support staff meetings. Add written definitions to the Policy Manual for all workload and performance measures. Require that attorneys or their support staff enter key data into A-1 Law fields, including all relevant dates. Assign legal support staff or temporary staff the task of adding key missing data, such as claim opening dates, 50
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4.2 4.3
4.4
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Recommendation
to all A-1 Law claims. 4.8 Determine a practical or technical approach for ascertaining recommended financial measurements. Establish workload and performance baselines.
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4.10 Develop quantitative performance objectives aligned to the Divisions revised mission, vision, and goals. 4.11 Require all program performance data to be saved to a shared server. 4.12 Require managers to distribute workload and performance measurement reports to relevant parties in an electronic format. 4.13 Implement a policy of conducting case audits and peer reviews on a random sample of each attorneys annual caseload. 4.14 Hold periodic review meetings with claims adjusters and risk managers on sample cases. 4.15 Develop litigation case studies to illustrate best litigation practices and loss avoidance. SECTION 5: LITIGATION MANAGEMENT The City Attorneys Office should: 5.1 Require attorneys to conduct and document periodic case reviews, with established, written intervals exceeding no more than six months, and implement and enforce a periodic case review policy that is substantial in identifying steps toward closing cases. Measure, track, and report claim aging measures. Log the dates that WCAB awards are received and processed, as well as the amount. Log any late penalties and review organization-wide performance on a monthly basis. Work with claims adjusters to identify, record, and avoid case handling breakdowns that lead to fines and interest payments. Either discontinue the practice of adjusting paid disability at the time of settlement to avoid payment of fines and interest, Or 61
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Recommendation
Each time paid disability is adjusted, instruct the attorney or their support staff to prepare an internal memorandum to be attached to the A-1 Law case entry that describes the estimated fines, interest payments, and other penalties that would have been due; the specific reasons for those penalties; the amount the paid disability was adjusted; and, the estimated savings. 5.7 Record the amounts in A-1 Law of initial payments, disputed bills, non-accepted offers, and final amounts for all liens that progress to the hearing or trial stage. Report the number of lien hearings and trials, department-wide, each month. Work with claims adjusters to develop cost-effective solutions and standards for lien avoidance.
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SECTION 6: FRAUD DETECTION & INVESTIGATION The City Attorneys Office should: 6.1 Direct the Investigation Division to establish goals for the expected number of claims to be referred for investigation, by department. Direct the Investigation Division to begin recording statistical details on its caseload, including number of referrals compared to the expected level, by source, type of potential fraud (claimant, provider), and outcomes, including savings to the City, number of cases prosecuted and other measures, and regularly report all this information to City Attorneys Office management, the Personnel Department and the Third Party Administrator. Collaborate with the Personnel Department and the Third Party Administrator to establish: 1) formal written procedures for Claims Analysts regarding detecting potentially fraudulent claims; and, 2) a consolidated and internally consistent system for tracking claims referred. Expand its workers compensation fraud training efforts for Claims Analysts, Third Party Administrator staff, and departmental supervisors to emphasize medical and legal provider fraud as well as claimant fraud. Follow up with the Personnel Department, Third Party Administrator and other departments to review and correct their procedures if the number of potentially fraudulent claims referred for 70 City Attorney
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Recommendation
investigation is not near or at the level expected. 6.6 Collaborate with the Personnel Department to enable data mining in the existing and planned new workers compensation claims database to identify and investigate claims that have characteristics commonly associated with fraud. Initiate communications with the District Attorneys Office to review the City Attorneys Offices investigation protocols and determine what, if anything, needs to be changed to provide more investigations with a higher probability of being prosecuted. To ensure that all suspect claims are referred for investigation, propose to the Personnel Department that a specialized unit of Claims Analysts be established that would be responsible for reviewing claims with certain common fraud characteristics. Conduct annual Citywide risk assessments of workers compensation fraud controls and identify areas were improvements are needed to minimize the potential for fraudulent cases to go undetected.
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SECTION 7: SUBROGATION RECOVERIES The City Attorneys Office should: 7.1 Establish a goal for annual subrogation recovery amounts equivalent to or greater than four percent of benefits expenditures. In conjunction with establish standardized tracking subrogation caseload, by type of recovery amounts. the Personnel Department, methods and procedures for referrals; Subrogation Unit case and department; and, 77 City Attorney
7.2
7.3
Regularly report its subrogation performance information to upper management of the City Attorneys Office. Use regularly produced management information to analyze the inter-departmental subrogation recovery process and to make changes in collaboration with the Personnel Department to maximize cases referred and total recoveries. Collaborate with the Personnel Department to include data mining functionality in the current and planned new claims management information systems, so that claims with higher probabilities of subrogation recovery are identified for review, and to develop an
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Recommendation
interim mechanism to extract such information from the existing systems. 7.6 claims
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Expand training efforts to include more training and accountability by City department supervisors to collect evidence and information needed at the time of the employees accident to enhance the potential for subrogation recoveries.
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SECTION 8: OUTSIDE COUNSEL SELECTION & OVERSIGHT The City Attorneys Office should: 8.1 Consider modifying the rate or method of compensating outside counsel attorneys, and rebid the contracts, to prevent further degradation of the outside counsel attorney pool. Establish procedures to accurately measure workload and performance of both in-house staff attorneys and contract outside counsel. Conduct analysis to determine whether there is a need to continue nearly $1.0 million in funding for in-house attorney staffing that was added by resolution authority to absorb outside counsel workload. Establish procedures to monitor the activities of outside counsel attorneys who are assigned workers compensation cases, based on general management principles and best practices employed by other jurisdictions. 84 City Attorney
8.2
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Introduction
Harvey M. Rose Associates, LLC (HMR) is pleased to present this Performance Audit of the Los Angeles City Attorneys Workers Compensation and Subrogation Program. This report was prepared at the request of the City Controller in accordance with the powers and duties prescribed for the City Controller in Article II, Section 261(e) of the City Charter.
Scope and Objectives

The Controller initiated the audit to evaluate the efficiency, effectiveness and economy of the City Attorneys management and oversight of workers compensation claims, including the use of outside counsel and investigations of possible instances of fraud. The specific areas assessed during this performance audit included: An assessment of the City Attorneys Office Workers Compensation Divisions existing strategic management tools. An evaluation of the Workers Compensation Divisions organization structure. An assessment of the transparency and accountability of the Workers Compensation and Subrogation division staffing and budgeting decisions. An evaluation of the City Attorneys Office Workers Compensation Divisions information technology systems and practices. An assessment of the City Attorneys Offices approach to workload and performance management, as well as an assessment of data limitations. A determination of the Workers Compensation Divisions performance, given available data and technical limitations. An assessment of the City Attorneys Offices performance investigating alleged fraud in workers compensation claims. An assessment of the City Attorneys Offices efforts to secure workers compensation thirdparty recoveries. An evaluation of the City Attorneys Offices Workers Compensation Divisions outside counsel contracting practices.
Introduction
Methodology
We conducted the performance audit in accordance with Government Auditing Standards, July 2007 Revision by the Comptroller General of the United States. In accordance with these standards and best practices, we performed the following key tasks: We held an entrance conference with the executive staff from the City Attorneys Office to introduce HMR staff, describe the performance audit process and protocol, and request general information on the Workers Compensation and Subrogation divisions. We reviewed (1) the workers compensation claim administration process, including interviews with the City Attorneys Office, the Personnel Department, the Citys third-party administrator (TPA) and other stakeholders, (2) documentation provided by City departments, and (3) the Workers Compensation Divisions claims management information technology systems and practices. At the conclusion of these activities, we developed a more detailed plan for conducting subsequent performance audit activities. We conducted field work to research key elements of the Workers Compensation and Subrogation divisions with additional interviews, and collection and analysis of data. At the conclusion of field work activities, we developed preliminary findings, conclusions, and recommendations. We conducted a random sample of litigated workers compensation claims with activity between January 1, 2005 and June 30, 2009, in order to evaluate claim aging, settlement payments, lien hearings and trials, and subrogation potential. We conducted a literature review to identify recognized best practices in the field of workers compensation litigation management. This research was supplemented by attendance at a two day conference on workers compensation litigation management, to obtain clarity regarding current approaches by private and public sector law offices within California. The report findings, conclusions and recommendations were reviewed by our subject matter expert on legal office management, who has over 20 years experience managing a large public sector law office in California. We surveyed eleven risk managers and workers compensation litigation professionals representing seven California municipal entities regarding best practices implementing and administering workers compensation programs, including the use of outside counsel and the investigation of subrogation and fraud. These jurisdictions included: (1) the County of Los Angeles, (2) the County of San Diego, (3) the City of San Diego, (4) the City and County of San Francisco, (5) the County of Santa Clara, (6) the City of San Jose, and (7) the California Joint Powers Insurance Authority, which provides workers compensation claim administration services to 106 public entities within California. The best practices survey questionnaire was developed with the assistance of AON Risk Services, one of two subject matter experts participating in this audit. AON has a global reputation in all areas of workers compensation services, including litigation oversight.
Introduction We held an exit conference with the executive staff from the City Attorneys Office, where we discussed matters of fact, our findings, conclusions and recommendations.
City of Los Angeles Workers Compensation Claims and Litigation

The City of Los Angeles has delegated responsibilities for the management of its workers compensation self-insurance program, as follows: Personnel Department: Receives all workers compensation claims for initial review and assignment for processing. If the claim is made by a civilian employee, the matter is retained by the Personnel Department and referred to a claims analyst. If the claim is made by a sworn employee of the Los Angeles Police Department (LAPD) or Los Angeles Fire Department, it is assigned to a contract third-party administrator (TPA). The Personnel Department oversees the claims processing activities of the TPA. In the study period of January 1, 2005 to June 30, 2009, the number of annual workers compensation claims filed in the City of Los Angeles ranged from a low of 8,235 claims in calendar year 2005 to a high of 8,571 claims in calendar year 2008. A small percentage of those claims were litigated, meaning that most are resolved without the assistance of the City Attorneys Office. Third-Party Administrator: Processes assigned claims made by sworn employees. If a matter requires legal counsel for purposes of settlement, the TPA assigns contract attorneys from a preapproved panel of firms selected by the City. City Attorneys Office: Provides legal counsel to the Personnel Department, as well as training and advice to all City departments on workers compensation claim matters. In addition, all settlement proposals and matters referred for trial are referred to the City Attorneys Office for review and approval. The City Attorneys Office also oversees outside counsel, is responsible for subrogation matters (i.e., instances when there may be third party liability) and investigating cases of potential workers compensation fraud. City Administrative Office - Risk Management: Within the Office of the City Administrative Officer, a Risk Management unit conducts claims analysis, and loss prevention and control. As noted above, the scope of this performance audit was limited to those workers compensation and subrogation functions performed by the City Attorneys Office. However, because of the interrelationship between the City Attorneys Office, the Personnel Department, and the TPA, certain processes and activities performed by both Personnel and the TPA were also reviewed.
Introduction Further, the performance audit does not examine or offer opinions on any aspect of the practice of law within the City Attorneys Office. Instead, the audit evaluates the management systems that have been established by the Office to ensure that the City Attorney, other City officials and the professional law office managers within the City Attorneys Office can continuously and effectively evaluate, monitor and improve upon the services that are provided. Lastly, it is important to note that the current City Attorneys term of office began in July 2009. Therefore, many of the policies, procedures and practices of the Workers Compensation Division and Subrogation Unit had been developed and implemented prior to the beginning of the current City Attorneys term. Further, the evaluation of claim activity, data management, general record keeping, and other topics examined during the period of the audit primarily covered services provided during the prior administration. With this performance audit report, it is our intention to provide an independent assessment of the two programs reviewed, so that the current City Attorney has information and perspectives that can be used to develop a roadmap toward improving these important services.
Organization of the City Attorneys Office Workers Compensation Division and Subrogation Unit
The July 2009 Policy Manual for Attorneys and Legal Assistants produced by the City Attorneys Office state that, The City Attorneys Workers Compensation Divisions mission is to defend the City of Los Angeles in workers compensation cases, aggressively investigate potentially fraudulent claims, and to provide legal advice to the operating departments. The division handles all civilian and sworn cases in which the City of Los Angeles is the defendant. Included in the Workers Compensation Policy Manual are statements related to the identification and investigation of cases involving potential fraud and the identification of potential opportunities to recover costs from third parties through subrogation. The City Attorneys Offices Workers Compensation Division is a component unit of the Civil Branch of the City Attorneys Office under the Civil Liability Management Division. In FY 2009-10, the City Attorney budgeted approximately $28.7 million for Civil Liability Management, which includes the functions of workers compensation and subrogation, as well as general civil litigation, public safety general counsel, and civil liability appeals. During the period of the performance audit, the City Attorney had assigned 50.0 FTE positions to the Workers Compensation Division and the Subrogation Unit to accomplish the stated objectives of the City Attorneys Office. A general listing of authorized and actual staffing is shown in Section 2 of this report on Budget and Organizational Transparency. The organization of the two functions is displayed in the chart, below. Discussions of the claim population and the subrogation function follow.
Introduction
Figure 1 Organization of the City Attorneys Office Workers Compensation Division and Subrogation Unit
City Attorney
Chief Civil Branch
Supervising Attorney Civil Liability Supervising Attorney Workers' Compensation & Subrogation
Managing Attorney (Interim) Workers' Compensation
Non-Sworn (9) FTE Attorneys
Sworn (4) FTE Attorneys
Administrative Coordinator II
Subrogation (1) FTE Attorney
Non-Sworn (1) FTE Sr. Legal Assistant (6) FTE Legal Assistants
Sworn (1) FTE Legal Assistant
General & Non-Sworn (20) FTE Support
Sworn (3) FTE Support
Subrogation (1) FTE Investigator
Subrogation (1) FTE Support
As shown, the two functions reviewed are staffed by attorneys, legal assistants (e.g., paralegals), legal secretaries, legal clerks and an investigator assigned to subrogation. In addition to these assigned personnel, legal staff are supported by up to four City Attorney Investigators and contract investigators assigned from a central pool, who conduct fraud investigations. At the beginning of this audit, the investigators worked directly for the City Attorneys Offices Workers Compensation Division, even though they had reportedly been assigned to other nonworkers compensation special investigations for the last several years. Outside counsel is also used, with contract attorneys primarily being assigned to conflict cases and remnant cases from a period prior to a project to draw outside counsel cases in-house.
Characteristics of the Divisions Claim Population

The City Attorneys Offices Workers Compensation Division stores claim handling data in A-1 Law, an electronic claims management system (discussed in Section 3: Information Technology). The Division implemented A-1 Law in 2005, and the database includes all in-house counsel cases initiated since that time. At the time of this study, information on more than 15,000 individual claims had been entered into A-1 Law. As shown in Figure 2, below, more than twoHarvey M. Rose Associates, LLC
Introduction thirds of those claims were listed as closed, and nearly 4,000 of those claims were listed as open during the audit period. However, because closed cases often have continuing activity, the closed classification does not necessarily describe an accurate status. A claim refers to an individual filing, submitted by an individual and involves an incident or series of related incidents that resulted in one or more injuries. A single individual may have multiple workers compensation claims open simultaneously. One or more claims from the same individual may be referred to as a case, and the City Attorneys Office will generally treat multiple claims as a single case. The City Attorneys Office routinely flags a claimants first open claim as the master claim, or may flag the most frequently opened or expensive claim as the claimants master claim, and will attempt to settle all claims as a single case in the process of settling the master claim. As discussed in Section 4: Workload and Performance Measurement, the understanding of what constitutes a claim for internal reporting purposes is not uniformly understood within the Workers Compensation Division. As discussed in greater detail in Section 3: Information Technology, most of the claim listings in A-1 Law are missing key performance management data or have key data that is otherwise in error. Furthermore, as is discussed in Section 4: Workload and Performance Management and Section 5: Litigation Management, the Division does not track fluctuations in claim populations. Because of the missing data and lack of tracking, verifiable changes in claim populations over time are difficult, if not impossible to determine. A snapshot of the population of claims in A-1 Law is included in Figure 2, below. Figure 2 15,392 Individual Workers Compensation Claims: Three Views
Open Claims, 3,944 Police Sworn, 4,236
Outside Counsel, 5,352
Closed Claims, 11,448
Civilian, 10,495
Fire Sworn, 661
In-House Counsel, 10,040
Open vs. Closed

Source: A-1 Law.
Sworn vs. Civilian
Outside Counsel vs. In-House Counsel
As shown in Figure 2, nearly three-quarters of the claims in A-1 Law have been closed. Approximately two-thirds of the claims are from civilian employees, with the remaining claims primarily derived from sworn police officers. Just over one-third of cases in the system had previously been assigned to outside counsel, and were recorded in A-1 Law after being brought in-house (the actual rate of cases referred to outside counsel today is well-below one-third).
Introduction The civilian claims are further broken down in Figure 3, below. Figure 3 Civilian Claims, by Department
16% 28% Public Works 9% Police (Civilian) Airport Transportation 9% General Services Recreation and Parks Other 10% 10%
Source: A-1 Law.
18%
As shown in Figure 2, claims from civilian departments make up approximately two-thirds of the overall claims in A-1 Law. Of those claims, Figure 3 shows that the Department of Public Works represents the highest percentage of litigated claims among civilian departments. Civilian employees of LAPD are the next largest group, and this group includes emergency dispatchers who are reported to have a high incidence of stress-related claims. Changes in Claim Counts Because more than half of the entries in A-1 Law lack the date claims were opened, determining annual litigation counts could not be accomplished. However, based on the data that was available, we estimate approximately 500 to 1,000 new individual workers compensation claims are opened for litigation per year. Data limitations also make the calculation of closing rates difficult, though we have estimated that approximately 900 claims are closed each year. Annual Workers Compensation Costs The City of Los Angeles spent approximately $129.2 million in FY 2008-09 on the cost of workers compensation claims, and had total outstanding claims liability of over $1.5 billion as of June 30, 2009. As discussed in Section 2 of this report, the City does not calculate the cost of claims after they are litigated (i.e., an application is filed with the Workers Compensation Appeals Board, or WCAB). Therefore, it is difficult to estimate the amount of exposure faced by the City on those workers compensation claims that are referred to the City Attorneys Office once a claimant files an application with the WCAB. However, based on a review of statistics
Introduction reported by the Personnel Department, the lifetime cost of litigated cases in the year they are closed is significant, amounting to $132 million in FY 2008-09.1
Subrogation and Third Party Recovery

The City Attorneys Office Subrogation Unit is a specialized unit of the City Attorneys Office responsible for recovering City workers compensation costs incurred for employees whose injuries are the result of a third party who is determined to be at-fault. In such cases, it is possible for the City to recover medical, indemnity and other costs incurred from the third partys insurance. For example, workers compensation costs incurred for a City worker injured on the job due to negligence by: 1) a non-City driver; 2) the owner of non-City premises on which the employee was working; or, 3) the manufacturer of a faulty product used on the job are potentially recoverable from the at-fault party or that partys insurance. The job of the Subrogation Unit is to follow up on such claims and negotiate settlements, file liens, and litigate, if necessary, to recover City costs from the third party. The Subrogation Unit is staffed by two attorneys (one at 60 percent time), one Investigator and one support position. Claims are referred to the Unit by Personnel Department and Third Party Administrator claims adjusters, attorneys and other City employees familiar with a claim, who have identified case characteristics suggesting the potential for subrogation recovery. Referred cases are screened by the Unit Investigator and a decision is made regarding whether subrogation is worth pursuing. The criteria for the decision includes the evidence presented by the claims adjuster pertaining to the circumstances of the employee accident (e.g., if it is clear that the employee was not at fault in a motor vehicle accident), the dollar amount of the Citys incurred expenses and the extent of the third partys insurance coverage. Claims with $1,000 or less in paid benefits are not litigated, but a settlement with the third party insurance company may be pursued. The Subrogation Unit Investigator is responsible for negotiating such settlements. From January 1, 2005 to June 30, 2009, Personnel Department adjusters identified 1,257 workers compensation claims as having subrogation potential. The bulk of these (86.9 percent) were vehicle accidents. As discussed in Section 6: Subrogation Recoveries, the City Attorney recovered City costs on 71 claims during that period.
Acknowledgements
Harvey M. Rose Associates, LLC would like to thank the management and staff from the many departments that participated in this performance audit. In particular, we would like to thank those individuals in the City Attorneys Office Workers Compensation Division and Subrogation Unit, who took considerable time to discuss the Citys workers compensation program and provide much detailed information to the audit team. We would also like to thank the Personnel Department and Information Technology Agency for contributing information and assistance to the audit team. Throughout the audit, these individuals were extremely cooperative and went out of their way to ensure that auditor requests for information were met.
The lifetime costs of these claims are paid over multiple years and not in the year of closure. Harvey M. Rose Associates, LLC
1.
Strategic Management
The City Attorneys Office has not sufficiently defined the Workers Compensation Divisions management infrastructure, including its mission and vision statements, policies, procedures, performance criteria, goals, and objectives. The roles and responsibilities of administrative staff are not well defined, nor are the interrelated roles and responsibilities of the Divisions partner organizations. The City Attorneys Office has not implemented strategies to ensure that the City incorporates changes to workers compensation law and regulations into its practices. For programs to be effective, management must clearly and strategically express and document organizational purpose, policies, procedures, performance criteria, goals, and objectives. In the City Attorneys Office Workers Compensation Division, these strategic management elements are particularly important, since the accuracy and timeliness of litigation management can substantially impact the Citys finances. Furthermore, because objectives can have tradeoffs such as legal defense and cost containment clear guidance is needed for staff. Staff manuals should define the work responsibilities of employees and partner organizations, such as the Personnel Department and TPAs. Manuals should serve as resources for navigating Californias changing and complex workers compensation laws and regulations. The City Attorneys Office Workers Compensation Division has identified only one performance-related goal and no performance-related objectives. Without clearly understood organizational priorities, work requirements can appear arbitrary or unreasonable, as when staff attorneys reportedly resisted and ultimately defeated efforts to establish a case review process. Without defined roles and clear directives for legal support staff, some attorneys routinely perform administrative tasks, and legal clerks and secretaries do not consistently share tasks or responsibilities across work teams. The Division has not fully defined its relationship to the Personnel Department, the Citys TPA, or outside counsel, confusing programmatic responsibility for performance outcomes. To craft a strategic and results-oriented Workers Compensation Division, the City Attorney must develop explicit management and planning documents that express the Divisions mission, vision, performance criteria, goals and objectives. Furthermore, the City Attorneys Office should define the administrative roles and responsibilities of support staff, as well as the interrelated roles and responsibilities of the Workers Compensation Division, Personnel, the TPA, and outside counsel.
Section 1: Strategic Management
Performance Management Standards

