A performance audit of the City of Albuquerque, N.M., found that the city’s system for managing vehicle collision repair was out of date and lacking important controls, which may bring on unknown liability for the city.
The city’s Risk Manual has not been updated since 1998, and does not address the threshold for determining total loss, the process for obtaining repair estimates prior to repair, and the applicability of salvage and deductible charges.
Ensuring All Collisions Are Reported
The Office of Internal Audit obtained accident data from the city’s fleet management information system and found that not all accidents were reported to Risk Management. The agency reviewed accidents from four departments with the capability of repairing vehicle damage internally: Fleet Management, Fire Rescue, Solid Waste, and Transit.
Five of the 10 accidents submitted by Fleet Management were not reported to Risk Management. Eight of the 10 accidents submitted by Albuquerque Fire Rescue were reported to Risk Management. Nine of the 10 accidents involving Solid Waste trucks were not reported to Risk Management and handled internally. Transit told auditors that all incidents are reported to Risk Management, though no documentation was provided.
The audit recommends that city policy is updated to require all accidents be reported to Risk Management, regardless of claim status or amount, and remind city departments to report all accidents.
Managing Third-Party Administrators and Vendors
The city works with a third-party administrator to provide investigative, adjusting, and administrative services for the Risk Management Department. The audit found that Risk Management did not do enough to ensure that third-party administrators followed the requirements of its contract.
According to the audit, city policy does not specify when a vehicle should be considered a total loss. The third-party administrator (whose contract was not renewed when it expired at the end of 2018) declared vehicles a total loss when estimated repair costs reached or exceeded 50% of the vehicle’s value, as determined by the National Automobile Dealers Association (NADA). However, the industry standard for declaring a vehicle a total loss is 70% of the vehicle’s value.
The audit found that the third-party administrator did not perform several actions required in its contract. Instead of conducting an independent test for cost reasonableness, the administrator relied on vendors to document damage, photograph vehicles, and bill accurately.
The administrator did not review invoices to ensure accurate pricing, either. The Office of Internal Audit reviewed 16 claims for which a contracted body shop repaired vehicles, and those invoices contained nine rates that were either billed higher than the approved contract rate or contained rates that were not specified in the contract.
The audit also recommended that the city maintain a comprehensive database of vehicle collisions by employee.