The United States Office of Management and Budget (OMB) has developed a Program Assessment Rating Tool (PART), which is a questionnaire used to assess the management and performance of government programs. OMB uses PART to evaluate a programs purpose, design, planning, management, results, and accountability to determine its overall effectiveness. The PART questionnaire is divided into four sections: 1. Program Purpose and Design: Is a programs purpose clear and is it well designed to achieve its objectives? 2. Strategic Planning: Has an agency established valid annual and long-term goals for its programs? 3. Program Management: How is an agency managed, including financial oversight and program improvement efforts? 4. Program Results/Accountability: What are the results that programs can report with accuracy and consistency? The first question in the PART questionnaire is Is the program purpose clear? The importance of this question serves two purposes. First, it notes that the program purpose is not self-evident, so it needs to be expressed with clarity. Second, assessing the programs purpose is the foundation of a programs overall management and performance assessment, since it informs the programs goals and objectives, and the measurement of workload and performance.
Typical Elements of Strategic Management

In order to clearly express and document a programs purpose, design, planning, management, results, and accountability, effective public sector managers develop mission and vision statements, goals, objectives, performance criteria, and related program-specific policies. These are defined below: Mission Statement: The purpose of the program, including the services being provided, and the customers/clients being served. Vision Statement: A qualitative description of the attributes for a successfully implemented program. Goals: Desired, long-term outcome statements intended to achieve managements vision of the program. Objectives: Ambitious, short-term outcomes that are linked to longer-term goals.
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Section 1: Strategic Management Performance Criteria: The criteria against which program success can be measured. Policies: Principles and rules that guide managers and staff when attempting to achieve program outcomes. Having these strategic management tools in place will help managers and external oversight bodies with efforts to assess performance, identify weaknesses within the organization, and understand successes in order to improve performance and efficiency, and control or reduce costs. Once in place, managing for high performance requires communicating the linkage and relevancy of these management tools at every level of the organization.1 In a unit such as the Workers Compensation Division, it is particularly important that management develop clear strategic management tools. The accuracy and timeliness of case managements impacts the Citys risk exposure and costs. Furthermore, objectives, such as legal defense and cost containment, can be at odds if guidance is not clearly provided. Therefore, mission statements, policies, goals, objectives, and performance criteria must be explicit, clear, and appropriately linked.
Additional Management Tools

In addition to the elements of a strategic management structure described above, effective public sector managers should clearly convey work roles and responsibilities to staff, and ensure that policy manuals are maintained and up to date. Employee Roles and Responsibilities Department policy manuals should clearly convey the roles and responsibilities of various job classes and assignments. In a unit such as the Workers Compensation Division, where there is a high degree of both specialization and teamwork, effective and efficient performance requires a clear and shared understanding of roles and responsibilities. Partner Roles and Responsibilities The City Attorneys Office Workers Compensation Division has three critical partners whose efforts directly impact the performance of the Citys workers compensation litigation management. The Personnel Department has ultimate responsibility for workers compensation claims in Los Angeles, serving as the first and often last point of contact for claimants, although only a subset of workers compensation claims that are litigated become shared responsibility with the City Attorney. Litigated workers compensation claims from sworn Police or Fire Department employees are administered by the Citys third-party-administrator (TPA). Cases that are particularly challenging include those where a conflict of interest exists, such as when a claim is filed by a City Attorneys Office employee. Representation for these challenging or
1
Office of Small Business Assistance, HOP Phase I Performance Measurement Assessment and Evaluation, 2003. Harvey M. Rose Associates, LLC
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Section 1: Strategic Management conflict cases is typically provided by outside counsel. Lastly, the City Attorneys Office regularly relies upon information collected by City departments, and litigation outcome is often dependent upon the actions of department managers and supervisors who have initial contact with the claimant. In order to ensure efficient, effective, and accountable litigation management, the interrelated roles and responsibilities of the organizations and their staffs must be explicit and understood by all parties. Furthermore, City Attorneys Office management should formally acknowledge, through its policy manual and directives, the extent to which these third parties contribute to the performance of the City Attorneys Office Workers Compensation Division. Timely Updates The laws, regulations, and case-law governing workers compensation in California change regularly and often dramatically. Therefore, any organization or collective of organizations working in the workers compensation field needs to keep abreast of changes. To the extent that any written documents discuss litigation policies and procedures, those documents must be updated to reflect any changes to the workers compensation legal landscape.
The City Attorneys Office Workers Compensation Policy Manual

The primary employee handbook for the City Attorneys Workers Compensation Division is the Policy Manual for Attorneys and Legal Assistants. The Manual was most recently updated in July 2009, and includes (though is not limited to) the following sections: Policy and Procedures Guidelines (March 2006 with July 2009 revisions) Workers Compensation Fraud (December 12, 2007) Investigating Workers Compensation Injuries (June 4, 2008) Legal Updates Legislation and Case Law (2007) Settlement Documents Required Language Forms (undated) The12-page Policy and Procedures Guidelines section addresses an array of work-related topics, including the Divisions mission, attorneys and legal assistants responsibilities, case review and reporting, litigation practice requirements, fraud, subrogation, and vacation and time off policies.
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Section 1: Strategic Management
The Policy Manual Lacks Certain Basic and Critical Components

The City Attorneys Office Workers Compensation Division has not fully developed its strategic management structure. Basic elements, as presented in the Divisions Policy Manual for Attorneys and Legal Assistants, are either absent or inadequate. While we acknowledge that the City Attorneys Office is currently revising the manual, the following shortcomings were present in the July 2009 version of the manual, which was in effect at the time of this study. The Mission Statement Is Unclear and the Vision Statement Is Absent The Workers Compensation Divisions Policy Manual contains a vague mission statement and does not contain a vision statement. Section I: Division Objective, of the Policy Manuals Policy and Procedure Guidelines, reads: The City Attorneys Workers Compensation Divisions mission is to defend the City of Los Angeles in workers compensation cases, aggressively investigate potentially fraudulent claims, and to provide legal advice to the operating departments. This mission statement describes the Divisions purpose and services, but is vague and incomplete. For example, despite the central importance of cost-control and timely case resolution to successful Workers Compensation defense, neither of these components are addressed in the mission statement. Further, the Divisions client switches between the City of Los Angeles as an entity, and the operating departments, depending on the service. The remainder of the Division Objective describes the Divisions cases, how the cases are assigned, and attorney responsibilities: The division handles all civilian and most sworn cases in which the City of Los Angeles is the defendant. Cases are assigned to deputy city attorneys and support staff based on applicants last names. The assigned attorneys are ultimately responsible for all aspects of their cases. Despite being included in the Division Objective, this paragraph does not express an objective, nor is it truly a continuation of the Mission Statement. Instead, it elaborates on one of the services, begins to define implementation approach, and overlaps with the next section of the Policy Manual, Attorneys Responsibilities. As noted above, the Policy Manual does not include an explicit vision statement for the City Attorneys Office Workers Compensation Division, nor any other document or statement that serves the purpose of a vision statement.
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Section 1: Strategic Management Performance Goals and Objectives Have Not Been Developed The Policy Manual Includes Only One Performance Goal The Policy Manual includes only one clear performance goal. Section II of the Policy Manuals Policy and Procedure Guidelines indicates that Deputy City Attorneys should take all actions necessary to ensure the timely resolution of assigned cases. Given the importance of timely case resolution toward preventing runaway case length or cost, this is a sensible goal. However, the goal does not relate to the mission of the Division, which, as mentioned above, does not consider timeliness to be a factor. The goal is appropriate, but not sufficiently linked to the mission statement. The Policy Manual Does Not Include Performance Objectives The Policy Manual does not include any performance objectives, though it does include some workload objectives. The aforementioned goal of insuring timely resolution to cases is not supported by performance criteria or objectives. The Policy Manual does not define timely resolution, nor does it create an objective for case resolution generally. As discussed in Section 5: Litigation Management, the Division takes more than five years to resolve most cases. The Policy Manual does include one prominent workload objective. Section III of the Manuals Policy and Procedure Guidelines, Initial and Periodic Case Reviews, indicate that each Deputy City Attorney shall review each case in his/her inventory no less than once every 60 days, take appropriate action to move the case toward a timely and proper resolution. Each action shall be recorded in A-1 Law (the City Attorneys litigation management system). It is the intention that achieving this objective would aid in achieving the goal of timely resolution. However, as with the timely resolution performance goal, this objective does not relate to the existing mission statement. The Division experienced difficulty consistently achieving the 60-day goal. As discussed in Section 5: Litigation Management, nearly seven out of eight cases sampled had at least one period of case inactivity greater than 60 days. Although the objective remains in the existing Performance Manual, the Acting Managing Attorney has indicated that this objective is no longer in effect and has been eliminated in a proposed revision to the Performance Manual. Several of the Divisions attorneys believe the 60-day goal is overly taxing and unjustified. The International Risk Management Institute2 recommends that litigation managers provide attorneys with written service standards and require attorneys to report to managers at specified time intervals. Other jurisdictions, including the County of Los Angeles, have successfully implemented regular reporting as part of their litigation management program.
Kevin Quinley, Litigation Management. International Risk Management Institute, Inc., 1995. Harvey M. Rose Associates, LLC
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Section 1: Strategic Management Roles and Responsibilities Are Not Defined The Manual Does Not Ascribe Responsibilities to 75 Percent of the Legal Support Staff The Policy Manual does not define the roles and responsibilities of legal clerks or legal secretaries. The Manuals Policy and Procedure Guidelines stipulate that attorneys shall provide appropriate instructions to their assigned support staff members, but the Guidelines only provide a list of the roles and responsibilities of Legal Assistants, who comprise only 25 percent of the Workers Compensation Divisions dedicated legal support staff. The Roles and Responsibilities for the 8 Legal Secretaries and 15 Legal Clerks/Senior Legal Clerks are not defined. The International Risk Management3 Institute recommends that litigation managers only assign tasks to attorneys that adjusters cannot perform. It can be inferred that litigation managers would want confirmation that their attorneys are not performing tasks that could be accomplished by lower cost administrative support personnel, particularly if caseload is a concern. In order to facilitate the delegation of administrative tasks being handed to legal support staff, Deputy City Attorneys need to know what the expectations are of support staff members, and responsibility for successfully completing administrative tasks needs to be ascribed to those staff members. In particular, we were told that new Deputy City Attorneys were unsure about the roles, responsibilities, and expectations of their administrative support employees, and interviews with the attorneys indicate that many perform routine administrative research and documentation tasks in preparation for trial. These administrative tasks reportedly consume a significant amount of attorney time. The City Attorneys Office has indicated that the draft update of the Policy Manual will define the roles and responsibilities of all legal support staff. The Policy Manual Does Not Clearly Describe the Divisions Relationship with Partners The City Attorney Offices Workers Compensation Divisions Policy Manual does not clearly describe the Divisions relationship to the operating departments, the Personnel Departments Workers Compensation Division or role overseeing outside counsel. As noted above, part of the City Attorneys mission is to provide legal advice to the operating departments. Principal among those departments is Personnel, with whom the Division must work cooperatively to effectively manage the Citys workers compensation defense efforts. The Policy Manual notes in Section II of the Policy Manuals Policy and Procedure Guidelines that Deputy City Attorneys will provide legal advice to Personnel Department analysts and to the operating departments upon request. Although Deputy City Attorneys are directed to contact or consult with Personnel Department Claims Adjusters in other sections of the Policy Manual,
3 Ibid. Harvey M. Rose Associates, LLC
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Section 1: Strategic Management the Policy Manual never explains the relationship between Personnel and the City Attorneys Office, nor does it distinguish roles and responsibilities in areas such as case documentation. Insufficient descriptions of prescribed roles and responsibilities contributes to a contentious lack of understanding of how the City Attorneys Office and Personnel Department share responsibility for lien handling and lien hearings. Similarly, the Policy Manual does not explain how the City Attorneys Office will provide oversight of outside counsel activities, or define its relationship with the TPA. The Manual Risks Being Out-of-Date The Divisions Policy and Procedures Guidelines are not regularly updated to reflect changes in California workers compensation laws and regulations. Prior to the July 2009 revision, the City Attorneys Office had not revised the Policy and Procedures Guidelines in more than three years. In that time period, several documents in the Policy Manual were added or updated, but the Policy and Procedures Guidelines remained static. While the Policy Manual includes legal addenda, these addenda are not cited or otherwise incorporated into the body of the Policy and Procedure Guidelines. Therefore, a casual or quick reference to the manual may lead an attorney or support staff member to omit consideration of the updated rules or regulations. The City Attorneys Office does not have a systematic process for updating the Policy Manual, which is a hard copy document that is not available to staff electronically. Whereas the Personnel Departments Workers Compensation Division makes use of the Citys intranet, the City Attorneys Office does not use the intranet to its fullest extent. Adding the Policy Manual to the intranet would facilitate information sharing within the City Attorneys Office Workers Compensation Division, make the task of updating the Policy Manual less onerous and provide the capability to link pertinent laws and regulations to the document.
Conclusions
The City Attorneys Office Workers Compensation Division has not fully developed its strategic management infrastructure. Many elements are absent and existing elements are insufficient and not interrelated. The Divisions existing mission is vague and not clearly related to its one performance goal. The City Attorneys Office has not developed a vision for the Workers Compensation Division, nor has it developed performance criteria and related objectives. Without a clear and understood purpose for the Division, City Attorneys Office managers will be hamstrung in attempts to manage and evaluate the Divisions performance. Furthermore, without fully documented and understood procedures, goals, and objectives, the City is not able to fully understand, identify, or replicate its accomplishments, or correct its shortcomings. Without a fully developed strategic management infrastructure, work requirements imposed on professional staff may seem arbitrary or unreasonable. For example, a case review process
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Section 1: Strategic Management implemented in prior years met with staff attorney resistance, and so the performance monitoring effort was abandoned. Without defined roles for legal support staff, some attorneys are performing administrative tasks, and clerks and secretaries are inconsistently used and have limited accountability. In particular, newer attorneys are unsure as to how they can and should utilize support personnel. The Division has not fully defined or developed its relationship to City departments, including the Personnel Department, or the Divisions outside counsel, creating confusion with regard to roles and responsibilities. Compounding these problems, the City Attorneys Office risks the possibility of omitting key changes to workers compensation laws and regulations in its Policy Manual, due to the infrequency of updates.
Recommendations
The City Attorneys Office managers should: 1.1 1.2 1.3 1.4 1.5 Revise the Divisions mission statement to include cost-control and timely case resolution components. Develop workload measures and performance criteria, goals and objectives to focus Division success. Include the roles and responsibilities of all legal support staff in policy manuals. Fully define the Divisions relationship to the Personnel Department, other City departments, and TPA workers compensation effort. Define the Divisions relationship with and oversight over, outside counsel.
In order to maintain a policy manual that keeps pace with changing legal requirements and standards, the Workers Compensation Division managers should: 1.6 Replace or supplement its hard-copy policy manual with an electronic, living document that is routinely updated to reflect changes to workers compensation laws and regulations.
Costs and Benefits

Developing a basic strategic management infrastructure is critical to transitioning the Workers Compensation Division into a more efficient, mission- and performance-driven unit. Development and refinement of these tools can be done at minimal cost, with the primary investment being managers time, with participation from all levels of the Division.
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Section 1: Strategic Management Developing an improved strategic management infrastructure as part of a comprehensive, current, and understood Policy Manual could be a first step toward improving the Divisions efficiency and reducing costs associated with outside counsel. Improved tools cannot realize cost savings on their own. However, these tools are requisite in the building of an effort to measure performance and manage for results. Improved management can yield improvements in efficiency, and even modest reductions to the average case age and outside counsel costs would yield significant savings in settlement payments and other direct and indirect costs.
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2.
Budget and Organizational Transparency

The City Attorneys Office has not clearly defined the Workers Compensation Division and Subrogation Unit functional organizational structures or maintained records that ensure budget accountability and transparency. The rationale for the number of staff or for the ratio of professional staff to paraprofessional and support staff have not been well defined. Unless management regularly compiles and evaluates such information, personnel resource needs will be uncertain and the potential for identifying opportunities for efficiency will be hindered. The role of the City Attorneys Office has not been strategically defined within the broader context of workers compensation, general liability and risk management activities performed by the various departments within the City. Changes to the organizational approach to risk management should be considered as a mechanism for strengthening operations through centralization and creating greater linkages between program risks, exposures and costs.
The City Attorneys Workers Compensation Division is a component unit of the Civil Branch of the City Attorneys Office under the Civil Liability Management Division. In FY 2009-10, the City budgeted approximately $28.7 million for Civil Liability Management, which included the functions of workers compensation and subrogation, as well as general civil litigation, public safety general counsel, and civil liability appeals. However, the City Attorneys Office has not developed a budget statement that segregates Workers Compensation and Subrogation program costs from other Civil Liability Management Division activities. Further, the cost of risk associated with litigated claims is not routinely collected, analyzed or linked to the staffing and other resource needs of the Division.
Program Staffing
At the outset of this performance audit, three different organizational and staffing documents were provided by the City Attorneys Office for the Workers Compensation Division, including two that merely listed personnel by classification and general work assignment. The third was prepared shortly after this audit was begun, and showed general assignments for assigned positions. It included personnel changes that had not been in effect when the audit began, suggesting that it may have been produced solely in anticipation of this audit. Although managers were able to generally describe the roles and responsibilities of personnel during interviews, it was evident that there is no routinely produced documentation that clearly describes functional assignments, chains of command or other information essential for understanding how the organization operates. Nonetheless, based on these documents, audit interviews and narrative materials prepared by City Attorney managers, we were able to determine and confirm that 50.0 FTE positions were assigned to the City Attorneys Workers Compensation Division and Subrogation Unit as of
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Section 2: Budget and Organizational Transparency December 2009. The assigned positions included attorneys, legal assistants, legal secretaries, legal clerks and an investigator. Table 1 below compares budgeted to assigned positions. It is important to note that the budgeted staffing includes five temporary attorney positions that were created by City Council resolution authority to meet additional workload demands resulting from a decision to draw outside counsel cases in-house. As shown in the table, budgeted and actual positions differ.
Table 1 City Attorney Workers Compensation and Subrogation Comparison of Budgeted to Actual Staffing December 2009
Budgeted as of 12/09 Workers Compensation 1.0 2.0 9.0 4.0 16.0 1.0 2.0 1.0 1.0 5.0 1.0 5.0 4.0 1.0 1.0 4.0 6.0 1.0 23.0 44.0 Workers Compensation 0.5 1.0 1.0 6.0 4.0 2.0 14.5 1.0 7.0 8.0 1.0 1.0 5.0 2.0 2.0 3.0 5.0 5.0 24.0 46.5 Actual as of 12/09 Difference Over (Under) 1.0 1.0 1.0 7.0 4.0 2.0 16.0 1.0 7.0 1.0 9.0 1.0 2.0 5.0 2.0 2.0 3.0 5.0 5.0 25.0 50.0 (1.0) (3.0) 2.0 (2.0) 5.0 (1.0) (1.0) 3.0 (4.0) 1.0 1.0 (1.0) (1.0) 4.0 1.0 Position Supervising Attorney (ACA) Managing Attorney (ACA) Deputy City Attorney IV Deputy City Attorney III Deputy City Attorney II Deputy City Attorney I Subtotal Legal Staff Senior Legal Assistant Legal Assistant Paralegal II Investigator III Law Clerk Subtotal Legal Support Administrative Coordinator II Legal Secretary III Legal Secretary II Legal Secretary I Senior Legal Clerk II Senior Legal Clerk I Legal Clerk II Legal Clerk I Subtotal Office Support Grand Total Subrogation 1.0 1.0 2.0 1.0 1.0 1.0 1.0 2.0 5.0 Total 1.0 1.0 2.0 10.0 4.0 18.0 1.0 2.0 1.0 1.0 1.0 6.0 1.0 6.0 5.0 1.0 1.0 4.0 6.0 1.0 25.0 49.0 Subrogation 0.5 1.0 1.5 1.0 1.0 1.0 1.0 3.5 Total
Source: Organization charts and personnel listings provided by the City Attorneys Office, and interviews.
By policy, contract attorneys are also assigned to certain cases, including those that involve conflicts of interest (e.g., workers compensation claims that involve City Attorneys Office personnel). In recent years, the number of cases assigned to contract attorneys (i.e., outside counsel) and associated costs have declined dramatically (see Section 8). In addition to the positions shown in Table 1, the City has budgeted (1) Chief Investigator and (7) Investigator II positions for the Workers Compensation Division, including (2) temporary Investigator II positions approved for the workers compensation civil fraud unit by resolution authority of the City Council. However, these eight positions had been transferred to a
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Section 2: Budget and Organizational Transparency centralized investigations unit at about the time this audit was initiated. Prior to this transfer, these investigators reported directly to the City Attorneys Workers Compensation Division, even though - according to the Chief Investigator - they had primarily been assigned to other non-workers compensation special investigation duties. The Division is also supported by contract investigators. Conforming to the Budget Both the City Charter and the Administrative Code grant the Mayor and the City Council broad budgetary powers to organize the City within the framework of the Charter, create positions and appropriate City resources. Charter Section 246 states that the City Council shall create the necessary positions, in addition to those created by the Charter . . . . , authorize the necessary deputies, assistants and employees, and provide the necessary funds for carrying on the work of the departments and offices. These powers cannot be effectively exercised without transparent and verifiable organizational, budgetary and financial information. The absence of such information created problems during this audit. When initially requested, Division managers were unable to easily produce historical program staffing information that segregated Workers Compensation and Subrogation personnel from the remainder of the Civil Liability Management Division, and such information was not easily discernable from publicly available documents. Repeated requests to the Division and Unit managers for such information produced no meaningful results. Eventually, the City Attorneys Office was able to produce information showing budgeted personnel resources for the workers compensation and subrogation functions after requests were made to the City Attorneys Chief Budget Analyst. However, even this information was not presented in a manner that allowed comparisons to be made to the actual assignment of personnel over time. The staffing information was provided for random days that were not linked to the dates budget authority was received. Current management in the City Attorneys Office states that it understands the importance of maintaining accurate staffing information but that such information was not maintained by prior administrations. While this may be the perspective of the current management, previous Workers Compensation program managers conversely argued during interviews that they did not feel (a) measuring or tracking personnel resources over time, (b) ensuring staffing consistency with budget authority, or (c) evaluating staffing needs in the context of workload requirements would provide meaningful information for purposes of making personnel decisions within the City environment. During interviews, these individuals stated that they work with whatever staffing is provided by management and that they do not consider it to be their role to determine appropriate staffing strength for the Division. They also stated that, historically, the workers compensation and subrogation programs generally have been provided with an appropriate number and mix of personnel. As shown in Table 1, the actual positions assigned to the Workers Compensation Division and the Subrogation Unit deviated from the budgeted positions for some classifications during the period of this review, primarily in the mix of personnel, number of attorneys and investigator strength. If the budget is intended to be a plan on how the workers compensation and
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Section 2: Budget and Organizational Transparency subrogation functions will be carried out by the City Attorneys Office, then budgeted and actual staff resources should be more closely aligned. The data indicates that many of the positions authorized by the City Council by resolution authority have not been used for the purposes stated in the budget justification. In addition, there appears to have been a historic degradation in the mix of staff assigned to workers compensation. For example, the Workers Compensation Division is operating with two fewer attorneys than budgeted, while there are three more legal support staff than the number budgeted. This suggests that the City Attorneys Office may be using attorneys and other staff assigned for workers compensation more flexibly within the broader Office organization, while simultaneously using workers compensation program needs as justification for obtaining City Council approval for additional staff. Specifically: The Workers Compensation Division is operating with two fewer attorneys than intended and with less experienced attorneys than authorized in the budget (i.e., two attorney vacancies plus the replacement of two Attorney II and Attorney III positions with two Attorney I positions). Having a vacancy rate of over 11.0 percent for Division attorneys and operating with less experienced attorney personnel weakens the ability of the Division to effectively represent the City in workers compensation matters. The Workers Compensation Division operates with five Legal Assistant positions more than authorized in the budget, apparently drawn from elsewhere in the City Attorneys Office. While the number of positions within this classification may be appropriate given their assigned duties and program needs, the budget has not been adjusted to reflect this need nor have the assignments been formally tied to workload requirements. The Workers Compensation Division has exchanged a number of Legal Secretary III positions for Legal Clerk I positions. Again, while this change in classification mix may be appropriate given the types of duties these personnel perform, the budget has not been adjusted to reflect the change nor have the assignments been formally tied to workload requirements. The Workers Compensation Division has historically been budgeted eight investigator positions, including two Investigator II positions annually added through City Council resolution authority since FY 2004-05 to augment workers compensation fraud investigation capacity. Yet, it is clear that these positions have not been used exclusively for this purpose (see Section 6), and a decision was made by City Attorneys Office management at the time of this audit to transfer the personnel to a centralized unit so that they can be used as generalist investigators within the organization.
Based on interviews conducted for this audit, the current staffing assignments have been defined incrementally through the years. No documentation explaining managements rationale for the number of staff by classification, function or work assignment, or for the ratio of professional staff to paraprofessional and support staff assigned to the Workers Compensation and Subrogation units has been developed. Further, no documentation was provided that
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Section 2: Budget and Organizational Transparency demonstrated upper managements rationale for the assignment of staff. Without comprehensive analysis of purpose, function, workload or duties, staffing needs cannot be well defined or justified. Supplemental Staff Added by Resolution Authority The City Council has been annually funding supplemental staff resources by resolution authority for the City Attorneys Workers Compensation Division for several years, including attorney staff for workers compensation cases previously assigned to outside counsel and investigator staff to bolster the fraud investigation unit. Yet, records of how such staff have been used or data linking the staffing augmentations to output have not been developed or reported by management. For example, decisions to draw outside counsel workers compensation caseload in-house appear to have been made solely in an effort to reduce contractor cost without full consideration of staff workload and other potential impacts on case settlement rates and costs (see Section 8). Through this effort, $5.9 million in annual outside counsel cost reductions occurred offset by only $1.0 million in staff augmentations, so it appears that the principal objective was achieved with a net annual savings of approximately $4.8 million. However, the staff augmentations focused solely on managements perceptions of attorney staffing needs, even though the impacts from absorbing the workload cross all position classifications and assignments. Therefore, requests to the City Council for additional staffing appear to have been made solely on the basis of attorney caseload, instead of more critical analyses of organizational workload and process demands. In the second example, City Attorneys Office managers reported that the eight investigators budgeted for workers compensation investigations have not been used exclusively for that purpose. This is evidenced by the fact that only 27 full fraud investigations have been performed in the past two years. That workload would not consume the time of eight full-time investigators (see Section 6), confirming that they have been assigned other non-workers compensation duties. Clearly, there is no linkage between investigator resources authorized by the City Council to expand workers compensation fraud investigation capacity and the actual use of such resources. Linking the Budget and Operations to Outcome Objectives General public sector management principles suggest that functional organization charts and descriptions of employee duties be developed at the department, division and program levels to provide the public, elected representatives and staff with an understanding of a programs scope of responsibilities, as well as the manner in which duties are segregated and overseen by management. However, the City Attorneys Office has not regularly produced or maintained documentation describing functional staff assignments, chains of command or other executive level information essential for understanding how the Workers Compensation and Subrogation units operate. As discussed elsewhere in this report, program outcome data is also not routinely produced. As a result, the ability to convincingly demonstrate personnel and other resource needs is diminished.
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Section 2: Budget and Organizational Transparency In addition, financial data developed to define the cost of risk associated with litigated workers compensation matters has not been fully developed. Although some claim and settlement cost data for litigated cases is reported by the Risk Manager, the City Attorneys Office has not established a clear linkage between the Citys expenditures for litigation defense and exposure once an application has been filed with the Workers Compensation Appeals Board. This omission is significant. According to the Citys financial auditors, total outstanding liability was over $1.5 billion for the Citys workers compensation self insurance program as of June 30, 2009, and the auditors reported that the City will spend an estimated $129.2 million on workers compensation claims for which the General Fund is responsible in FY 2009-10. Although the Citys workers compensation claims exposure is significant, neither the Risk Manager nor the City Attorneys Office have defined the cost of risk associated with workers compensation claims once they are litigated, or linked the Citys expenditures for litigation defense and counsel to total exposure. As discussed elsewhere in this report, serious deficiencies in the City Attorneys Office recordkeeping and management reporting systems presently make such linkages difficult. The previous City Attorney appears to have understood that such linkages are important. In a series of budget requests for additional personnel for the Workers Compensation Division in the early 2000s, City Attorney Rocky Delgadillo made general statements that adding staff would reduce workers compensation costs for the City. In one public comment, Mr. Delgadillo asserted that Our attorneys are each handling 400 cases. If we add five more attorneys we can reduce that to 200 to 250 cases and the experience elsewhere has been that each attorney can save the City $400,000.1 At the time, Mr. Delgadillo was not able to obtain City Council approval for additional personnel and some members of the City Council expressed skepticism that savings would be achieved. To reduce this skepticism and strengthen managements understanding of staffing needs, the City Attorney, with the assistance of the CAO, should strive to make such cost of risk reporting for litigated cases a goal. In addition, departments in cities and counties throughout California are often charged for the cost of claims administration, litigation defense and settlements through internal service fund charge-back mechanisms. These charge back systems have been developed to provide department managers with awareness of the importance of workplace safety and incentives to lower workers compensation costs, by implementing procedures and enforcing practices that reduce exposure and support litigation defense. The City should examine the costs and benefits of implementing an internal service fund charge-back system as a mechanism for establishing such incentives.
December 14, 2001, Daily News of Los Angeles, Delgadillo Wants More Lawyers Harvey M. Rose Associates, LLC
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Section 2: Budget and Organizational Transparency
Organization of Workers Compensation

Workers Compensation Division and Subrogation Structure The Workers Compensation Division and the Subrogation Unit are separate organizational functions. As its name implies, the Workers Compensation Division focuses solely on defending the City against litigated workers compensation claims. On the other hand, the Subrogation Unit spans the range of civil liability defense matters within the City, including workers compensation, general liability, automobile liability and other tort. The Workers Compensation Division and the Subrogation Unit share a Supervising Attorney, who also carries a subrogation caseload. Based on interviews with City Attorneys Office managers, including the Supervising Attorney, the incumbent was assigned to oversee the Workers Compensation Division by the prior City Attorney, to act as a liaison between the Managing Attorney of the Division, the Personnel Department and upper management of the City Attorneys Office due to perceived conflicts between the parties. This Supervising Attorney continued in this role until the Fall of 2009, when the Managing Attorney was transferred from the Division to another unit of the City Attorneys Office and the current Interim Managing Attorney was elevated to the post. Since that time, the incumbents role as the Supervising Attorney overseeing the Workers Compensation Division has reportedly diminished. A review of the organization structure and an examination of the duties and responsibilities of the current Supervising Attorney over the Workers Compensation Division and Subrogation Unit and the Managing Attorney over the Workers Compensation Division suggest that the need for the Supervising Attorney assignment is no longer required, and that the position should be deleted or transferred to another assignment within the Civil Liability Division. 1. The organizational structure for the Workers Compensation Division and the Subrogation Unit is excessively linear for functions with the number of currently assigned employees. The organization should be flattened at the attorney-manager level and the City Attorneys Office should consider adding line level supervisory staff personnel to the Workers Compensation Division. 2. There is no unique functional relationship between the Workers Compensation Division and the Subrogation Unit, since the Workers Compensation Division is only one of several internal customers of the Subrogation Unit. As discussed in Section 7: Subrogation Recoveries, the City could benefit greatly by focusing resources and pursuing a greater number of subrogation referrals. 3. With the appointment of the new Workers Compensation Managing Attorney, the need for a Supervising Attorney to act as a liaison with the Personnel Department and upper management of the City Attorneys Office is no longer necessary.
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Section 2: Budget and Organizational Transparency In addition, line level supervision within the Workers Compensation Division is weak. The Managing Attorney currently oversees 22 professional, paraprofessional and supervisory staff direct reports, while the Administrative Coordinator II supervises 23 clerical and support staff. As the City Attorneys Office considers the staffing reconfiguration for the Division in efforts to realign the budget to operational needs, modifications to manager and supervisor to staff ratios should be evaluated and established at ratios of 1:10 or 1:12 for professionals and paraprofessionals; and, 1:8 or 1:10 for clerical and support. This could be accomplished at minimal additional cost to the City by eliminating the Supervising Attorney position and exchanging line level paraprofessional and clerical positions for working supervisors. Integrating City-wide Risk Management Activities The City has not organized workers compensation and related functions effectively. The current organization divides management of core workers compensation functions between three departments, including: (1) the City Administrative Office, which is responsible for general risk management, reporting and workplace safety functions; (2) the Personnel Department, which is responsible for workers compensation claims management, directly or through a Third Party Administrator (TPA); and, (3) the City Attorney, which is responsible for litigation defense and advisory services to the departments, and is granted certain litigation settlement authority by the Charter. As a result of this diffused responsibility, no single organization is accountable or has authority for all administrative aspects of workers compensation, agreements have not been made to ensure clear delineation of responsibilities between the different parties, and the City Attorneys Offices role has not been clearly defined within the context of the claims administration process. This condition has contributed to organizational dysfunction, management friction and lack of accountability between the departments. The City Attorney has recognized these weaknesses and has suggested to the Mayor that the City Attorneys Office be assigned responsibility for workers compensation claims administration2; and, City Attorneys Office staff have suggested that such a consolidation of responsibility would result in a more integrated process for workers compensation program activities, generally. These individuals point to general liability claims administration, which is managed by the City Attorney along with the Civil Liability litigation defense function for the City, as an example of how this system would work. We agree that greater centralization and accountability would likely strengthen the workers compensation claims administration function in the City. However, we do not believe that centralization should occur under the City Attorneys Office for the reasons outlined below. We are not aware of any large workers compensation claims administration programs that are centrally managed by a law office. More commonly, workers compensation claims administration is managed by a risk management department (along with general liability,
2
April 21, 2010, Letter to Mayor Antonio Villaraigosa, Page 5 Harvey M. Rose Associates, LLC
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Section 2: Budget and Organizational Transparency automobile liability and other types of risk) by a personnel department (as in the City of Los Angeles), through a single purpose joint powers authority or a state agency, or contracted with a third party administrator. The separation of claims administration from litigation defense strengthens organizational checks and balances, ensuring that the legal experts can independently act as watchdogs over the claims administration process. Currently, the City Attorneys Office provides advisory services to the Citys departments and pursues corrective action when department or Personnel Department practices may be increasing the Citys exposure. Effective claims administration demands that systematic routines and disciplined processes be employed for high volume activities. Legal office managers are not typically trained in the skills needed to oversee these types of activities. As we believe this report demonstrates, the City Attorneys Office has historically been unsuccessful establishing effective workload management, accountability and internal control mechanisms within the Workers Compensation Division, and there is no reason to believe that assuming greater responsibility would correct these deficiencies. Other public sector entities have successfully placed general liability and workers compensation claims administration within a separate risk management department, while maintaining an independent and more traditional attorney-client model for litigation defense. Under this structure, the risk manager approaches risk management and claims administration strategically and partners with legal counsel, who focuses on litigation defense and advises the risk manager and departments on strategies for reducing exposure and cost. Several of the jurisdictions surveyed for this audit have recognized the benefits that can be realized by consolidating risk management and claims administration in a single department, while clearly designating legal counsel as a separate entity assigned responsibility for representing departments in lawsuits, advising departments on legal protections that should be integrated into administrative processes, and participating in lawsuit settlement decisions. This structure would appear to be consistent with the intent of the City Charter. Although Charter Section 271 designates the City Attorney as being responsible for representing the City in all litigation proceedings against the City, it does not appear to provide the City Attorney with the independent power or authority to oversee all aspects of claims management or non-litigated demands made against the City. In fact, even the City Attorneys settlement authority is shared with other City officers. Specifically, Charter Section 273 establishes the authorities of the Mayor, the City Council, independent boards and the City Attorney when making decisions regarding the settlement of lawsuits. Depending on the nature of the settlement (e.g., monetary or non-monetary) and amount, the authority is assigned differently. For example, a Claims Board consisting of the Mayor, President of the City Council and City Attorney makes monetary settlement decisions when the amount exceeds limits established by ordinance in the Administrative Code.
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Section 2: Budget and Organizational Transparency
Conclusions
Organizational and budgetary clarity and transparency has been diminished, managers have not been delegated responsibility or made accountable for program results, and the Mayor and the City Council cannot be assured that resources are being expended as intended for the workers compensation litigation defense function. The basis for staffing levels and the mix between professional, paraprofessional and support staff has not been critically evaluated within the context of organizational purpose, function, workload or supervisory strength, while the upper management structure includes one unnecessary level. There is no articulated understanding of the linkages between the cost of risk for litigated workers compensation matters and the Citys expenditures for litigation defense. The organization of risk management and claims administration potentially could be improved and the City Attorneys Offices role better defined, by focusing responsibility and accountability under a single, Citywide risk manager that works collaboratively with the City Attorneys Office to reduce liability exposure and cost. The City has not established an organizational structure that focuses on all aspects of risk management, and has placed each of the functions of risk management, general liability claims administration and workers compensation claims administration in separate departments. The City Attorneys Offices role has not been critically defined within the broader context of this structure or the goal of reducing the Citys claims and litigation exposure.
Recommendations:
The City Attorneys Office should: 2.1. Routinely produce documentation for management purposes that segregates the Workers Compensation and Subrogation units organization, staffing and costs from other functions assigned to the Civil Liability Management Division. Eliminate the Supervising Attorney position assigned to oversee the Workers Compensation Division and the Subrogation Unit, and transfer the Subrogation Unit elsewhere within the Civil Liability Division. Annually evaluate the number and mix of personnel required to perform workers compensation and subrogation functions assigned to the City Attorneys Office by critically analyzing needs based on workload and process demands. Determine the appropriate manager and supervisor to staff ratios for the Workers Compensation Division, based on numbers of professional, paraprofessional and support staff and their assignments. For purposes of budget clarity, annually report to the Mayor, City Council and City Administrative Officer on the utilization of staff assigned to workers compensation and
2.2.
2.3.
2.4.
2.5.
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Section 2: Budget and Organizational Transparency subrogation functions, including those staff that have been authorized to augment baseline staffing, pursuant to City Council resolution authority. 2.6. Work with the City Administrative Office Risk Manager to annually report on the cost of risk associated with workers compensation litigation defense activities, linking activities of the City Attorneys Workers Compensation and Subrogation units to risk exposure and cost of claims.
The Mayor and the City Council should: 2.7. Evaluate and consider alternative organization structures that may result in a strengthened risk management and claims administration framework, including placing both in-house and contract claims administration under a centralized risk manager, based on models employed in other jurisdictions (Note: This recommendation would be consistent with workers compensation contract claims administration alternatives presently being considered by the City). Evaluate and consider mechanisms for charging departments for workers compensation claims administration and litigation defense, as a means of instilling greater ownership of the process by department managers and producing incentives for reducing claims exposure.
2.8.
Costs and Benefits

Additional cost to the City may be incurred by increasing mid-level supervision, but it could be minimized by eliminating the Supervising Attorney position over both the Workers Compensation Division and the Subrogation Unit, and exchanging line level paraprofessional and clerical positions for working supervisors, based on more typical manager and supervisor to staff ratios. Other costs could result from reorganizing the risk management and litigation defense functions Citywide. The budget and organizational characteristics of the City Attorneys Workers Compensation Division and Subrogation Unit would become more transparent to the public and City Council. The upper management structure for the two functions would be flattened, and manager and supervisor to staff ratios would be strengthened. Greater linkages between workers compensation litigation defense costs and exposure would result in potential savings to the City, and departmental manager awareness of the cost to the City from poor worker safety practices would be increased. Centralizing risk management within the City, with the City Attorneys Office acting as a partner responsible for litigation defense and advisory services to the risk manager and departments, would lead to greater coordination and increased collaboration between the parties.
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3.
Information Technology
The City Attorneys Office operates with a paperless record-keeping and case management system that facilitates information exchange between attorneys and support staff. However, for such systems to be effective and facilitate efficient work practices, strong internal controls must be developed, implemented and enforced to ensure that case records and activity entries are complete, timely, reliable, and reportable. Further, to maximize the efficient and effective use of information technology tools and minimize the risks associated with concentrating knowledge in a few individuals, employees should be sufficiently trained on the system and should have access to periodic retraining to retain and expand job-specific information technology skills. Procuring a replacement system requires planning and coordination among all stakeholders to ensure that products are compatible and fulfill workplace needs. The City Attorneys Office purchased A-1 Law in 2005, but did not sufficiently plan for its implementation. At the time, it did not develop standardized language, internal controls, or quality controls to ensure the reliability of workers compensation case records. The City Attorneys Office provides limited A-1 Law training for its staff and relies on one employee and the developer for most of its more sophisticated program needs. A-1 Law cannot interface with the Personnel Departments billing and claims management system, nor can it interface with the document management system shared by the Personnel Department with the City Attorney. Upper City Attorneys Office management did not involve Workers Compensation Division staff in an interdepartmental search for an integrated workers compensation system being spearheaded by the Personnel Department. Workers compensation claim information is managed inefficiently, with basic claim information entered redundantly into different programs by different City employees. The City Attorneys Office Workers Compensation Division spends hours each day working through document management system problems; basic case data is absent, inaccurate, or difficult to ascertain; and regular performance management reporting is cumbersome, delayed, or not performed. The Division is not able to accomplish necessary tasks in A-1 Law when its staff specialist is absent or otherwise occupied. Because many existing problems are not technical in nature, the functional improvements from system upgrades will be limited without sufficient planning and preparation. To overcome innate technical hurdles and limitations of the existing information technology systems, the City Attorneys Office should support the Personnel Department with efforts to fast-track the procurement and implementation of an updated, comprehensive management system. However, to ensure successful implementation, the Division must first develop data standards and controls, and identify performance expectations.
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Section 3: Information Technology
Workers Compensation and Information Technology

Although technologies change, the needs of workers compensation attorneys and support staff have remained fairly consistent over the years. For employee job duties to be performed efficiently and effectively, case records must provide standardized data elements, be accurate, and be easily accessible to appropriate personnel. Information systems used to store case records should complement well-designed administrative processes. When operating a paperless recordkeeping system, the reliability of the electronic record should be paramount. In 1995, the International Risk Management Institute (IRMI) published information technology recommendations for litigation managers.1 IRMI identified the following fields as bare bones information for a litigation management database: Plaintiffs name Defendants name Law or docket number Date of accident Name of lead attorney Type of lawsuit IRMI also suggested that the following additional fields be included: Case reserves Payments made to date Case status Nature and extent of injury State or jurisdiction of the claim Litigation status Plaintiff attorney contact information In its assessment of the use of computers in litigation management, IRMI also notes that case evaluation and loss projection/forecasting software systems can be useful. The latter allows risk managers to track trends in litigation and claim activity, and can aid in loss prevention. For example, such a system could be used to identify trends in accident or injury types. IRMI suggests that identifying such trends can help save money through improved training or equipment to avoid injury.
Kevin Quinley, Litigation Management, International Risk Management Institute, Inc. 1995 Harvey M. Rose Associates, LLC
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Section 3: Information Technology Assessing an Information Technology Litigation Management System IRMI recommends that litigation managers ask the following question when assessing a computer system: Does the computer show enough information so that an attorney without the file will still be able to converse intelligently about the case? They suggest that an answer of yes is indicative of an environment in which staff spend less time searching for key documents and files. IRMI concludes their IT assessment by noting it is the employees that ultimately control the work and litigation environment. The best electronic gizmos will not take the place of competent legal counsel and advocacy. They add The most important component of the computer system is the people who back up the machines (emphasis in the original).
The Workers Compensation Information Technology Infrastructure

The City Attorneys Office Workers Compensation Division operates in a paperless recordkeeping environment, relying principally upon three independent information systems to document, monitor, and manage litigation case files: A-1 Law: The City Attorney Offices Workers Compensation Divisions litigation management system. The system includes litigation database and diary functionality. The Personnel Department does not have access to A-1 Law. LINX: A DOS-based billing and claims management system used by the Personnel Department. The City Attorney has read-only access to LINX. Information on payments, payment types, amounts, and dates is stored in LINX. eFLOW: A document management database operated by the Personnel Department and shared with the City Attorney. All workers compensation mail and other documents sent to the City Attorneys Office and Personnel Department are scanned into eFLOWs proprietary electronic document format and distributed to handling claims adjusters or attorneys.
Technical Limitations Hamper Litigation Management

Several employees of the City Attorneys Office Workers Compensation Division expressed frustration with the Divisions IT infrastructure. Our own experience revealed several technical obstacles to accessing existing data and understanding the performance of the Division. In particular, we found that the lack of cross-platform communication, as well as technical limitations and complexities within each information system, hamper efficient and effective work process and litigation management. Data-Sharing Across Platforms Is Cumbersome Although the Division relies on all three systems to manage caseload, each is independent of the other and lack cross-platform communication capability. LINX and A-1 Law cannot communicate with one another, therefore all claim data entered into LINX must be separately reHarvey M. Rose Associates, LLC
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Section 3: Information Technology entered into A-1 Law. Although A-1 Law has the capability of linking electronic documents to claim entries, A-1 Law cannot link to documents in eFLOW. LINX cannot link to eFLOW documents. As a result of the lack of cross-platform communications, City Attorney and Personnel employees have developed informal processes to work-around technical hurdles and must perform redundant data entry tasks. Prominent examples are described below: Because A-1 Law cannot communicate with the LINX claim management system, any information in LINX that supports an A-1 Law case file must be manually searched and fully reentered into A-1 Law. Alternately, rather than reenter basic claim information into A-1 Law, the City Attorneys Office Workers Compensation Division often relies on data entered into LINX when documenting cases. As a result, Division staff often omit basic claim information from the A1 Law case record database, such as the date the case was open, the date of the accident, and the nature of the injury. Because A-1 Law cannot link case records to documentation in eFLOW, for each document supporting a case entry in A-1 Law, Division employees must manually locate the electronic document in eFLOW, convert the document to Adobe Portable Document Format (PDF), and then save those documents in A-1 Law. As discussed below, up to 32 percent of some legal support staff time is spent working in eFLOW.
eFLOW Search Activities Consume Excessive Staff Hours

The Divisions attorneys and legal support staff report spending an excessive amount of time managing electronic documents. Documents in eFLOW are routinely mislabeled or misdirected by the City Attorneys and Personnel Departments Mail Teams. The Mail Teams are composed of clerks from each department who open mail, scan it, name the scanned files, and direct the files to the appropriate attorney; the Personnel Departments Mail Team processes billing and medical documents and the City Attorneys Mail Team processes legal correspondence. The Mail Team does not always name documents properly or direct them to the correct staff member, however. As a result, the Divisions legal support staff spend a considerable portion of their days searching documents in eFLOW. Based on the results of a Division survey and interviews conducted for this audit, four out of the five support classifications report spending between 11 percent and 32 percent of their days either scanning documents, converting files from eFLOW to Adobe Portable Document Format (PDF) for use in A1-Law, or searching eFLOW for mislabeled documents. In total, approximately 4.5 full time equivalencies (FTEs) of City Attorney support staff are consumed with eFLOW searches and PDF conversions each day.
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Table 3.1 Daily Time Spent Working in eFLOW

Classification Title Full Time Equivalency (FTEs) 8 13 1 1 8 Portion of Day Spent Using eFLOW Daily FTE Devoted to eFLOW 1.2 1.4 0.3 0.0 1.6 4.5
Legal Secretary Legal Clerk Senior Legal Clerk II Special Assignment Clerk Legal Assistant TOTAL
15% 11% 32% 0 20%
Source: Percentages provided by City Attorneys Workers Compensation Division
In addition to these staff, the Divisions attorneys also report spending an uncalculated but significant amount of time searching eFLOW for required documents, particularly when documents are mislabeled or misdirected.
Existing Systems Search and Reporting Functionality Is Limited

The City Attorneys Workers Compensation Division is not able to easily produce meaningful management reports in either A-1 Law or LINX. The Division Cannot Easily Generate Basic Management Reports in A-1 Law The Division is unable to make full use of A-1 Laws relational database capabilities. The system can be difficult to understand for even regular users. The City Attorneys Office cannot use A-1 Law to generate more sophisticated trend or forecasting reports, as recommended by IRMI. Further, although A-1 Law contains the data necessary to generate basic workload and performance measures, the City Attorneys Office is not able to produce these basic reports given staff expertise and system configurations: Claim ages and average lifespan Claim populations and population changes over time Ratio of new claims to closings Winning and settlement percentages
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Section 3: Information Technology Additionally, users are limited in their abilities to search A-1 Law or run queries. For example, the Workers Compensation Division, with the assistance of the software developer, was not able to search or query the system for a list of claims with specific types of accidents or injuries. The limitations with A-1 Laws reporting, querying, and searching functionalities are exacerbated by a lack of staff training on A-1 Law, discussed in greater detail below. Basic Billing and Payment Data Not Stored in Easily Accessible Format Because information on payments, payment types, amounts, and dates is stored in LINX, the City Attorneys Office Workers Compensation Division generally does not reenter the information into A-1 Law. However, like A-1 Law, LINXs reporting, querying, and searching functionality is limited. Furthermore, the City Attorneys Office does not have the ability to write or edit LINX entries, nor does it have the ability to easily query LINX. Understanding Workers Compensation Division claim data in LINX is difficult, primarily because Personnel handles a much wider array of workers compensation claims than does the City Attorneys Workers Compensation Division. LINX contains all workers compensation claims, litigated and not. Because it is a wider array of cases, general LINX population data cannot be used to understand the City Attorneys Workers Compensation Divisions caseload or its performance. Furthermore, it is not possible to accurately or easily segregate the litigated claim population from the general LINX claim population. Therefore, the City Attorneys Office cannot easily use LINX to understand the billing and costs related to its claims.
Inadequate Training, Standards, and Controls Inhibit Data Reliability

As noted above, IRMI notes that the most important component of the computer system is the people who back up the machines (emphasis in the original). Compounding the inherent technical limitations of the Workers Compensation Divisions information systems infrastructure, the audit revealed that the City Attorney provides insufficient technical training to its employees to ensure efficient and effective work performance; managers have not developed necessary procedures or controls to ensure data reliability and usability; and planning for new technology is not sufficient. Training Is Inadequate and Infrequent Although the Workers Compensation Divisions administrative employees utilize A-1 Law daily, the City Attorneys Office provides minimal training on the use and functionality of the litigation management system. Legal support staff receive some training when first arriving at the Division, but do not receive additional or refresher training. Most administrative employees do not have a detailed understanding of the attributes and functionality of A-1 Law. As a result, the Division relies on the expertise of one Legal Clerk for troubleshooting, reporting, and other technical functions. The Division relies so heavily on this Legal Clerk that when that person is not present, the Division cannot produce certain reports and
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Section 3: Information Technology queries or answer technical questions. In the absence of this key employee, or in the instance of an elevated issue, the City Attorneys Office must rely on the software developer. However, Division managers are hesitant to contact the developer because of funding and other concerns.
Managers Have Not Developed Standardized Procedures or Controls to Ensure Data Reliability
Weak internal controls and a lack of standardized procedures complicate the ability of City Attorney staff to perform their duties in an efficient, cost-effective, and consistent manner. Weak Internal Controls Contribute to Data Errors, Omissions, and e-Document Errors Critical data fields are often omitted or entered inaccurately, hampering the ability of attorney and legal support staff to locate claim information in A-1 Law and other programs. For example: Nearly one in four claims (23.5 percent) in A-1 Law do not include the date the case opened (the date that the claimant notified the City of their intent to litigate their workers compensation claim). The rate of omission was higher in our study period (January 1, 2005 through June 30, 2009), when more than half (53.4 percent) of the 7,482 claims entered into A-1 Law were entered without the date the case opened. More than one in eight of the nonsworn claims (13.5 percent) with an open date in our study period were entered into A-1 Law with incomplete Workers Compensation Appeals Board (WCAB) claim numbers.2 This number is required for all legal filings and to confirm billing and other claim data in LINX. Extrapolated to the total number of claims in A-1 Law, more than 2,000 out of approximately 15,392 claims are missing this key information. Nearly one in five claims (18.2 percent) in A-1 Law with a status of Open list the date the claim was closed. The Division may change the case status from Closed to Open after a claim is settled, in the event a provider files a lien. Marking settled cases as open hampers the Divisions ability to accurately assess its active case load. Several bare bones data fields, as recommended by IRMI, are routinely left blank in A-1 Law. These fields include date of accident, payments made to date, and nature and extent of the claimants injury.
In addition to the errors and omissions in A-1 Law, the City Attorneys Office and Personnel Department mail teams routinely mislabel or misdirect critical documents in eFLOW. These errors eventually require Deputy City Attorney and legal support staff to engage in lengthy searches to document cases for court or other proceedings, as noted above.
Of the sample, 253 claims (12.4 percent) had incomplete WCAB numbers, and 22 claims (1.1 percent) had no WCAB claim numbers and were left blank. Harvey M. Rose Associates, LLC
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Section 3: Information Technology Poor Standardization Weakens Data Usefulness Although the Personnel Department utilizes and maintains a list of standard codes for accident and injury types, the City Attorneys Office Workers Compensation Division does not utilize available standardized language in the A-1 Law system. As a result, accidents and injuries are often entered differently in A-1 Law and LINX. Even among A-1 Law entries, similar accident and injury types may be entered differently. Small differences, such as logging one injury as Hand and another as Finger can unnecessarily inhibit understanding and analysis. Installing controls in A-1 Law or standardizing language would enable easier population analysis. Comparing claim information in A-1 Law and LINX can be inhibited because the two departments maintain different claim grouping practices. When a claimant has multiple claims, both Personnel and City Attorney staff independently select one of those claims as a master file, under which all new documents and entries for all of the claimants cases are recorded. The City Attorneys Office does not have a written policy for selecting a master claim, nor is the selection process uniformly or clearly understood. Furthermore, there is no coordination between the two departments to ensure that the selected master file in LINX and A1-Law is the same, so different claims serve as master files in the different systems, making records coordination and management difficult. Technological Upgrades Will be Less Effective Without Additional Planning Technical upgrades and improvements are needed in the City Attorneys Office Workers Compensation Division. However, technical improvements alone cannot solve the Divisions recordkeeping and case monitoring difficulties. Successful implementation of a new information technology system requires improved standardization and controls, as well as deliberative planning for required and desired performance measures and reporting functionality. Furthermore, the Division needs to be involved in the search for new information technology solutions. The Personnel Department has searched for a new workers compensation management tool that would combine the functionality of A-1 Law, LINX, and eFLOW. However, the City Attorneys Office participated minimally in this search at the executive staff level, and did not involve Workers Compensation Division managers or staff in the process. From the search process, the Personnel Department has identified a preferred comprehensive management system, which would be a major technical improvement for litigation management, claims processing, and electronic document management, plus it would provide additional functionalities and allow communication across different workers compensation processes. However, without sufficient process reengineering, planning and training, a new comprehensive management system will not solve existing problems and will likely create new problems.
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Section 3: Information Technology A System Upgrade Is Needed Regardless of Who Provides Claims Adjustment Services The Personnel Departments FY 2009-10 budget included $3.6 million for the purchase of new computer hardware, licensing, system migration and full implementation of a new, comprehensive and integrated workers compensation claims management system. According to Personnel Department management, that funding has been recommended for carryover into the FY 2010-11 budget. The Department estimates that once an implementation team has been identified, full implementation will take 12 to 18 months. As of the writing of this report, the City of Los Angeles is publicly considering removing claims adjustment responsibilities from the Personnel Department and contracting them out to a TPA.3 The decision to perform claims adjustment in-house or contract these responsibilities does not change the information technology problems in the City Attorneys Office Workers Compensation Division. Therefore, regardless of the outcome of the claims adjustment outsourcing decision, the City Attorneys Offices Workers Compensation Division requires a new comprehensive management system in order to improve its workplace efficiency and litigation management practices.
Conclusions
Electronic workers compensation claim information is managed inefficiently. Basic claim information is repeatedly entered into different programs by different employees. Basic financial and claims processing information is not linked to claims litigation information. The Division wastes hours converting electronic documents or trying to find electronic documents that were mislabeled or misdirected. Regular performance management reporting is cumbersome and delayed. The Division is not able to accomplish necessary tasks in A-1 Law when its staff specialist is out of the office or otherwise occupied. Whether the Personnel Departments workers compensation claims management responsibilities remain in house or are contracted to a TPA, the City Attorneys Office needs access to a new comprehensive management system in order to reduce inefficient work practices and improve the effectiveness of its litigation management practices. However, without sufficient planning and preparation, the functionality of a new comprehensive management system will be limited, and the program would not solve existing problems but may create new obstacles.
The current TPA that handles the Citys sworn workers compensation claims has access to the Citys LINX system, but not eFLOW. The TPA does not operate a paperless system and does not use a document management system. Harvey M. Rose Associates, LLC
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Recommendations
In order to overcome the innate technical hurdles and limitations of the existing workers compensation information technology infrastructure, the City Attorneys Office Workers Compensation Division should: 3.1 Work with the Personnel Department to fast-track the procurement and implementation of a new, comprehensive case management and information system.
In order to prepare for the implementation of a new workers compensation management system, the City Attorneys Office should: 3.2 3.3 3.4 3.5 Develop standardized language, mandatory data fields, and other specifications for the fields that are shared between departments. Identify litigation-specific deadlines and time-based performance goals and objectives to be added to the system. Identify deadlines that are shared between departments in litigated workers compensation cases that should be automatically flagged in a new system. Develop a written protocol for identifying a master claim.
In order to ensure that the Workers Compensation Division maximizes the benefit of a new integrated workers compensation management system, the City Attorneys Office should: 3.6 3.7 3.8 3.9 3.10 Provide formal training on the new comprehensive management system for all current and future members of the City Attorneys Workers Compensation Division. Develop a regular schedule of refresher trainings geared toward specific legal and legal support roles. Configure the program to standardize language where appropriate and validate required data. Activate database alert functionality for all relevant deadlines and time-based goals and objectives. Configure the program to automatically generate reports that summarize individual and program-wide performance.
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Costs and Benefits

Implementing the above recommendations would involve upfront and ongoing costs. The upfront costs include the actual cost of the system, as well as an investment of managers and staff time to adequately plan for the technical and practical needs of a new system. Upfront costs would also include the technical costs of migrating data from the existing systems to the new system, training for all Division staff members, and a cost of time for adjustment and troubleshooting the new system. Ongoing costs include the ongoing technical maintenance and oversight, as well as fine-tuning by the staff and periodic retraining. The City Attorneys Workers Compensation Division serves to substantially benefit from technical and managerial updates to the current IT infrastructure. Eliminating unnecessary technical workarounds and teaching staff to use resources more efficiently and effectively could free up hundreds to thousands of legal and administrative staff hours per year. Improving data quality, searching, and reporting capabilities is necessary for implementing several of the workload and performance management improvements discussed in later sections of this reportimprovements that can lead to reduce settlement costs and related payments while also increasing efficiency.
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4.
Workload and Performance Measurement

The International Risk Management Institute publication, Litigation Management, recommends more than a dozen performance measures for evaluating the workload and performance of litigation programs. These measures require the maintenance of basic staffing and caseload statistics in an accessible format. These statistics need to be valid, comparable, and verifiable. The City Attorneys Office has not developed systems or processes to measure the Workers Compensation Divisions workload or performance, and Division management has abandoned previous efforts to conduct qualitative case review. The Division does not report on its one articulated performance goal and does not routinely quantify core workload data. The Division currently reports on 14 workload and performance measures. However, the Division is not reporting on 11 of the 13 workload and performance measures recommended by the International Risk Management Institute. Relevant and available data is not being accessed, and the Division has not developed standards or internal controls to ensure data being captured is consistently calculated and recorded. The Los Angeles City Attorneys Office has not demonstrated a goal-oriented, strategic understanding of Workers Compensation Division performance, at the individual attorney level or in the aggregate. The Office has not maintained verifiable records of attorney workload and is not in a position to see ongoing changes in trends or detect problems at the individual, Division, or interdepartmental level. Because of missing data and inconsistent record-keeping, even recent historic data cannot be used to reliably determine program performance or establish a baseline. The City Attorneys Office Workers Compensation Division should establish a range of workload and performance standards, measures, and criteria for program evaluation to better understand workload and performance. Workload and performance statistics should be collected and reported to upper management to continuously improve performance and ensure the Division is accomplishing intended goals and objectives.
As noted in Section 1: Strategic Management, we found two sources to be particularly helpful in evaluating the City Attorneys Office Workers Compensation Divisions workload and performance: (1) the U.S. Office of Management and Budgets (OMB) Program Assessment Rating Tool (PART), and (2) Litigation Management, a publication of the International Risk Management Institute (IRMI).1 In addition, performance management rating tools regarded as
IRMI is a Dallas-based research and publishing organization specializing in property-casualty insurance and risk management. Harvey M. Rose Associates, LLC
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Section 4: Workload and Performance Measurement Practices universal resources for assessing public sector workload and performance measurement systems were also used for this analysis.
OMBs Program Assessment Rating Tool (PART)

When assessing program performance management practices, the federal Office of Management and Budget (OMB) directs managers to adopt workload, performance, and efficiency measures and use the measures to track their progress towards program goals. OMB notes Taken together, a program's measures should tell a comprehensive story of its performance. OMB defines workload and performance measures, which they refer to as output and outcome measures, as follows: An outcome (performance measure) refers to the events or conditions of direct importance to the public/beneficiary that are external to the program. An outcome answers the question "What is the program's goal or purpose?" For example, the goal of a job training program is to give someone the skills to find a job, as opposed to giving out a grant. An outcome measure may be the number and percent of people employed within six months of completing the job training program or how much their income increased. An output (workload measure) refers to the internal activities of a program, such as the products or services delivered. The output answers the question "What does the program do to achieve its goal or purpose?" For example, a job training program may provide a class to teach someone the skills necessary to find a job. An output measure may be the number of people who complete a job training program. OMB states that the key to assessing program effectiveness is measuring the right things. OMBs PART examines the quality of program goals and measures as well as the level of achievement. OMB measures the level of success of a program as the extent to which it has performed against established goals.
IRMI Litigation Workload and Performance Measures

The International Risk Management Institute (IRMI) publication, Litigation Management, recommends more than a dozen workload and performance measures for evaluating litigation workload and outcomes, as presented in Table 4.1, on the next page. These measures require the maintenance of basic staffing and caseload statistics in a usable format. These statistics need to be valid, verifiable, and comparable. Therefore, managers must make sure there are sufficient standards and internal controls over information and data used for measurement. IRMI notes that recording and reporting measurement data is not enough. Managers also must routinely evaluate established workload and performance measures for them to be useful. The IRMI discussion of quantitative analysis concludes, Paying attention to the numbers gives the risk manager new yardsticks of measurement to gauge litigation management performance. Close and regular monitoring of results can help detect problems early on, such as understaffing or a spike in obligations, and bolster the argument for corrective action.
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Section 4: Workload and Performance Measurement Practices
Table 4.1 Recommended Workload and Performance Measures

Workload Measures New cases or claims per month Case closings per month Ratio of new cases or claims to closing Turnover rate (total cases/monthly closings) Open caseload (month to month) Average caseload per attorney Performance Measures Average lifespan of open cases New obligations per month Average obligation per new lawsuit Payments and % change in payments Legal fees, % change, and average fees Trial outcomes Settlement percentage
Source: Litigation Management, K. Quinley, International Risk Management Institute, 1995.
General Review Practices IRMI recommends various approaches to cutting costs and improving efficiency. At the conclusion of any case, IRMI encourages managers and attorneys to step back and reflect on what occurred, why it happened, determine whether it portends a trend, isolate the cause, develop an action plan, implement the action plan, and monitor results. Made operational in a department setting, IRMIs recommendations include three steps particularly relevant to the City Attorneys Office Workers Compensation Division. 1. Conduct Case Autopsies. IRMI recommended that counsel, risk managers, and others collaborate following a case with an unexpected outcome to identify the contributing factors to that outcome. 2. Hold Review Meetings. IRMI recommends having joint meetings between attorneys and safety personnel to review representative cases. The objective of such meetings is to identify the cause of the loss and develop a cohesive response involving risk management, claims adjustment, and litigation personnel. 3. Compose Litigation Case Studies. IRMI recommends managers develop fictional case studies based on department experiences with identifiable attributes removed. These case studies should be used to identify factors contributing to loss.
Division Workload and Performance Measurement

For the calendar years 2007, 2008, and 2009, the City Attorneys Office Workers Compensation Division reported limited annual attorney workload and performance data. The data was compiled by the Division Manager, with assistance from the litigation support staff. 2 Although
Although data for all three calendar years was provided to the Auditor, the Divisions Interim Managing Attorney was only in possession of the 2007 and 2009 data at the commencement of the audit. Harvey M. Rose Associates, LLC
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Section 4: Workload and Performance Measurement Practices hard copy documents were provided at the outset of the audit, electronic copies for all years were not made available. The Division was unable to provide all three years of data when requested at a later point in the audit. According to the current Interim Managing Attorney, this occurred because the former manager did not preserve electronic or hard copy records of the report prior to being transferred to the City Attorneys Business Division, so such reports could not be located or reproduced. Although this was a relatively insignificant matter for purposes of the audit, the inability to easily produce such reports when requested, suggests that the City Attorneys Office upper management does not routinely receive, evaluate or retain Division workload or performance reports. Nonetheless, prior to the transfer of the previous Managing Attorney, the Division internally reported and tracked workload and performance measures for each attorney on a monthly and year-end basis. However, the Division did not calculate or report division-wide totals on the documents that were provided. As will be discussed below, several division-wide measures could not be considered reliable due to concerns regarding data validity and consistency. Table 4.2, below, summarizes the workload and performance measures recorded by the Division and reported by management. As shown, the Division added several additional measures over this period, for a total of 14 reported workload and performance measures in 2009.3
Table 4.2 City Attorneys Office Workers Compensation Division Existing Workload and Performance Measures
2007 Measures Workload measures Appearances Trials held Various legal activities (e.g., writs, depositions)* Special assignments Department meetings Performance measures Cases resolved** Estimated dollar savings from settlements New 2009 Measures Workload measures Recons/Writs Depositions/Cross Examinations Settlement requests Claims Board letters
Performance measures Dismissals Settlements & F&A (findings and awards) Exposure/Savings*** * The Various legal activities measure does not appear on the 2009 report; its components became standalone measures in the 2009 report. ** There is no written standard for reporting cases resolved, and different attorneys received different verbal instructions. As a result, some attorneys recorded cases resolved, and others recorded the component parts, claims resolved (one case may involve several claims). *** Like the Cases Resolved measure, there is no written standard and different attorneys received different verbal instructions on how to calculate these measures. Also, the report contains calculation errors.
Table 4.2 includes 15 measures. However, the 2007 measure Various legal activities does not appear on the 2009 report; its components became standalone measures in the 2009 report. Therefore, the current total is 14 measures. Harvey M. Rose Associates, LLC
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Division Workload and Performance Is Not Sufficiently Measured

The City Attorneys Office management is not adequately measuring or monitoring workload or performance within the Workers Compensation Division. Although the Division currently reports 14 workload and performance measures, we found that the Division is not reporting on its own goals and objectives and is not measuring or monitoring attorney or Division-wide workload and performance. The Division is only reporting 2 of the 13 measures recommended by IRMI, and is not reporting or monitoring these on a regular basis. The Division Does Not Report Achievement of Its Sole Performance Goal As is noted in Section 1: Strategic Management, the City Attorneys Office Workers Compensation Division has established only one performance goal: timely resolution of assigned cases. To monitor progress toward this goal, the Division established the objective of having attorneys conduct periodic case reviews every 60 days. None of the workload or performance measures reported by the Workers Compensation Division, as summarized in Table 4.2 above, relate to review efforts or time to disposition. As is discussed in Section 5: Litigation Management, we calculated case resolution performance for this audit, revealing that the Division has taken more than five years to close most of its cases. The City Attorneys Office Workers Compensation Division Is Not Quantifying Caseload Although management states that the Workers Compensation Division has a heavy caseload, the City Attorneys Office does not systematically or quantifiably measure the Divisions or individuals caseload. Some of the workload measures recommended by IRMI include the number of active cases per attorney and the ratio of new claims to closings. However, the City Attorneys Office has not measured or maintained verifiable historical records of these types of basic workload metrics. In addition, the Division has not maintained or produced a verifiable caseload record when requested to do so for this audit. As discussed in Section 2: Budget and Organizational Transparency, the City Attorneys Office could not produce a verifiable historic record of Division staffing levels. The lack of internal controls and reporting standardization has resulted in data entry irregularities, such as missing key dates. Therefore, the Divisions litigation management system, A-1 Law, cannot currently be used to produce reliable data on historic case population and changes to caseload. The Division Partially Reports 2 of 13 Recommended Measures Although the City Attorneys Office Workers Compensation Division currently reports 14 workload and performance measures, these measures only address 2 of the 13 workload and performance measures recommended by IRMI. Table 4.3 is a scorecard of the Divisions existing performance measures.
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Table 4.3 City Attorneys Office Workers Compensation Division, Workload and Performance Measurement Scorecard
Measure Workload Measures: New cases or claims per month Case closings per month Ratio of new cases or claims to closing Turnover rate Open caseload (month to month) Average caseload per attorney Performance Measures: Average lifespan of open cases New obligations per month Average obligation per new lawsuit Payments and % change in payments Legal fees, % change, and average fees Trial outcomes Settlement percentage Calculated or Reported by City Attorney? No Yes, but with inconsistent case definitions* No No No No No No No Yes (settlements, findings, and awards only), but not calculating % change in payments No No No
* As is discussed below, there is no written definition of case closings, and Deputy City Attorneys have calculated this figure inconsistently, to date.
The Divisions currently reported measures cannot simply be restated or recalculated to determine the IRMI-recommended measures. For example, the Division currently does not report the number of litigated claims added to the Divisions workload each month. Without that data, three of the IRMI-recommended measures cannot be determined: (1) new cases or claims per month, (2) ratio of new cases or claims to closing, and (3) average obligation per new lawsuit. Similarly, the Division does not report on attorney caseload, a statistic that is required to calculate the turnover rate, open monthly caseload, and average attorney caseload. New and existing caseload data are both currently available to the Division in its litigation management system, A-1 Law. However, as is discussed below, improved standardization and controls are required to ensure the validity of that data. Workload and Performance Reporting Is Not Timely Currently, the Division is reporting its workload and performance measures on an annual basis, broken down by month. However, monthly monitoring of changes and trends in these measures yields a greater benefit to program managers. For example, IRMI finds that tracking the open caseload from month to month can give a manager credible experience on which to discern trends and implement corrective actions. Sudden increases, IRMI suggests, could indicate poor loss prevention practices or demographic trends, such as a growth in litigiousness. Similarly, IRMI states that measuring legal fees and changes in fees is necessary for intelligent budgeting and cost control.
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Section 4: Workload and Performance Measurement Practices While reporting workload and performance measures on an annual basis is preferable to not reporting measures at all, regular reporting and monitoring allows managers to better understand and sustain positive performance, while also providing the opportunity for managers to correct potential problems more quickly and cheaply.
Available Data Is Underutilized, and Insufficient Standards and Controls Undercut the Datas Meaningfulness
Although the City Attorneys Office Workers Compensation Divisions workload and performance measurement and reporting practices fall short of recommended practices, these measurements are knowable. However, the Divisions litigation management system, A-1 Law, is underutilized in measuring and reporting workload and performance. Further, improved standardization and controls are required to ensure data reliability. Data Sources Are Underutilized for Workload and Performance The City Attorneys Office Workers Compensation Divisions litigation management system, A-1 Law, is underutilized for the monitoring of performance. Although the system is capable of recording the data elements required to develop the recommended workload and performance measures discussed above, the City Attorneys Office is not currently extracting or monitoring that data, which include the following: New cases or claims per month. This measure can be ascertained fairly simply, and easily subdivided by claimants department or handling attorney. However, managers must ensure that case open dates are always entered, and entered accurately, to ensure validity. Open caseload. This measure can also be ascertained by a quick search. To ensure validity, the Division must develop a standard definition of caseload, as well as case status. Case lifespan. The Division cannot automatically calculate this measure in A-1 Law. However, data from A-1 Law can be used to calculate this measure in a few relatively easy steps. To ensure validity, managers must ensure that case opening dates are recorded and valid, and that cases are queried by closing date, rather than case status. These three measures alone constitute three of the recommended workload and performance measures not currently being reported by the Division. These three measures are also needed to calculate the following recommended measures: (1) ratio of new claims to closings; (2) turnover ratio; (3) average new reserves per lawsuit; (4) average reserve per open lawsuit; (5) average legal fees per case; and (6) average caseload per attorney. Inadequate Standards and Controls Undercut Value of Data Before meaningful, recommended workload and performance measures can be recorded and reported, the Workers Compensation Division needs to improve the standardization of its performance measure definitions, as well as improve the controls over which data is entered into A-1 Law.
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Section 4: Workload and Performance Measurement Practices Written, Agreed-Upon Definitions are Needed for Reliability The Division does not have written, agreed-upon definitions for basic performance measures, and attorneys have been using inconsistent approaches to report case resolution, exposure, and savings: When compiling their number of case resolutions, some attorneys reported the number of individual claims resolved, while other reported only master cases (a master case may include several claims from the same claimant). Attorneys used inconsistent formulas to calculate exposure, therefore reporting exposure and calculating savings differently. As a result of these inconsistent calculations, the measures reported from the Divisions internal reporting cannot be combined to show accurate Division totals or averages, nor can they be used to compare attorney performance. Valuable Data Fields Are Left Blank Although A1-Law is configured to record a wide array of important case information, critical fields are often left blank. As is noted in Section 3: Information Technology, more than half (53.4 percent) of the case entries in our study period lacked the date the case was opened. Furthermore, because the Division relies on the Personnel Department to record financial data in its billing and claims management system, LINX, the Division does not regularly enter claim financial information into A-1 Law. However, as is noted in Section 3: Information Technology, extracting Division-specific caseload financial data from LINX is not practicable. Therefore, given current data entry practices, recommended financial performance measure data would be extremely difficult and time consuming to calculate. Financial data (e.g., payment authorization, confirmation, and amounts) is collected in the Personnel Departments LINX billing and claims management system, but that data is not entered into A-1 Law. As configured, A-1 Law has limited querying, reporting, and exporting capabilities, and is not routinely used to measure individual or Division-wide performance.
Prior Efforts to Evaluate Performance Have Been Short-lived

The City Attorneys Office requires all attorneys to submit case settlement recommendations to the Workers Compensation Division managing attorney for review and approval prior to entering into a final settlement agreement with the claimant. This permits the supervisor to generally review the case, become familiar with the key factors supporting settlement and determine whether the proposed settlement agreement is reasonable. In addition, the professional staff from the Division meet with each other and the Division manager weekly to discuss cases, and share suggestions on settlement strategy and approach to case disposition. Although necessary and appropriate in a professional office, neither of these practices rise to the level of case auditing or robust peer review.
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Section 4: Workload and Performance Measurement Practices An effective case audit or peer review program involves an examination of a random sample of case records by professionals other than those who were involved in a case, to ensure that the policies and standards of the profession and the organization are being followed. These reviews are typically conducted retrospectively, so that the entire record can be examined in the context of the services being provided. Peer review has been an area of discussion within the legal profession since at least the 1970s. Since that time, peer reviews of law offices and individual attorneys have become more and more commonplace, often used as marketing tools in the private sector to demonstrate professional and ethical quality, and in the public sector to strengthen accountability. Today, many lawyers participate in this process to: Enhance management and oversight of law office operations; Obtain information that helps define organizational and individual goals, and to strengthen quality control mechanisms; Monitor attorney compliance with established policies, procedures, technical standards and professional ethics; Identify opportunities to better meet client needs (in the case of the City Attorneys Office, the citizens, through the municipal corporation of the City of Los Angeles). According to City Attorneys Office Workers Compensation managers, efforts to conduct postclosure case audits or peer reviews have been short-lived and heavily resisted by attorneys. The previous manager of the Division stated in interviews that a formal case audit process that was previously implemented resulted in such a high degree of resistance that the effort was eventually abandoned. Attorneys who were charged with conducting the case audits stated that Division attorneys were resentful and defensive about findings and recommendations for more effectively representing the City. As a result, this practice which is common in other professional organizations and is becoming more common in the legal profession was abandoned by the prior City Attorney and has not been reactivated under the new administration. Without an effective audit or peer review process after cases have been closed, management has no basis to judge the qualitative decisions being made by attorneys or to determine whether strategic changes in defense approach may be warranted. Furthermore, the Division does not regularly review cases in a collaborative manner with claims adjusters and other stakeholders, nor has it developed case studies to provide guidance to its staff on strategies for avoiding loss.
Conclusions
By the standards of quantifiable, recommended workload and performance measures, the City Attorneys Office has not demonstrated a goal-oriented understanding of the Workers Compensation Divisions quantitative workload or performance. The Division is not measuring workload or performance in line with its own goals, or according to recommended measures. The Division is also not making use of existing data to calculate workload and performance
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Section 4: Workload and Performance Measurement Practices measures, though inadequate standards and controls hamper the validity and meaningfulness of such calculations. Because the City Attorneys Office has not sufficiently measured or monitored the Workers Compensation Divisions workload and performance, it is not in a position to effectively manage the Division. Because the City Attorneys Office does not have a quantifiable understanding of attorney workload, it is not in a position to see ongoing changes in trends or detect problems at the individual, Division, or inter-departmental level. Because of missing data and inconsistent record-keeping methodologies, even recent historic data cannot be used to determine current program performance or establish a baseline. A workload and performance measurement system is therefore needed, and reliable baseline data should be created.
Recommendations
In order to better understand workload and performance, the City Attorneys Office and the Workers Compensation Division should: 4.1 4.2 4.3 4.4 Commit to calculating and reporting all 13 workload and performance measures recommended by the International Risk Management Institute. Identify additional workload and performance measures that are of key importance. Build adopted performance measures into the reporting functionality of A-1 Law system or any planned replacement. Record, report, and monitor workload and performance measures on a monthly basis, and incorporate review of monthly performance measures into regular City Attorneys Office management meetings and the Divisions weekly attorney and support staff meetings.
In order to ensure data reliability, validity, and meaningfulness, Division managers should: 4.5 4.6 4.7 4.8 Add written definitions to the Policy Manual for all workload and performance measures. Require that attorneys or their support staff enter key data into A-1 Law fields, including all relevant dates. Assign legal support staff or temporary staff the task of adding key missing data, such as claim opening dates, to all A-1 Law claims. Determine a practical or technical approach for ascertaining recommended financial measurements.
In order to refine new workload and performance measurement approaches, after six months of reporting, the Division should: 4.9 Establish workload and performance baselines.
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Section 4: Workload and Performance Measurement Practices 4.10 Develop quantitative performance objectives aligned to the Divisions revised mission, vision, and goals.
In order to prevent performance information from being lost to turnover, the City Attorneys Office should: 4.11 4.12 Require all program performance data to be saved to a shared server. Require managers to distribute workload and performance measurement reports to relevant parties in an electronic format.
In order to monitor case activity, the Workers Compensation Division should: 4.13 4.14 4.15 Implement a policy of conducting case audits and peer reviews on a random sample of each attorneys annual caseload. Hold periodic review meetings with claims adjusters and risk managers on sample cases. Develop litigation case studies to illustrate best litigation practices and loss avoidance.
Costs and Benefits

The cost of implementing most of the above recommendations is negligible since most should be principal responsibilities of existing management. The bulk of the cost would be time invested in standardizing workload and performance measurement definitions and configuring A-1 Law reporting. An initial investment of administrative staff time would also be required to fill out existing A-1 Law entries. Once made operational, the cost of maintaining a reliable workload and performance measurement system would be recovered through improved staffing efficiencies. Implementing the above recommendations is critical to containing costs, reducing risk and overhead, and improving Division efficiency. Recognizing workload and performance trends and anticipating problems could help the City realize considerable savings in its workers compensation-related costs and avoid costly delays and errors.
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5.
Litigation Management
Best practices suggest that workers compensation litigation managers should work to expeditiously close cases in order to reduce exposure. Jurisdictions have successfully tracked case aging and implemented case review procedures to ensure that cases are progressing appropriately, and industry leaders show that an aggressive workers compensation litigation effort can close most cases within one year. To foster understanding of the relationship between litigation management and cost containment, case progress records, payment information, and cost data need to be compiled and reported in a way that fosters appropriate management oversight. The City Attorneys Office Workers Compensation Division does not aggressively work its cases according to its own measure, and cases remain open significantly longer than best practices suggest is advisable. Settlement and lien payments are not consistently or transparently recorded, or monitored by management; and some settlement practices may be obscuring fines and fees that would otherwise be due to the applicants as a result of performance lapses by City employees. The practice of adjusting disability payments by a few percentage points could be masking processing errors that cause penalties on the order of $1 million to $2 million per year. Although Division attorneys have called for an increase in the City Attorneys settlement authority limit of $50,000, our analysis of settlement payment experience suggests that maintaining lower limits may be providing claimants with an incentive to settle claims at a lower cost to the City. By establishing guidelines and standards of operation in key areas, as well as improving record-keeping and monitoring of certain key activities, the City Attorneys Office managers would improve the accountability of the Workers Compensation and Subrogation divisions and increase understanding of workload and performance, at minimum cost and potentially great savings. Decreasing settlement payments by correcting errors that lead to penalties could, by itself, cut costs and increase revenues by millions of dollars.
Documenting case progress and the rationale for litigation decisions is essential for providing a record that can be used by management to ensure quality of representation for the City. The Workers Compensation Division can implement a variety of best practice procedural changes that would strengthen its performance in this area. Periodic Case Review In its publication, Litigation Management, the International Risk Management Institute (IRMI) recommends that litigation program managers require their attorneys to report to management at specified time intervals. Periodic case review helps ensure that cases are progressing toward a conclusion and that no case falls by the wayside. Jurisdictions comparable to the City of Los
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Section 5: Litigation Management Angeles have successfully implemented this practice. For example, Los Angeles County successfully implemented a policy whereby its attorneys review cases quarterly (every 90 days), which includes documenting the steps they are taking to resolve the case. The California Joint Powers Insurance Authority (CJPIA) requires its contract attorneys to submit a status report no later than 60 days after a case is opened, and prepare or update a litigation review every 6 months. Attorneys for these and other jurisdictions balance periodic case review and reporting with their other responsibilities. Timely Case Closure Workers compensation experts and managers within the City Attorneys Workers Compensation Division agree that controlling claim aging is a key to containing costs. Best practices suggest that cases should be closed expeditiously, with some industry experts suggesting case closure goals as aggressive as 12 months. As noted in Section 1: Strategic Management, the City Attorneys Workers Compensation Divisions one performance goal is timely case resolution. As noted in Section 4: Workload and Performance Measurement, IRMI recommends regularly reporting and monitoring average case ages. Settlement and Payment Review Practices Understanding workers compensation program performance requires an understanding of settlement and lien payments, subrogation recoveries, and other financial factors. Therefore, payments and recoveries must be consistently and accurately documented, tracked, and monitored.
Existing Reporting Practices

The City Attorneys Office reporting practices are discussed at length in Section 4: Workload and Performance Measurement. As is discussed in that section, the City Attorneys Workers Compensation Division is reporting several workload and performance measures, though it is not reporting on those measures most recommended by industry experts. Furthermore, its reporting results are largely unreliable due to poor standards and controls over data input. As is noted in Section 3: Information Technology, workers compensation litigation management information is stored in the City Attorneys litigation management system, A1-Law. Billing and payment information, as well as other claim management data, are stored in the Personnel Departments billing and claims management system, LINX.
Achieving the Divisions Goal of Resolving Cases in a Timely Manner

Our analysis of claim aging revealed that most cases have periods of inactivity greater than the workload objective of 60 days that has been established by the Workers Compensation Division, and that it takes the City Attorneys Office more than five years to close most workers compensation cases.
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Section 5: Litigation Management Most Cases Have at Least One Period of Apparent Inactivity As noted above, routine case review and reporting reflects a best practice that has been successfully implemented by California jurisdictions comparable to the City of Los Angeles. However, Workers Compensation Division attorneys have not been reporting on cases in accordance with the Divisions previously established periodic case review policy, which states that attorneys are responsible for reviewing and reporting on assigned cases every 60 days. Furthermore, although City Attorneys Office management now indicates that the 60-day review policy is no longer in effect, Division managers have not been calculating or evaluating attorneys performance against the standard. Our calculations revealed that 87.4 percent of the cases opened between January 1, 2005 and June 30, 2009 had at least one 60-day period where attorney case review either did not occur or was not logged in accordance with Office policy within the 60-day timeframe. On average, cases had 2.8, 60-day inactivity gaps; and, one case had 11 inactivity gaps. Although the average amount of time without any recorded case activity was 28 days, one case had a gap of 921 days or 2.5 years. Although the Divisions Policy Manual had been revised in July 2009, and included the periodic case review policy, City Attorneys Office managers now state that they have discontinued the practice of requiring attorneys to systematically report on cases. We were advised during interviews that the practice was abandoned after attorneys complained that the standard was arbitrary and created unnecessary work. The City Attorneys Office managers now state that the 60-day reporting requirement will be reinstated when the Division is fully staffed. Division Takes More than Five Years to Close Most Cases Experts agree that timely case closure is critical to controlling the ultimate cost of claims. As noted in Section 1: Strategic Management, the Divisions one performance goal is resolving claims in a timely manner, although it does not define timely, has not developed a case closure objective, and does not measure or otherwise monitor case aging. Based on a sample of 94 cases closed between January 1, 2005 and June 30, 2009, the audit determined that the average age of cases (mean) at the time of closure was 5.8 years, with a median of 5.2 years, suggesting that it takes the Division more than 5 years to close most of its cases. Our sample included one case that, at the time it was closed, had been open for 20.6 years. While this case may have involved unusual circumstances and can be considered a statistical outlier, the mean and median age of cases exceeding five years is significantly longer than the suggested best practices goal of one year, as discussed previously in this section. As demonstrated in Figure 5.1 on the next page, which shows case age frequency for the audit sample, the Division is as likely to close a case in the first two years as in the ninth and tenth years. However, the greatest number of case closures cluster around the three to six year range. Best practices suggest that cases should be closed expeditiously to reduce exposure, and other jurisdictions have successfully implemented case review procedures to ensure that cases are progressing appropriately. Some industry representatives suggest that an aggressive workers compensation litigation effort can close most cases within 12 months and have developed suggested approaches to accomplishing this goal. These same individuals report that most
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Section 5: Litigation Management workers compensation cases within California are closed within 24 months. According to our sample, the City Attorneys Workers Compensation Division closes less than 15 percent of its cases in 24 months. Our sample also suggests that approximately 13 percent of cases take more than ten years to close.
Figure 5.1 Case Age Frequency, January 1, 2005 to June 30, 2009
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21 20 18
15
Number of Cases
15
14
14
10
5 5 3 2 2
0 0-2 years 2-4 years 4-6 years 6-8 years 8-10 years 10-12 years 12-14 years 14-16 years > 16 years Case Age at Closing
Source: Case aging sample conducted for the audit from A-1 Law.
While there may be legitimate reasons for cases to remain open for extended periods, the City Attorneys Office has not established case disposition standards or goals, or maintained a systematic review process to ensure that cases are being aggressively worked toward disposition. Combined with analysis of claim exposure, such information would assist managers with decisions regarding operational strategies. For example, in a recent reorganization, one jurisdiction surveyed for this audit decided to create attorney buddy systems to ensure knowledgeable case coverage when primary attorneys are unavailable, foster strong attorneyclient relationships with departments, cultivate high exposure experts among legal staff (e.g., death cases), and assign complex/high exposure cases to a select group of more experienced attorneys to ensure that less complex/low exposure cases move through the system quickly and complex/high exposure cases receive the attention they require.1
June 2010, Harvey M. Rose Associates, LLC, best practices survey conducted for the Performance Audit of the Los Angeles City Attorneys Workers Compensation and Subrogation Program Harvey M. Rose Associates, LLC
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Section 5: Litigation Management
Settlement Payment History Is Not Transparent

While we found it difficult to determine settlement amounts in nearly one-third of the cases we sampled, most settlement payments within our sample fell within the City Attorneys settlement authority. However, we also found that settlement payment practices may obscure fines and fees that are due to the claimant as a result of claim processing delinquencies and other factors. Settlement Amounts could not be Determined in 32 Percent of Cases Based on a random sample of 95 cases closed between January 1, 2005 and June 30, 2009, a full record of payment amount payment is recorded in only 68 percent of the cases. Workers Compensation Division staff do not routinely log settlement amounts in A-1 Law. However, these amounts are also not recorded in the Personnel Departments LINX billing database in a manner that facilitates analysis or understanding. One problem with the LINX records is that payments to individuals with multiple claims are only recorded under a Personnel Departmentdesignated master file. Payment and settlement information is not entered into the non-master claims, and while one claim may be designated the master claim in LINX, a different claim may be designated the master claim in A-1 Law. Additionally, while payment information may be present, settlement totals are not necessarily logged. Most Settlement Amounts Fall within the Settlement Authority Limit In the 68 percent of cases where a full record of payment amount could be determined, the average cost of settlement was $31,154 and the median settlement was $22,274. As is shown in Figure 5.2 on the next page, however, the settlement payments were not distributed evenly. The most frequent settlement amount was between $5,000 and $10,000, and most claims were settled for less than $25,000. However, a second peak occurs between $40,000 and $50,000, which is the settlement authority limit for the City Attorney established by the Administrative Code. The Los Angeles Administrative Code specifies that the City Attorneys Offices cumulative settlement authority is $50,000, and any settlement above $50,000 requires Claims Board2 or City Council approval. Our sample found 15 percent of the settlement amounts were between $45,000 and $50,000 more than the number of settlements above $50,000. In short, the Division is negotiating many smaller settlements under $15,000, and a lesser but significant number of settlements at or approaching the settlement authority limit. The Workers Compensation management staff and several attorneys suggested to us during interviews that the settlement authority amount of $50,000 is too low and that it should be raised to provide the City Attorney with greater flexibility when negotiating settlements and to reduce workload. However, as Figure 5.2 illustrates, only 12 percent of the settlements in our sample were greater than the $50,000 settlement authority limit and all of these were at least 20 percent or $10,000, greater than the limit. Further, there was a clear spike in settlements at the maximum amount of the City Attorneys limit. This data suggests that the settlement limit is creating an
2
Per Section 5.173(b) of the Los Angeles Administrative Code, the Claims Board is comprised of the Mayor, the President of the City Council, and the City Attorney, or their respective designees. Harvey M. Rose Associates, LLC
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Section 5: Litigation Management incentive for claimants to settle at a lower dollar amount than they may otherwise choose to agree upon. Therefore, these audit findings suggest that increasing the settlement authority amount would likely result in an increase in overall settlement payments made by the City, and are inadvisable from a cost-control perspective. City Attorney and Personnel Department Practices Obscure Fees and Fines Although many employees discussed problems with processing payments in a timely manner, the sample did not reveal any fines or interest payments. However, City Attorneys Office managers have suggested that staff practices sometimes mask these penalties. If, at the time that the applicant and City are pursuing settlement, it is revealed that the City owes the applicant penalties and interest due to mishandling a portion of the case, the parties may negotiate an increase in the paid disability as a substitute for recording penalty amounts. This practice obscures fines and interest payments. It was suggested, if the underlying problems of case administration were addressed, it could save the City between $1 million and $2 million per year. The settlement, including all penalty charges, should be better documented so that underlying causes of penalty assessments can be more easily identified and resolved by management. Figure 5.2
Settlement Amount Frequency, January 1, 2005 to June 30, 2009

12
10
Frequency of Settlements
Source: Case settlement sample conducted for the audit, from LINX and A-1 Law.
5, 00 0 10 ,0 00 15 ,0 00 20 ,0 00 25 ,0 00 30 ,0 00 35 ,0 00 40 ,0 00 45 ,0 00 50 ,0 00 55 ,0 00 60 ,0 00 65 ,0 00 70 ,0 00 75 ,0 00 80 ,0 00 85 ,0 00 90 ,0 00 95 ,0 00 10 0, 00 0 10 5, 00 0 11 0, 00 0 >1 10 ,0 00
Settlement Amounts
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Lien Information Is Poorly Maintained

Neither the City Attorneys Office nor the Personnel Department maintain lien hearing and lien trial data in a manner that facilitates examination or understanding of the reasons for the dispute or monetary consequences of denying payment. Based on a random sample, we were not able to find complete information on outcomes in 50.5 percent of the lien hearings and trials on the City Attorneys Offices calendar, using both A-1 Law and LINX. This search was assisted by staff from the City Attorneys Office. Based on the 2,469 lien hearings and trials that were scheduled during the study period, the sample suggests that the two systems do not contain sufficient information on outcomes on more than 1,200 lien hearings and trials. Several of those cases were scheduled for hearing but hearings never occurred, but in other instances data simply wasnt recorded and key case documents were either not retained or not filed in an accessible manner. Because of the lack of such data, we cannot statistically estimate how much more the City may be paying over its initial payment or offer, or over the amount recommended by its utilization review contractor. The available data did allow us to make some observations about the disputed bills and the Citys savings, summarized in Table 5.1, below.
Table 5.1 Lien Activity Summary Table

Disputed bill amount Mean Median $19,277.26 $5,908.35 Lien Conference/ Trial final amount $5,057.33 $2,000.00 Increase from Payment or Offer Unknown Unknown Savings Over Billed Amount $7,084 $2,789
Source: Lien hearing and lien trial sample conducted for the audit, from LINX and A-1 Law
As Table 5.1 shows, the average savings, based on available data, was $7,084, and the median was $2,789. However, several of the lien hearings and trials produced little savings. Of the 46 lien hearings and trials where we were able to identify a savings dollar amount, 12 of the lien actions, or 25.5 percent, produced a savings of less than $1,000 from the amount being requested by the provider; 6 of the lien actions, or 13.0 percent, produced a savings of less than $250. Figures 5.3 and 5.4, below and on the next page, show the distribution of savings gained through the lien hearing and trial processes. As Figure 5.3 shows, below, the most common outcome of a lien hearing and trial resulted in savings of $1,000 or less (11 of 46 instances, or 23.9 percent). Most hearings and trials resulted in savings of $3,000 or less (24 of 46 instances, or 54.3 percent). Therefore, based on the information we were able to discover, the savings from lien hearings and trials is generally distributed normally, but skews low.
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Figure 5.3 Lien Savings Distribution

12
10
Frequency
0 0-1000 10002000 20003000 30004000 40005000 50006000 60007000 70008000 80009000 900010,000 10,00015,000 15,00020,000 20,000- > 50,000 50,000
Savings (dollars)
Given that low-dollar savings were the most common outcome, Figure 5.4, below, shows the frequency of lien hearings and trials where the outcome was $2,000 or less. This detailed view suggests that the most common outcome of a lien hearing and lien trial resulting in a low savings (under $2,000) was less than $250 (6 of 18 instances, or 33.3 percent).
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Figure 5.4 Detail: Distribution of Lien Savings under $2,000

7
Frequency
0 0-250 250-500 500-750 750-1000 1000-1250 1250-1500 1500-1750 1750-2000 Savings (dollars)
Conclusions
The City Attorneys Office Workers Compensation Division performance measures demonstrate opportunities to cut and control costs. Controlling case aging and ensuring cases are not neglected can help the City reduce its workers compensation costs. Settlement trends reveal that the City Attorneys Offices $50,000 settlement authority is likely controlling costs. However, the Division estimates that the practice of adjusting paid disability payments to mask Personnel Departments errors rather than preventing those errors from occurring may be costing the City up to $1 million to $2 million per year in additional settlements. Additionally, available data on lien hearings and trials suggests that many lien hearings produce little savings. Furthermore, this audit revealed a number of data holes, inaccuracies, and querying, and reporting obstacles. The City Attorney does not calculate or monitor its settlement or lien costs or savings, and is therefore unable to identify trends, good internal practices, risks, or changing behavior. Correcting identified problems would provide the City Attorneys Office with a better understanding of the Divisions workload and performance, and help guide efficient deployment of resources.
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Recommendations
In order to monitor case activity, the Workers Compensation Division should: 5.1 Require attorneys to conduct and document periodic case reviews, with established, written intervals exceeding no more than six months, and implement and enforce a periodic case review policy that is substantial in identifying steps toward closing cases. Measure, track, and report claim aging measures. Log the dates that WCAB awards are received and processed, as well as the amount. Log any late penalties and review organization-wide performance on a monthly basis.
5.2 5.3 5.4
In order to avoid unnecessary payments due to poor claim handling, the Workers Compensation Division should: 5.5 5.6 Work with claims adjusters to identify, record, and avoid case handling breakdowns that lead to fines and interest payments. Either discontinue the practice of adjusting paid disability at the time of settlement to avoid payment of fines and interest, Or Each time paid disability is adjusted, instruct the attorney or their support staff to prepare an internal memorandum to be attached to the A-1 Law case entry that describes the estimated fines, interest payments, and other penalties that would have been due; the specific reasons for those penalties; the amount the paid disability was adjusted; and, the estimated savings. In order to better understand liens and lien payments, the Workers Compensation Division should: 5.7 5.8 5.9 Record the amounts in A-1 Law of initial payments, disputed bills, non-accepted offers, and final amounts for all liens that progress to the hearing or trial stage. Report the number of lien hearings and trials, department-wide, each month. Work with claims adjusters to develop cost-effective solutions and standards for lien avoidance.
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Costs and Benefits

Implementing these recommendations would involve little cost, but would require some time to reconfigure A-1 Law reporting. A negligible amount of additional data entry time would be required going forward to maintain settlement and lien amounts. Implementing the above recommendations is a necessary step toward controlling costs. Addressing the issue of fee and percentage payments, alone, could save the City upwards of $2 million per year.
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6.
Fraud Detection and Investigation

The City Attorneys Office maintains an Investigation Division that investigates potentially fraudulent workers compensation claims referred to them primarily by the Personnel Departments and Third Party Administrators Claims Adjusters, claimant supervisors, and through calls to the Citys workers compensation hotline. The effectiveness of the referral and investigation processes has not been demonstrated. Out of approximately 8,400 new workers compensation claims per year, only 300-400, or approximately four percent, are referred to investigators and less than twenty of those are subject to full fraud investigations. Fewer than five of the investigated cases resulted in arrest or conviction in 2008 and 2009. Referral rates of 17 and 21 percent were identified in two other jurisdictions reviewed for this audit. Assuming the level of fraudulent claims being paid by the City is 4.2 percent of total benefit expenditures, the lowest level found in other jurisdictions and industry source estimates, the City could be paying up to approximately $5.4 million per year in workers compensation benefits if its anti-fraud efforts are not effective. Restitution amounts ordered as a result of City Attorneys Office investigations have been $210,000 or less per year. Little performance data is maintained or analyzed by the City Attorneys Office or Personnel Department management to assess the number and quality of claims referred for investigation by the Claims Adjusters and the quality of the investigations themselves. Investigator staff report that most referrals come from the Citys workers compensation hotline, indicating that, even with training provided by the Investigation Division, claims analysts and departmental supervisors are generally not referring claims for investigation. Data is not maintained and systems are not in place to identify and track referrals for recurring patterns in fraud cases and to use this information to analyze the Citys claims database for potentially fraudulent claims.
Responsibility for investigating workers compensation fraud rests primarily with one Investigator in the City Attorneys Workers Compensation unit and a pool of staff investigators, who also have other duties, supplemented by private investigators under contract to the City Attorneys Office. Identification and referral of claims to these investigators is performed by Personnel Department Claims Adjusters, claimant supervisors and co-workers. Some referrals are submitted directly to the Chief Investigator by staff; however, most are submitted through the Citys workers compensation hotline, generally anonymously. Caseload and case outcomes for calendar years 2008, 2009 and the first three quarters of 2010 to date are presented in Table 6.1 on the next page.
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Section 6: Fraud Detection & Investigation Table 6.1 Workers Compensation Number of Fraud Investigations Calendar Years 2008 2010 2008 Referrals for investigation Full fraud investigations Fraud cases referred to DA Fraud arrests Fraud cases in trial Fraud convictions
1 2
20091 284 10 3 2 2 2
20102 66 0 0 1 0 1
343 17 4 3 2
Source: Investigations Division, City Attorneys Office

Investigations through October 15 only As of March 31, 2010.
When compared to approximately 8,400 new claims per year1, approximately four percent of claims are being referred and less than one percent are subject to a full investigation. A smaller percentage results in arrest or conviction, as can be seen in the table above. The effectiveness of the workers compensation referral and investigation processes has not been demonstrated. Out of approximately 8,400 new claims per year, only 300-400, or approximately four percent, are referred to investigators each year and less than twenty of those are subject to a full fraud investigation. Fewer than five of the investigated cases resulted in arrest or conviction in either 2008 or 2009. Office management reports that the District Attorney usually does not pursue workers compensation cases submitted by the City. In the Workers Compensation field, there is no absolute standard covering the number of cases that should be referred for fraud investigation. However, the number of cases referred to the City Attorneys Office investigators is believed by City Attorneys Office staff to be low. The number of arrests and convictions resulting from the investigations also appears low, explained by City Attorneys staff as being due to the District Attorneys Office reluctance to prosecute cases that are submitted by the City. The Los Angeles County District Attorneys Office maintains a Workers Compensation Fraud Unit and has received State funding specifically for these type of cases. However, since the District Attorneys Office has to manage its limited resources by selecting cases to prosecute based on the quality of evidence presented and the likelihood of obtaining a conviction, it is
This amount is based on the average number of new claims of 8,290 and 8,418 for Fiscal Years 2007-08 and 200809, respectively. Harvey M. Rose Associates, LLC
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Section 6: Fraud Detection & Investigation possible that many of the Citys workers compensation cases may generally receive a lower priority or, alternatively, the evidence collected and presented by the City Attorneys Office may not be sufficient or otherwise meet the District Attorneys prosecution standards. The City Attorneys Office has not formally assessed the quality of investigations they are submitting, using input from the District Attorneys Office, to ensure that the City is maximizing its chances of having its workers compensation cases prosecuted. To independently assess whether or not the number of investigations and convictions presented in Table 6.1 represent effective fraud control efforts by the City of Los Angeles, a risk assessment was conducted of the City Attorneys Offices policies and procedures, considering the following factors: Has accountability for fraud control efforts been clearly delegated to a manager? Are formal policies and procedures in place and communicated to employees, including clear notification procedures and due process? Is training on fraud control efforts in place for staff and other stakeholders (e.g., medical providers, attorneys representing claimants)? Is information technology being used to assist in fraud control efforts? Are disciplinary systems and procedures in place for employees who are found to have filed fraudulent claims? The risk assessment demonstrated strengths and weaknesses with current fraud control effort procedures and practices. Strengths include a clearly delegated manager, who is responsible for the fraud investigation function, established investigative policies and procedures for the City Attorneys Office, and ongoing staff training. Weaknesses were also identified, as detailed below, including the absence of a system for measuring and reporting fraud control effort results, the absence of formalized inter-departmental procedures, the absence of use of information technology to detect potentially fraudulent cases, and others. Accountability for workers compensation fraud investigations has been clearly delegated to a manager but his performance is not regularly measured and reported to upper management, and he has limited Citywide authority As mentioned above, a Chief Investigator in the City Attorneys Office has been delegated authority for the fraud investigation function. While having a focal point for management of these efforts is beneficial, this manager does not have authority over other City departments, such as the Personnel Department, which the manager has to rely on for case referrals. Formal cooperative arrangements have not been made with the Personnel Department or other departments to ensure an effective Citywide approach to fraud control.
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Section 6: Fraud Detection & Investigation The effectiveness of the fraud investigation program is not regularly measured and reported for oversight by City Attorneys Office upper management. Performance measures such as referrals, by department or other source, number of full investigations conducted, investigation results, amounts recovered and others are not regularly tracked and reported to City Attorneys Office management. Such information would measure the effectiveness of the manager and could help the Chief Investigator and upper management of the City Attorneys Office identify areas for improvement in workers compensation fraud control efforts. Regular, internally conducted fraud control risk assessments are another tool that should be employed and reported to upper management to measure effectiveness of current policies and procedures and assess potential areas of risk or weakness that need correction. Fraud control policies and procedures are in place at the City Attorneys Office and have been communicated to staff, but measurement of their effectiveness is lacking and critical interdepartmental procedures have not been formalized. The City Attorneys Office has established fraud control policies and procedures and communicates them to pertinent City staff through regularly held training sessions. These trainings are provided to Personnel Department and Third Party Administrator Claims Adjusters who process workers compensation claims and other City department supervisors responsible for preparing worker injury accident reports. The City Attorneys Office reports that it does not have readily available documentation detailing the number of trainings provided over the last two years or the departments that have received the training. Training is generally not provided to line level City staff, but it is expected that department supervisors will communicate key information to the employees they oversee. Details on these polices and procedures are not communicated to other staff though the Citys Form 5020 (Report of Occupational Injury or Illness), which injured employees must sign, includes a statement that the provision of false or fraudulent materials for the purpose of obtaining workers compensation benefits is a felony, and requires acknowledgment that the information submitted may be subject to review by a law enforcement agency. Beyond these training efforts, formalized procedures are not in place to ensure that Personnel Department and Third Party Administrator (TPA) Claims Adjusters and other City department supervisors are scrutinizing employee claims and referring all that are potentially fraudulent to City Attorney investigators. For example, as mentioned above, neither the Personnel Department nor the City Attorneys Office tracks the number of cases referred by Personnel Department Claims Adjusters to the City Attorneys Office for investigation as a means of measuring the extent to which staff are utilizing the training they have received. Since most referrals are reportedly received from the Citys workers compensation hotline rather than from Claims Adjusters, it does not appear that the expected follow-through by the Claims Adjusters is occurring. Personnel Department representatives report that their Department does not have any formal written policies and procedures on detecting potential fraud in claims, does not have staff dedicated to this function, and does not track the number of cases referred for investigation. The City Attorneys Office does not track investigation cases by any of the sources of referral.
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Section 6: Fraud Detection & Investigation Regarding training, the City Attorneys Office staff training is primarily oriented to detecting claimant fraud; it provides little guidance on detecting potential provider and claims administration employee fraud. Medical and legal provider fraud has been found to be significant in some other jurisdictions, including Los Angeles County2. The Citys fraud control efforts are also communicated through information posted by all City departments, as required by State law, stating that employees found guilty of filing false claims are subject to criminal prosecution. Similar information is communicated by the City to all medical providers providing services to workers compensation claimants. Lawyers serving the claimants are regulated by other entities. Information technology is not being used to identify potentially fraudulent claims Though Workers Compensation claims may have certain characteristics that appear suspicious, the presence of such characteristics in a claim does not necessarily mean that fraud has occurred. However, it is in the Citys interest to routinely and systematically scrutinize claims that meet certain profiles. Due to the volume of cases in a city the size of Los Angeles, using information technology to flag cases that meet certain criteria would be a helpful tool in identifying cases that warrant investigation. The Personnel Departments LINX electronic information system and the City Attorneys Office A1 Law information system both contain key facts about each workers compensation claim, including information that could be used to identify potentially fraudulent claims. Electronically checking dates of on-the-job injuries against weekend dates, number of claims filed by a claimant, addresses of providers compared to the workers home, unusual number of repeat treatments, whether or not anyone saw the accident, and other information could assist Personnel Department and investigator staff in determining if certain case characteristics are present that could be an indication of a fraudulent claim. At present, the two primary electronic information systems used by the City Attorneys Office and Personnel Department are not programmed for data mining that could assist in the identification of fraudulent claims. However, the systems do contain key information about claimants, injuries sustained and treatments received, which, with minor system modifications, could be extracted, summarized and used to identify unusual cases or patterns that warrant further investigation for fraud. The Personnel Departments planned new information system is likely to have greater functionality and be better able to perform this type of data mining without extensive programming or data manipulation, as may be required with the current systems. City Attorneys Office fraud investigator input should be incorporated into planning efforts for the new Personnel Department system.
The Los Angeles County Risk Management Office reports that their office investigated and identified two cases of substantial medical provider fraud, one of which has been settled and one of which is in progress. Both involved falsification of diagnostic reports and billing. Harvey M. Rose Associates, LLC
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Section 6: Fraud Detection & Investigation The results of our fraud control risk assessment led to the conclusion that there are weaknesses in the current system and the City may not be identifying and pursuing all fraudulent claims. The effect of the conditions above cannot be precisely quantified but any fraudulent workers compensation claims that are not detected and stopped represents unnecessary expenditure of City resources.
Potential Fiscal Impact of Weaknesses in Fraud Control Efforts

To assess the level of fraudulent claims that might be expected in the City of Los Angeles, the experience in several other jurisdictions was reviewed as were industry and academic studies that included information on the levels of fraudulent claims elsewhere. Though there is not a wealth of data available or general agreement on this topic by those in the field, the experience in some other jurisdictions was obtained for comparison to the City of Los Angeles. A 2004 Los Angeles County report disclosed that 17 percent of all workers compensation claims submitted were referred to and reviewed by the Countys anti-fraud team for review in Fiscal Year 2002-03.3 The State of Washingtons Department of Labor and Industries reports that it received approximately 24,000 referrals for workers compensation fraud investigations in 2009, or 20.6 percent of the 116,616 claims filed that year4. These investigation referral rates are significantly higher than the approximately four percent reported by the Los Angeles City Attorneys Office. If the 17 percent Los Angeles County referral rate is applied to the City of Los Angeles, the number of workers compensation claims referred to the City Attorneys Office for investigation annually would be 1,428, or 1,085 more than the 343 referred in 2008 (the last full year for which this data was reported). The Ohio Bureau of Workers Compensation reported average savings of approximately $66.7 million per year through its anti-fraud efforts or 4.2 percent of its $1.6 billion per year in claims expenditures in 19995. The Ohio Bureau and other sources also cite industry expert estimates that between five and 20 percent of workers compensation benefits are fraudulent. While industry experts do not all agree on the extent of workers compensation abuse, a review of literature on the topic finds estimates ranging from five to 25 percent of all benefits paid. An actual rate of approximately 4.2 percent was found in the State of Ohio. Using the lower measure of 4.2 percent, the risk to the City of Los Angeles of fraudulent claims going undetected is approximately $5,425,000 per year in improper payments, based on Fiscal Year 2008-09 benefit expenditures of approximately $129.2 million. Restitution recovery amounts reported by the City Attorneys Office have been $200,000 or less per year for the three calendar years since 2007.
Addressing Workers Compensation Fraud in Los Angeles County, Citizens Economy and Efficiency Commission, September 2004
4
2009 Annual Fraud Report to the Legislature and 2009 Year in Report: Washington Workers Compensation System, Washington State Department of Labor and Industries
5
State of Ohio Bureau of Workers Compensation website report. Harvey M. Rose Associates, LLC
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Section 6: Fraud Detection & Investigation The cause of the conditions identified above include a lack of management oversight and information about the effectiveness of the City Attorneys Offices workers compensation fraud control efforts. Without such oversight, the City does not have assurances whether funds are being spent appropriately, or unnecessarily or improperly for workers compensation benefits and costs. The absence of formal procedural agreements with the Personnel Department, or the lack of a cooperative working relationship with the District Attorneys Office, might also be a factor affecting the Citys at aggressively pursuing and filing cases for prosecution.
Practices in Other Jurisdictions

Workers compensation fraud control procedures and practices in other jurisdictions surveyed for this performance audit revealed some that could be beneficial to the City of Los Angeles. Los Angeles County has a designated fraud specialist in its Risk Management office who reviews all TPA files and surveillance footage for possible fraud. The County has focused some of its anti-fraud efforts in particular on provider fraud and, with the Los Angeles County District Attorneys Office, has been responsible for prosecuting some significant fraud cases. The City and County of San Francisco has specialized staff to review claims for possible fraud in its Human Resource Departments Workers Compensation Division. San Mateo County reportedly increased its number of potentially fraudulent claims referred for investigation when the Risk Manager began monitoring the results of a requirement that every department refer claims for investigation. A 2001 study conducted by the Texas Department of Insurance identified workers compensation fraud detection and reduction best practices in other states. The report identifies the following common factors found in aggressive workers compensation anti-fraud state programs: Having a clearly designated agency or office with lead responsibility for fraud prevention Dedicating legal resources to fraud prosecution Adopting a high profile public awareness campaign to deter fraud Significant data automation and research capabilities, including coordination among agencies Adequate funding While these best practice characteristics were identified for state programs, the principles are applicable to local government programs such as those in the City of Los Angeles as well.
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Section 6: Fraud Detection & Investigation
Conclusions
Based on the experience in other jurisdictions and a risk assessment of the City of Los Angeles workers compensation fraud control efforts, present efforts do not appear to be identifying, investigating and eliminating all likely fraudulent cases. While the extent of fraudulent claims in any organization cannot be precisely estimated, the actual experience in other jurisdictions and the absence of an effective fraud control system in the City of Los Angeles indicate that many fraudulent claims are not being identified and investigated.
Recommendations
The City Attorneys Office should: 6.1 6.2 Direct the Investigation Division to establish goals for the expected number of claims to be referred for investigation, by department. Direct the Investigation Division to begin recording statistical details on its caseload including number of referrals compared to the expected level, by source, type of potential fraud (claimant, provider), and outcomes, including savings to the City, number of cases prosecuted and other measures, and regularly report all this information to City Attorneys Office management, the Personnel Department and the Third Party Administrator. Collaborate with the Personnel Department and the Third Party Administrator to establish: 1) formal written procedures for Claims Analysts regarding detecting potentially fraudulent claims; and, 2) a consolidated and internally consistent system for tracking claims referred. Expand its workers compensation fraud training efforts for Claims Analysts, Third Party Administrator staff, and departmental supervisors to emphasize medical and legal provider fraud as well as claimant fraud. Follow up with the Personnel Department, Third Party Administrator and other departments to review and correct their procedures if the number of potentially fraudulent claims referred for investigation is not near or at the level expected. Collaborate with the Personnel Department to enable data mining in the existing and planned new workers compensation claims database to identify and investigate claims that have characteristics commonly associated with fraud. Initiate communications with the District Attorneys Office to review the City Attorneys Offices investigation protocols and determine what, if anything, needs to be changed to provide more investigations with a higher probability of being prosecuted.
6.3
6.4
6.5
6.6
6.7
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Section 6: Fraud Detection & Investigation 6.8 To ensure that all suspect claims are referred for investigation, propose to the Personnel Department that a specialized unit of Claims Analysts be established that would be responsible for reviewing claims with certain common fraud characteristics. Conduct annual Citywide risk assessments of workers compensation fraud controls and identify areas were improvements are needed to minimize the potential for fraudulent cases to go undetected.
6.9
Costs and Benefits

Applying the most conservative rates of workers compensation fraud found in other jurisdictions, the extent of fraudulent workers compensation claims in the City of Los Angeles could be $5.4 million per year. Implementation of the above recommendations will improve the Citys chances of avoiding these unnecessary costs through improved management and measurement of fraud control efforts, improved coordination and formalized procedures between the City Attorneys Office and other departments, and improved use of information technology.
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7.
Subrogation Recoveries
The City Attorneys Office has made progress pursuing a greater number of workers compensation subrogation recoveries in recent years. However, policies, processes and management practices have not been established to ensure that such recoveries are being maximized. The Subrogation Division is only collecting third-party reimbursements on two-tenths of one percent of workers compensation claims, and less than six percent of claims flagged by claims adjusters as having subrogation potential. Using best practice standards as an indicator of subrogation potential, the City may be missing opportunities to recover some third party payments. Applying an industry subrogation recovery benchmark of four percent of paid benefits to the Citys approximately $129.2 million in paid workers compensation benefits for Fiscal Year 2008-09 would result in $5.2 million in recoveries per year, as compared to the $2.0 million or less estimated by the Office to be currently recovered each year. Effective subrogation recovery efforts require inter-departmental coordination, training and procedures to ensure that all appropriate claims are being referred to the City Attorneys Office for possible subrogation recovery. While the Personnel Department and Third Party Administrator Claims Adjusters receive training once a year on the topic from the Subrogation Unit, no procedures have been established by management of these departments to track referrals and compile the results to measure the effectiveness of their efforts. For example, 1,257 claims were flagged as potential subrogation cases between 2005 and 2010 but only 77 were pursued by the Subrogation Unit. City Attorneys Office staff should analyze these flagged claims to determine why so few were appropriate for the Subrogation Unit to pursue so that future claims referred will provide a greater possibility of obtaining recoveries.
The City Attorneys Office Subrogation Unit is a specialized unit of the City Attorneys Office responsible for recovering City workers compensation costs incurred for employees whose injuries are the result of a third party who is determined to be at-fault. In such cases, it is possible for the City to recover medical, indemnity and other costs incurred from the third partys insurance. For example, workers compensation costs incurred for a City worker injured on the job due to negligence by: 1) a non-City driver; 2) the owner of non-City premises on which the employee was working; or, 3) the manufacturer of a faulty product used on the job are potentially recoverable from the at-fault party or that partys insurance. The job of the Subrogation Unit is to follow up on such claims and negotiate settlements, file liens, and litigate, if necessary, to recover City costs from the third party. The Subrogation Unit is staffed by two attorneys (one at 60 percent time), an Investigator and one support staff position. Claims are referred to the Unit by the Personnel Department and Third Party Administrator Claims Adjusters, attorneys and other City employees familiar with a claim, who have identified case characteristics that indicate the potential for subrogation recovery.
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Section 7: Subrogation Recoveries Referred cases are screened by the Unit Investigator and a decision is made regarding whether or not subrogation recovery is worth pursuing. The criteria for the decision includes the evidence presented by the Claims Adjuster pertaining to the circumstances of the employee accident (e.g., if it is clear that the employee was not at fault in a motor vehicle accident), the dollar amount of the Citys incurred expenses and the extent of the third partys insurance coverage, if any. Claims with $1,000 or less in benefits paid are not litigated, but a settlement with the third party insurance company may be pursued. The Subrogation Unit Investigator is responsible for negotiating such settlements. The City Attorneys Office has not established goals or methods to meaningfully monitor its subrogation recovery efforts for superior results. Methods to ensure that Personnel Department and Third Party Administrator Claims Administrators are referring all appropriate claims to the Subrogation Unit have not been established by the Personnel Department. Similarly, supervisors in City departments responsible for preparing injured worker accident reports should be obtaining evidence for subrogation recovery attempts, but they receive little training or monitoring of their performance in this area. The Subrogation Unit does not keep track of its caseload or reconcile referrals for investigation received from the Personnel Department, Third Party Administrator, or its own staff. In addition, repeated requests for data from the Subrogation Unit manager and investigator regarding the disposition of referrals were unmet during this audit, suggesting that such data may not even be available on an ad hoc basis. Although City Attorneys Office management states that data on non-litigated cases and those that result in property damage settlements, only, is housed in a civil case management system called CLS, 1 reports on data contained in this system were never offered. When this matter was pursued with Workers Compensation Division personnel who had been assigned to facilitate data collection efforts for this audit, generally, we were advised that only one employee in the Division had the technical knowledge to extract the data we were trying to obtain. It was further explained to us that this employee is on extended leave. Further, in written comments regarding subrogation activity, the City Attorneys Office made the statement that, Since 2001, when the Subrogation Unit was created, there have been over 600 cases reviewed and resolved. As will be explained later in this finding, this figure is less than 50 percent of the 1,257 claims flagged by the Personnel Department for subrogation investigation since 2005, a time period that is roughly half of that which the City Attorneys Office considered when estimating the 600 cases reviewed and resolved by the unit The inability of the City Attorneys Office to provide comprehensive reports or other documentation on case referrals and dispositions; as well as the inconsistencies between claims flagged for subrogation potential by the Personnel Department, and the number reported as reviewed and resolved by the City Attorneys Office, suggests that this workload may not be closely monitored and that some portion of total referrals may not be getting pursued by investigator or legal staff.
According to the City Attorneys Office, this would include referrals resolved without litigation, and judgments received and actions filed for only property damage. Harvey M. Rose Associates, LLC
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Section 7: Subrogation Recoveries The City Attorneys Office has stated in recent email communications that the difference between the number of referrals recorded by the Personnel Department and the number the City Attorneys Office reports as reviewed and resolved, may be numerous matters . . . that are just a copy of a letter rather than a fully documented referral, or that had clearly no subrogation potential or were past the statute of limitations. Since such matters are readily reviewed and determined to have no potential for subrogation, there has not been a record kept in every instance. The City Attorneys Office managers go on to state, As of July 1st, we will undertake to track all written communications (letters, e-mails and other) that Personnel and the third party administrator refer to us as having subrogation potential and the disposition of these referrals. This commitment is commendable. Nonetheless, based on information we were able to extract from the City Attorneys A1-Law electronic information system, only 77 workers compensation subrogation recovery cases were litigated between January 2005 and March 2010, showing as either still in process or closed by the Unit. The Subrogation Units reported amounts recovered on these cases for Fiscal Years 2006-07 through 2008-09 range from $1.4 to $2.8 million per year, but these amounts are comprised of cash recovered, credits ordered and applied-for credits. The Subrogation Unit did not provide a requested breakdown of their reported recoveries, so it is not possible to determine actual cash recovered for each year. Further, the A1-Law system has record of approximately $1.2 million in recoveries from subrogation cases between 2005 and 2010, or an average of only $228,600 per year.2 Subrogation Unit staff stated that the amount in the A1-Law system is understated because it only includes medical cost recoveries, though this representation has not been confirmed by other City Attorneys Office staff or with supporting documentation. The Personnel Department does not have formal policies and procedures in place for identifying claims with subrogation potential and does not have systems in place for tracking the results of the claims flagged for referral to the Subrogation Unit. The Personnel Department adds a prefix to their case numbers if the cases have been flagged as having subrogation recovery potential, but the Department does not formally follow up on whether or not those cases are referred to the City Attorneys Office and, if so, the case outcome. Data in the A1-Law system show that 1,257 claims were flagged and coded for having subrogation potential, primarily by the Personnel Department and Third Party Administrator, but neither the Department nor the City Attorneys Office have records summarizing the outcomes of these cases and why so many were not pursued for subrogation recovery. Personnel Department staff report that they may receive emails explaining the Subrogation Units decisions on individual staff referrals but this information is not compiled into a summary report for management review and analysis to determine if improvements are needed in the referral process. It is possible that many of the referrals had insufficient information or evidence for the Subrogation Unit but, without summarized explanations, Personnel Department management is not able to make changes to
This calculation is based on the $1.2 million divided by 5.25 years since the review period was from January 2005 March 2010. Harvey M. Rose Associates, LLC
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Section 7: Subrogation Recoveries their procedures to ensure that more referrals contain the information needed by the Subrogation Unit to improve the chances of recovery. According to data in the A-1 Law system, the City Attorneys Office is recovering payment through subrogation on less than 1 percent of its claims, and on only 5.6 percent of workers compensation claims that are flagged as having subrogation potential. The population of subrogation cases in A-1 Law is smallduring the study period of January 1, 2005 to June 30, 2009, only 71 subrogation cases are listed in the A-1 Law system, or less than 1 percent of the 7,482 litigated cases entered into A-1 Law during this period.3 More than two-thirds of the nonsworn subrogation cases were related to a vehicle accident. Three departments Police, Transportation, and Public Works make up 78.9 percent of the subrogation cases. Where cost and recovery amounts could be determined for non-sworn cases, the average claim amount was $63,763.98, though most claims were for less than half that amount. The average recovery amount was $20,227.01, though the median settlement was only $6,540.23. The City waived its right to recovery in 10 percent of the cases where a recovery amount was determined. The Personnel Departments Workers Compensation Division flags litigated and non-litigated workers compensation cases that it perceives as having subrogation potential. An undetermined number of these cases are elevated to the City Attorneys Office Subrogation Unit manager, because neither the Personnel Department, City Attorneys Office Workers Compensation Division, nor the Subrogation Unit, record subrogation referrals. A summary of actual claims, flagged claims, and actual subrogation cases pursued is included in Table 7.1.
Table 7.1 Subrogation Activity in Study Period

Department Police Sworn Transp. Dept Public Works Other Total # Workers Compensation Claims* 12,158 1,427 3,607 15,582 32,774 # Flagged Claims 754 213 69 221 1,257 # Subrogation Cases 31 15 10 15 71 % Workers Compensation Claims Recovered 0.3% 1.1% 0.3% 0.1% 0.2% % Flagged Claims Recovered 4.1% 7.0% 14.5% 6.8% 5.6%
* Includes litigated and non-litigated claims. Source: Subrogation sample conducted for the audit, from LINX and A-1 Law
As shown in the table, from January 1, 2005 to June 30, 2009, Personnel Department adjusters identified 1,257 workers compensation claims as having subrogation potential. The bulk of these (86.9 percent) were vehicle accidents. As noted above, the City Attorneys Office
Most of those cases (54 cases or 76.1 percent) were sworn police department cases, submitted to the Workers Compensation Division from the Subrogation Division in a single batch on February 7, 2006. Harvey M. Rose Associates, LLC
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Section 7: Subrogation Recoveries recovered City costs on only 71 claims during that period, or only 5.6 percent of the workers compensation claims flagged by the Personnel Department. As with the fraud control efforts discussed in Section 6 of this report, information technology is not being used to identify claims with characteristics often associated with subrogation recoveries. For example, motor vehicle accidents in which a non-City employee is proven negligent is the most common type of claim recovered through subrogation. Between 2005 and 2010, 2,852 workers compensation claims were due to a motor vehicle accident. Of these, 1,528, or approximately 54 percent, were flagged by Claims Adjusters as possible subrogation cases, though only 56 of these 1,528 cases were pursued by the Subrogation Unit for subrogation recovery. By electronically scanning through these claims, key characteristics such as whether a non-City worker was at fault, could be identified to facilitate the decision whether to pursue subrogation recovery for the case. While the current systems in the City Attorneys Office and the Personnel Department do not lend themselves to such data mining, the Personnel Departments planned acquisition of a new information system will reportedly have the capability to conduct such electronic scans. In the meantime, a system for downloading and scanning characteristics of all motor vehicle accident claims could be implemented to ensure that all claims with higher subrogation recovery potential are being identified and referred to the Subrogation Unit. Effective subrogation recovery efforts require inter-departmental coordination, training and procedures to ensure that all appropriate claims are being referred to the City Attorneys Office for possible subrogation recovery. The Subrogation Unit conducts trainings for Personnel Department and Third Party Administrator Claims Administrators once a year. Subrogation training is not provided to other City departments by the City Attorneys Office or departmental supervisors who are responsible for completing injured worker reports. Timely completion of employee accident reports and collection of key information at that time of the employee accident can be critical to subsequent efforts to obtain a subrogation recovery. For example, taking photographs of a motor vehicle accident or recovering defective equipment at the time of an accident could be useful in subrogation recovery attempts, but such efforts have not been codified into formal Citywide procedures. The Personnel Department has prepared written materials that are provided to some departments pertaining to collecting information for subrogation recovery referrals but department staff adherence to these procedures or the trainings provided by the Subrogation Unit is not tracked or measured in any way and appears to be resulting in numerous claims referred to the Subrogation Unit that are not pursued for recovery. Benchmarks of workers compensation payments amounts that could be expected to be recovered through subrogation were searched for in industry literature and through our survey of other jurisdictions. A study in the Journal of Workers Compensation provided a benchmark of four percent of paid losses that should be recoverable from subrogation based on the experience of the author in a private workers compensation insurance company4. Our survey corroborated
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Subrogation: Thars Gold in Them Thar Claim Files, R. Gary Lee, Journal of Workers Compensation, Volume 12, No. 3, Spring 2003 Harvey M. Rose Associates, LLC
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Section 7: Subrogation Recoveries the validity of this benchmark with actual subrogation recoveries relative to total workers compensation claims reported by other jurisdictions, ranging from a low of 0.2 to a high of 25.1 percent, and a median of five percent. While funds are recovered each year as a result of the Subrogation Units efforts, it appears that there is potential for additional recovery amounts. Applying the four percent benchmark of gross claims expenses, cited above, to the Citys approximately $129.2 million in workers compensation expenses in Fiscal Year 2008-09, results in subrogation recoveries of approximately $5.2 million per year, more than the different current recovery amounts reported by the Subrogation Unit and in the A-1 Law system.
Conclusions
Though subrogation recovery efforts offer the potential to recover millions of dollars in City workers compensation costs, the City Attorneys Office level of management oversight of this function has not been sufficient to ensure that recoveries are being maximized. The Subrogation Unit reports that current efforts are producing recoveries of $2 million per year in a combination of cash, credits and applied for credits, but these amounts are discrepant with amounts reported in the A-1 Law information system. Only a small number of cases flagged as having subrogation potential by the Personnel Department and the Third Party Administrator are pursued by the City Attorneys Office, indicating that either Claims Adjusters are either misidentifying many cases or not submitting all of them to the Subrogation Unit, or, the Subrogation Unit is not able to process all the cases. Information systems are not being used to support subrogation recovery efforts by electronically scanning claims and identifying those with likely subrogation potential.
Recommendations
The City Attorneys Office should: 7.1 Establish a goal for annual subrogation recovery amounts equivalent to or greater than four percent of benefits expenditures. 7.2 In conjunction with the Personnel Department, establish standardized methods and procedures for tracking subrogation referrals; Subrogation Unit caseload, by type of case and department; and, recovery amounts. 7.3 Regularly report its subrogation performance information to upper management of the City Attorneys Office. 7.4 Use regularly produced management information to analyze the inter-departmental subrogation recovery process and to make changes in collaboration with the Personnel Department to maximize cases referred and total recoveries.
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Section 7: Subrogation Recoveries 7.5 Collaborate with the Personnel Department to include data mining functionality in the current and planned new claims management information systems, so that claims with higher probabilities of subrogation recovery are identified for review, and to develop an interim mechanism to extract such claims information from the existing systems. 7.6 Expand training efforts to include more training and accountability by City department supervisors to collect evidence and information needed at the time of the employees accident to enhance the potential for subrogation recoveries.
Costs and Benefits

There would be no cost to implement these recommendations. Implementation would improve City Attorneys Office management oversight of and accountability for the subrogation recovery process which should result in pursuit of more cases and additional recoveries. Using the recovery rate benchmark identified in an industry journal of four percent of paid losses in expected subrogation recoveries would generate $5.2 million per year in recoveries, an increase of at least several million dollars over the discrepant amounts now reported as recovered by City Attorneys Office sources.
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8.
Outside Counsel Selection and Oversight

The City Attorneys Workers Compensation Division has established fixed fee contracts for outside counsel and significantly reduced the number of cases referred to contract attorneys in efforts to lower contractor costs. Although the Division has saved a net amount of approximately $4.7 million annually after adding attorney staff to replace contractors, no meaningful assessment of workload or performance impacts on the Division has been conducted. In addition, contract attorneys have historically represented the City on thousands of cases carrying millions of dollars in workers compensation claims exposure. Nonetheless, no systematic processes have been established to monitor outside counsel case progress or the quality of representation being provided to the City. When decisions were made in FY 2007-08 to draw outside counsel cases in-house, 5,499 cases needed to be returned by contract attorneys and reviewed by Division legal staff before City Attorneys Office managers had a clear understanding of case status. Prior to this review, the Division did not have full knowledge of outside counsel caseload, the extent of the Citys exposure in those cases, or whether the cases were in process or had been closed. The City Attorney should direct management staff to conduct a full assessment of the use of outside counsel to augment workers compensation litigation staff activities, reevaluate the compensation being paid to outside counsel in order to maintain a more viable resource pool and update processes established in prior administrations for outside counsel selection. In addition, City Attorneys Office management staff should be directed to develop procedures to monitor outside counsel case activities and progress, using general management principles and modeled after best practices in other jurisdictions. Implementation of these recommendations would provide the City Attorneys Office with a clear rationale for using contract attorney resources, update and clarify outside counsel selection processes, maintain a stable outside counsel resource pool and ensure that contract attorney activities and services are being carried out in accordance with City policy.
City Attorney Policy Directive No. 20 governs decisions regarding the assignment of cases to outside counsel, the competitive selection process used for outside counsel contracting, contract attorney oversight, and budget and financial controls. This directive was developed in 2001 and revised in 2005 by the previous City Attorney amid concerns being expressed by the City Council regarding the cost of outside counsel. As part of this analysis, we evaluated this policy directive, and assessed the City Attorneys contracting policies in the context of general management principles related to reporting, monitoring and overseeing the activities of contractors. Best practices employed by other jurisdictions also provided a framework for recommendations to strengthen contractor oversight procedures and practices.
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Section 8: Outside Counsel Selection and Oversight
Outside Counsel Selection Process

The workers compensation outside counsel selection process has been effectively suspended in recent years, so that actual practice could not be analyzed for this audit. However, in 2005, the City Attorney established an Outside Counsel Committee (OCC) that was charged with establishing policies and a centralized process for considering all matters related to outside counsel, without regard to funding source.1 The results included a 2005 decision by the previous City Attorney to modify the Citys approach to contracting with outside counsel by (a) establishing a competitive process for selecting firms; and, (b) switching from fee for service agreements to fixed fee agreements, capped at $5,000 per case, unless the outside attorney could demonstrate unusual circumstances related to complex cases. As of June 1, 2009, the City Attorneys Office reported that it had 12 firms providing services on a flat fee basis. Since 2005, five additional firms had withdrawn from the program or gone out of business. This represents a 30 percent reduction in outside counsel resources during this period. This action was a first step taken by the prior City Attorney to reduce the cost of outside counsel for workers compensation cases. At the urging of the City Council to reduce costs further, additional steps were taken in FY 2008-09 to reduce contractor cost. According to information reported to the City Council, approximately 5,499 outside counsel cases were reviewed by a team of Deputy City Attorneys in that year, of which 3,562 were closed or determined to be inactive and 1,937 cases were determined to be active. Of these active cases, 74 were sent back to outside counsel due to complexity and the stage of litigation. The remaining 1,863 were retained in-house and reassigned to the Divisions staff attorneys. By informal policy of the City Attorneys Office, no cases, except those involving legal conflicts of interest (e.g., claims filed by City Attorney employees), are presently being referred to the panel of outside counsel attorneys. This two step process implemented by the City Attorneys Office has successfully reduced costs for contract Attorneys by $5.9 million, or 86.1 percent, between FY 2005-06 and FY 2008-09, as shown in Table 8.1. below.
Table 8.1 History of Workers Compensation Outside Counsel Costs FY 2004-05 through FY 2008-09
Fiscal Year FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 Outside Counsel Expenditures Personnel City Attorney Total 6,629,878 3,733,671 3,078,616 555,804 261,794 730,700 849,751 405,113 6,891,672 4,464,371 3,928,367 960,918 Change from Cumulative Cumulative Prior Year Change % Change N/A (2,427,301) (536,004) (2,967,449) N/A (2,427,301) (2,963,305) (5,930,754) N/A -35.2% -43.0% -86.1%
Source: City Council Files for each respective fiscal year and department records.
November 14, 2005, City Attorney Policy Directive No. 20, Revised Policy Regarding the Use of Outside Counsel Harvey M. Rose Associates, LLC
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Section 8: Outside Counsel Selection and Oversight As shown, between FY 2005-06 and FY 2008-09, the City Attorneys Office achieved substantial outside counsel annual cost savings of approximately $5.9 million by drawing cases in-house. Interviews with Workers Compensation Division management staff indicates that the departments decision to modify the selection process and compensation basis for workers compensation contract attorney services has contributed to reductions in the cost of outside counsel. However, concerns were expressed regarding the willingness of outside counsel attorneys to continue providing services to the City on a fixed fee basis due to (a) a significantly lower case volume being assigned to outside counsel, and (b) insufficient fees to cover actual costs incurred by the attorneys. This assessment has merit. It is clear from the record, confirmed through interviews, that City Attorneys Office assignments to workers compensation contract attorneys have declined dramatically in recent years. Unless outside counsel has the opportunity to consolidate case processing activities and hearings before the Workers Compensation Appeals Board, it has been suggested that services cannot profitably or cost-effectively be provided at the fee levels established by the City contract. At fees of $5,000 per case, approximately 15 to 20 professional staff hours reportedly are available to become familiar with a case; represent the City at hearings, depositions and other legal proceedings; attend settlement conferences; and secure settlement authority. For these reasons, most jurisdictions surveyed for this audit continue to contract with attorneys on a fee-for-service basis, but report that they have established processes to closely monitor case activities and fees charged by the contractors. Further, based on records maintained by the City Attorneys Office, four of the five firms that chose to cancel their contracts with the City did so because of the low reimbursement received for the cases they were assigned. While the effort to cap costs was a commendable and successful effort by the City Attorneys Office, the manner in which it was implemented has significantly curtailed its ability to secure outside counsel in the event such services are required. Because the City Attorney has limited the use of outside counsel, no effort has been made in recent years to reconsider the $5,000 rate or re-bid the contracts in an effort to develop a more practical and attractive arrangement for the contract attorneys (e.g., an incentive-based payment schedule). Therefore, the City Attorneys Office should revisit its policies in this regard. Assessing Impacts on Services As a direct result of FY 2008-09 efforts to retrieve cases previously assigned to outside counsel, in-house staff attorney caseloads increased substantially. However, the impact of this decision on the ability of the City Attorneys Office to effectively represent the City on workers compensation litigation matters was never fully examined. Based on interviews conducted for this audit, average caseloads for in-house staff reportedly increased from less than a reported 200 cases per attorney prior to the Outside Counsel Project to as many as 250 cases per attorney at its conclusion. However, these reported increases are not verifiable. 2
A1-Law data omissions and errors, combined with weak internal controls on methods used by attorneys to count cases, make these reported averages difficult to verify and the department didnt retain other supporting records(See Section 3 and Section 4 of this report). Harvey M. Rose Associates, LLC
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Section 8: Outside Counsel Selection and Oversight Further, position discrepancies between in-house staff attorneys authorized by the City Council and actual positions working within the unit further complicate the computation of average caseload (see Section 2 of this report). The departments FY 2009-10 Program Budget includes a $946,992 appropriation augmentation to Add funding and continue resolution authority for one Assistant City Attorney, one Deputy City Attorney III, and one Deputy City Attorney IV approved by Council in 2008-09 (C.F. 08-0600) and continue funding and resolution authority for one Deputy City Attorney III and one Deputy City Attorney IV approved by Council in FY 2004-05 (C.F. 04-0600)3 to provide capacity for absorbing the outside counsel caseload assigned to staff attorneys in 2009. Yet, as discussed in Section 2 of this report, the Workers Compensation Division is operating with two fewer attorneys than intended after these augmentations and with less experienced attorneys than authorized in the budget (i.e., two attorney vacancies plus the replacement of two Attorney II and Attorney III positions with two Attorney I positions). Further, the staff augmentations focused solely on managements perceptions of attorney staffing needs, even though the impacts from absorbing the workload cross all position classifications and assignments. Therefore, requests to the City Council for additional staffing appear to have been made solely on the basis of attorney caseload, instead of more critical analyses of organizational workload and process demands. Lastly, caseload assignments by individual attorney differ within the Division. Based on interviews with a sample of staff attorneys, actual caseloads are greater for some attorneys and lower for others, since some lead and senior personnel may be assigned to special duties and carry a lighter caseload. As a result, caseload assignments for some individual attorneys are reportedly much higher than reported to the City Council. The inability of the Division to clearly define either the numerator (number of cases) or denominator (number of line attorneys) make the computation of caseload averages reported by the Division difficult to verify. Without being able to critically evaluate these simple workload and staffing factors or to measure attorney performance (see Section 4 and Section 5 of this audit), the Division is extremely hampered in its ability to analyze or reliably demonstrate the benefits of drawing outside counsel cases in-house. Although savings in contractor costs has been substantial, the potential impacts on claim settlement costs as a result of increased caseload is unknown. Consistent with comments made in Section 2 of this report, there is no clear linkage between the Citys expenditures for litigation defense and exposure once a claim has been filed with the Workers Compensation Appeals Board. Without making such linkages for both inhouse and contract legal services, the cost effectiveness of using outside counsel cannot be understood and decisions such as those made to reduce the use of outside counsel can not be effectively assessed.
Monitoring Outside Counsel Activities

Very little monitoring of contract attorney activities is performed by managers in the Workers Compensation Division. Based on interviews conducted for this audit, after a case has been assigned to outside counsel, there will typically be little or no contact until the contract attorney communicates with the Division to obtain settlement authority. City Attorney Policy Directive
3
FY 2009-10 City Attorney Program Budget, Item 20, Page 75 Harvey M. Rose Associates, LLC
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Section 8: Outside Counsel Selection and Oversight No. 20, merely states that attorneys supervising outside counsel are expected to properly supervise cases by maintaining regular contact with outside counsel. However, evidence of such regular contact was not provided during the audit. Accordingly, supervision of outside counsel appears to be weak. As demonstrated by comments made to the auditors during interviews and the results of the Outside Counsel Project, the Division was clearly unaware that approximately 64.8 percent of the 5,499 cases that had been assigned to outside counsel were closed or inactive until the case review was completed. The Division also had little knowledge of the status of other cases that could be reassigned to staff attorneys. This is consistent with other findings related to litigation management for City personnel, generally, as discussed in Section 4 of this report. As described in other sections of this report, there are opportunities to improve the monitoring of litigation defense services provided by in-house staff attorneys, by enforcing periodic case documentation procedures, establishing workload and performance measurement systems, and conducting case audits and/or peer reviews. Similar practices would be beneficial for overseeing the activities of outside counsel. For example, the California Joint Powers Insurance Authority (CJPIA), which provides workers compensation claims administration functions for 106 public entities in California, exclusively uses contract attorneys for workers compensation litigation defense. At a minimum, the CJPIA has established the following protocols for overseeing the activities of contract attorneys, so that claims administrators can monitor progression toward settlement, coordinate defense strategies and judge the appropriateness of defense activities: Litigation management philosophies have been established to provide clear guidance to defense attorneys on the preferred approach to defense and settlement, serving as standards for measuring individual contract attorney performance. Within 30 days of referral the contract attorney is required to produce an opening report, which includes various case specific analyses and recommendations regarding settlement strategies. At 60 day intervals, a status report must be generated by the contract attorney. At six month intervals, the contract attorney is required to prepare a detailed case status report. At no less than 2 weeks prior to any appearance, the contract attorney is required to contact the CJPIA to discuss status, any identified issues and the need for additional information that may be necessary for defense. The contract attorney must produce a document that formalizes the terms of any proposed settlement agreement with the claimant prior to requesting authority to settle.
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Section 8: Outside Counsel Selection and Oversight The City Attorney should develop its own program for monitoring outside counsel activities based on the best practices employed in other jurisdictions.
Conclusions
The City Attorneys Office has established a competitive process for the selection of outside counsel and established a $5,000 fixed fee basis for most workers compensation litigation service contracts. However, since FY 2004-05, when these contracts were first entered into, 30 percent of contract attorneys have withdrawn from the program because of low fees. The City Attorneys Office has not reconsidered the fixed fee level or basis for compensation, or rebid the contracts due to a decision to bring outside cases in-house. This occurred because, at the urging of the City Council, the previous City Attorneys Office chose to significantly curtail the use of outside counsel to reduce contractor cost. Although the City Council authorized additional in-house staff attorneys to absorb the additional caseload, limited records on the availability of such staff or analysis of impacts on workload, case disposition or costs due to the staffing augmentations are produced by the City Attorneys Office. The poor condition of case activity records and staffing resources make any prior assessments of required staffing needs questionable. Although the City Attorneys Office has clearly reduced the use of outside counsel by the equivalent of $5.9 million per year since FY 2005-06, the Office cannot convincingly demonstrate whether nearly $1.0 million per year in new resolution authority attorney staff augmentations are necessary to absorb caseload transferred back to in-house attorneys. In addition, it is not clear whether there have been any impacts on the rate or cost of settlements as a result of these policy changes and increased attorney caseloads. Further, the City Attorneys Office has not established strong systems of contract attorney oversight nor is it routinely monitoring the services provided by outside counsel.
Recommendations
The City Attorneys Office should: 8.1 8.2 8.3 Consider modifying the rate or method of compensating outside counsel attorneys, and rebid the contracts, to prevent further degradation of the outside counsel attorney pool. Establish procedures to accurately measure workload and performance of both in-house staff attorneys and contract outside counsel. Conduct analysis to determine whether there is a need to continue nearly $1.0 million in funding for in-house attorney staffing that was added by resolution authority to absorb outside counsel workload. Establish procedures to monitor the activities of outside counsel attorneys who are assigned workers compensation cases, based on general management principles and best practices employed by other jurisdictions.
8.4
84
Section 8: Outside Counsel Selection and Oversight
Costs and Benefits

Depending on the rate and structure of a revised compensation method for contract attorneys, the cost of contracting could increase. However, the City could potentially save money over the long term by improving the quality of representation and reducing exposure on cases assigned to outside counsel. The Workers Compensation Division would establish a more effective system for monitoring the activities of outside counsel attorneys. A process designed according to best practices employed by other public sector organizations would ensure that the City receives value; that contract attorneys are performing in accordance with the Citys guiding principles and policies; and that litigation exposure is minimized.
85
APPENDIX A
Office of the Controller

Audit of the City Attorneys Workers Compensation and Subrogation Program Ranking of Recommendations
Section Number 1 Summary Description of Findings The City Attorneys Office has not sufficiently defined the Workers Compensation Divisions management infrastructure, including its mission and vision statements, policies, procedures, performance criteria, goals, and objectives. Ranking Code Recommendations The City Attorneys Office should: N 1.1 Revise the Divisions mission statement to include cost-control and timely case resolution components. Develop workload measures and performance criteria, goals and objectives to focus Division success. Include the roles and responsibilities of all legal support staff in policy manuals. Fully define the Divisions relationship to the Personnel Department, other City departments, and TPA workers compensation effort. Define the Divisions relationship with and oversight over, outside counsel. Replace or supplement its hard-copy policy manual with an electronic, living document that is routinely updated to reflect changes to workers compensation laws and regulations.
1.2
N N
1.3 1.4
N N
1.5 1.6
The City Attorneys Office has not clearly defined the Workers Compensation Division and Subrogation Unit functional organizational structures or maintained records that ensure budget accountability and transparency.
The City Attorneys Office should: N 2.1 Routinely produce documentation for management purposes that segregates the Workers Compensation and Subrogation units organization, staffing and costs from other functions assigned to the Civil Liability Management Division. Eliminate the Supervising Attorney position assigned to oversee the Workers Compensation Division and the Subrogation Unit, and transfer the Subrogation Unit elsewhere within the Civil Liability Division. Annually evaluate the number and mix of personnel required to perform workers compensation and subrogation Harvey M. Rose Associates, LLC
2.2
2.3
A-1
APPENDIX A
Ranking of Recommendations
Section Number Summary Description of Findings Ranking Code Recommendations functions assigned to the City Attorneys Office by critically analyzing needs based on workload and process demands. N 2.4 Determine the appropriate manager and supervisor to staff ratios for the Workers Compensation Division, based on numbers of professional, paraprofessional and support staff and their assignments. For purposes of budget clarity, annually report to the Mayor, City Council and City Administrative Officer on the utilization of staff assigned to workers compensation and subrogation functions, including those staff that have been authorized to augment baseline staffing, pursuant to City Council resolution authority. Work with the City Administrative Office Risk Manager to annually report on the cost of risk associated with workers compensation litigation defense activities, linking activities of the City Attorneys Workers Compensation and Subrogation units to risk exposure and cost of claims.
2.5
2.6
The Mayor and the City Council should: N 2.7 Evaluate and consider alternative organization structures that may result in a strengthened risk management and claims administration framework, including placing both in-house and contract claims administration under a centralized risk manager, based on models employed in other jurisdictions (Note: This recommendation would be consistent with workers compensation contract claims administration alternatives presently being considered by the City). Evaluate and consider mechanisms for charging departments for workers compensation claims administration and litigation defense, as a means of instilling greater ownership of the process by department managers and Harvey M. Rose Associates, LLC
2.8
A-2
APPENDIX A
Section Number Summary Description of Findings Ranking Code Recommendations producing incentives for reducing claims exposure. 3 The City Attorneys Workers Compensation Division uses three separate databases for litigation, claims management, and document management functions. Each has technical limitations that diminish database usefulness, exacerbated by weak process management and insufficient training. The City Attorneys Office should: U 3.1 Work with the Personnel Department to fast-track the procurement and implementation of a new, comprehensive case management and information system. Develop standardized language, mandatory data fields, and other specifications for the fields that are shared between departments. Identify litigation-specific deadlines and time-based performance goals and objectives to be added to the system. Identify deadlines that are shared between departments in litigated workers compensation cases that should be automatically flagged in a new system. Develop a written protocol identifying a master claim. for
3.2
3.3
3.4
N N
3.5 3.6
Provide formal training on the new comprehensive management system for all current and future members of the City Attorneys Workers Compensation Division. Develop a regular schedule of refresher trainings geared toward specific legal and legal support roles. Configure the program to standardize language where appropriate and validate required data. Activate database alert functionality for all relevant deadlines and time-based goals and objectives.
3.7
3.8
3.9
3.10 Configure the program to automatically generate reports that summarize individual and program-wide performance.
A-3
APPENDIX A
Section Number 4 Summary Description of Findings The City Attorneys Office has not developed systems or processes to measure the Workers Compensation Divisions workload or performance, and Division management has abandoned previous efforts to conduct qualitative case review. Ranking Code Recommendations The City Attorneys Office should: N 4.1 Commit to calculating and reporting all 13 workload and performance measures recommended by the International Risk Management Institute. Identify additional workload and performance measures that are of key importance. Build adopted performance measures into the reporting functionality of A-1 Law system or any planned replacement. Record, report, and monitor workload and performance measures on a monthly basis, and incorporate review of monthly performance measures into regular City Attorneys Office management meetings and the Divisions weekly attorney and support staff meetings. Add written definitions to the Policy Manual for all workload and performance measures. Require that attorneys or their support staff enter key data into A-1 Law fields, including all relevant dates. Assign legal support staff or temporary staff the task of adding key missing data, such as claim opening dates, to all A-1 Law claims. Determine a practical or technical approach for ascertaining recommended financial measurements. Establish workload and performance baselines.
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10 Develop quantitative performance objectives aligned to the Divisions revised mission, vision, and goals. 4.11 Require all program performance data to be saved to a shared server. 4.12 Require managers to distribute workload and performance measurement reports to relevant parties in an electronic format. Harvey M. Rose Associates, LLC
A-4
APPENDIX A
Section Number Summary Description of Findings Ranking Code Recommendations
4.13 Implement a policy of conducting case audits and peer reviews on a random sample of each attorneys annual caseload. 4.14 Hold periodic review meetings with claims adjusters and risk managers on sample cases. 4.15 Develop litigation case studies to illustrate best litigation practices and loss avoidance. The City Attorneys Office should:
The Workers Compensation Division cases remain open significantly longer than best practices suggest is advisable. Settlement and lien payments are not consistently or transparently recorded or monitored by management; and some settlement practices may be obscuring fines and fees that would otherwise be due to the applicants as a result of performance lapses by City employees.
5.1
Require attorneys to conduct and document periodic case reviews, with established, written intervals exceeding no more than six months, and implement and enforce a periodic case review policy that is substantial in identifying steps toward closing cases. Measure, track, and report claim aging measures. Log the dates that WCAB awards are received and processed, as well as the amount. Log any late penalties and review organization-wide performance on a monthly basis. Work with claims adjusters to identify, record, and avoid case handling breakdowns that lead to fines and interest payments. Either discontinue the practice of adjusting paid disability at the time of settlement to avoid payment of fines and interest, Or Each time paid disability is adjusted, instruct the attorney or their support staff to prepare an internal memorandum to be attached to the A1 Law case entry that describes the estimated fines, interest payments, and Harvey M. Rose Associates, LLC
N N
5.2 5.3
5.4
5.5
5.6
A-5
APPENDIX A
Section Number Summary Description of Findings Ranking Code Recommendations other penalties that would due; the specific reasons penalties; the amount disability was adjusted; estimated savings. N 5.7 have been for those the paid and, the
Record the amounts in A-1 Law of initial payments, disputed bills, nonaccepted offers, and final amounts for all liens that progress to the hearing or trial stage. Report the number of lien hearings and trials, department-wide, each month. Work with claims adjusters to develop cost-effective solutions and standards for lien avoidance.
5.8
5.9
The effectiveness of the claim referral and investigation processes for potentially fraudulent workers compensation claims has not been demonstrated by the City Attorneys Office, and identification and investigation of potential provider fraud is generally not performed.
The City Attorneys Office should: N 6.1 Direct the Investigation Division to establish goals for the expected number of claims to be referred for investigation, by department. Direct the Investigation Division to begin recording statistical details on its caseload, including number of referrals compared to the expected level, by source, type of potential fraud (claimant, provider), and outcomes, including savings to the City, number of cases prosecuted and other measures, and regularly report all this information to City Attorneys Office management, the Personnel Department and the Third Party Administrator. Collaborate with the Personnel Department and the Third Party Administrator to establish: 1) formal written procedures for Claims Analysts regarding detecting potentially fraudulent claims; and, 2) a consolidated and internally consistent system for tracking claims referred. Expand its workers compensation fraud training efforts for Claims Analysts, Third Party Administrator staff, and departmental supervisors to Harvey M. Rose Associates, LLC
6.2
6.3
6.4
A-6
APPENDIX A
Section Number Summary Description of Findings Ranking Code Recommendations emphasize medical and legal provider fraud as well as claimant fraud. N 6.5 Follow up with the Personnel Department, Third Party Administrator and other departments to review and correct their procedures if the number of potentially fraudulent claims referred for investigation is not near or at the level expected. Collaborate with the Personnel Department to enable data mining in the existing and planned new workers compensation claims database to identify and investigate claims that have characteristics commonly associated with fraud. Initiate communications with the District Attorneys Office to review the City Attorneys Offices investigation protocols and determine what, if anything, needs to be changed to provide more investigations with a higher probability of being prosecuted. To ensure that all suspect claims are referred for investigation, propose to the Personnel Department that a specialized unit of Claims Analysts be established that would be responsible for reviewing claims with certain common fraud characteristics. Conduct annual Citywide risk assessments of workers compensation fraud controls and identify areas were improvements are needed to minimize the potential for fraudulent cases to go undetected.
6.6
6.7
6.8
6.9
Policies, processes and management practices have not been established to ensure that subrogation recoveries from third parties responsible for employee injuries are being maximized, resulting in a potential loss of over $3 million per year.
The City Attorneys Office should: N 7.1 Establish a goal for annual subrogation recovery amounts equivalent to or greater than four percent of benefits expenditures. In conjunction with the Personnel Department, establish standardized methods and procedures for tracking Harvey M. Rose Associates, LLC
7.2
A-7
APPENDIX A
Section Number Summary Description of Findings Ranking Code Recommendations subrogation referrals; Subrogation Unit caseload, by type of case and department; and, recovery amounts. N 7.3 Regularly report its subrogation performance information to upper management of the City Attorneys Office. Use regularly produced management information to analyze the interdepartmental subrogation recovery process and to make changes in collaboration with the Personnel Department to maximize cases referred and total recoveries. Collaborate with the Personnel Department to include data mining functionality in the current and planned new claims management information systems, so that claims with higher probabilities of subrogation recovery are identified for review, and to develop an interim mechanism to extract such claims information from the existing systems. Expand training efforts to include more training and accountability by City department supervisors to collect evidence and information needed at the time of the employees accident to enhance the potential for subrogation recoveries.
7.4
7.5
7.6
No meaningful assessment of workload or performance impacts on the Workers Compensation Division was conducted when outside counsel cases were drawn in-house, and systematic processes have not been established since that time to monitor outside counsel case progress or the quality of representation provided to the City.
The City Attorneys Office should: D 8.1 Consider modifying the rate or method of compensating outside counsel attorneys, and rebid the contracts, to prevent further degradation of the outside counsel attorney pool. Establish procedures to accurately measure workload and performance of both in-house staff attorneys and contract outside counsel. Conduct analysis to determine whether there is a need to continue nearly $1.0 million in funding for in-house attorney staffing that was added by resolution Harvey M. Rose Associates, LLC
8.2
8.3
A-8
APPENDIX A
Section Number Summary Description of Findings Ranking Code Recommendations authority to absorb outside counsel workload. N 8.4 Establish procedures to monitor the activities of outside counsel attorneys who are assigned workers compensation cases, based on general management principles and best practices employed by other jurisdictions.
A-9

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Performance Audit of the Los Angeles City Attorneys Workers Compensation and Subrogation Program

City of Los Angeles

Harvey M. Rose Associates, LLC

October 12, 2010

October 12, 2010

Stephen Foti Project Manager

Harvey M. Rose Associates, LLC

Harvey M. Rose Associates, LLC

Harvey M. Rose Associates, LLC

Office of the Controller

City Attorney City Attorney City Attorney

City Attorney City Attorney

Controllers Accountability Plan

City Attorney CAO

39 City Attorney Personnel

City Attorney Personnel City Attorney

Controllers Accountability Plan

City Attorney Personnel City Attorney City Attorney

3.7 3.8 3.9

City Attorney City Attorney

4.5 4.6 4.7

City Attorney City Attorney

Controllers Accountability Plan

City Attorney City Attorney

City Attorney City Attorney

5.2 5.3 5.4 5.5

Controllers Accountability Plan

City Attorney City Attorney Personnel

City Attorney Personnel

City Attorney Personnel

Controllers Accountability Plan

City Attorney Personnel

City Attorney Personnel

City Attorney Personnel

City Attorney Personnel

Controllers Accountability Plan

Scope and Objectives

Harvey M. Rose Associates, LLC

City of Los Angeles Workers Compensation Claims and Litigation

Harvey M. Rose Associates, LLC

Harvey M. Rose Associates, LLC

Chief Civil Branch

Managing Attorney (Interim) Workers' Compensation

Non-Sworn (9) FTE Attorneys

Sworn (4) FTE Attorneys

Subrogation (1) FTE Attorney

Sworn (1) FTE Legal Assistant

General & Non-Sworn (20) FTE Support

Sworn (3) FTE Support

Subrogation (1) FTE Investigator

Subrogation (1) FTE Support

Characteristics of the Divisions Claim Population

Outside Counsel, 5,352

Closed Claims, 11,448

Fire Sworn, 661

In-House Counsel, 10,040

Open vs. Closed

Sworn vs. Civilian

Outside Counsel vs. In-House Counsel

Subrogation and Third Party Recovery

Harvey M. Rose Associates, LLC

Section 1: Strategic Management