INSURANCE - Millions wasted by State Fund - An audit to be released today says the workers' comp company spent massive sums on 'minimal services.'

About half that money went to organizations with direct financial ties to two former board members of the State Compensation Insurance Fund, said the audit to be released today. The company sells workers' compensation insurance to 220,000 California employers.

Some marketing groups were paid millions of dollars for merely sending members quarterly newsletters, providing few other services, the report said.

The report paints a picture of an obscure rogue operation with more than $22 billion in assets, little oversight, minimal public checks and balances, and indiscriminate spending with little attention until recently from top state officials such as the governor and the insurance commissioner.

The quasi-governmental company has been under investigation for more than a year. Since the fall of 2006, State Fund has replaced two board members, several marketing executives, the general counsel to the board and the president. The California Highway Patrol, the state Department of Insurance and the San Francisco County district attorney's office are conducting a joint criminal investigation.

The 10-month audit offers the first comprehensive look at the extent of organizational and management problems at the San Francisco-based agency, which was created by the Legislature in 1914 and is run by state employees. Its five-member board, appointed by the governor, meets in secret, contending that it is not subject to the state's public-record or open-meeting laws.

In response to the audit, State Fund said it recognized "serious shortcomings" in the way it managed group insurance in the past. Responsible executives have been replaced, and "the new program contains explicit safety requirements, safety performance metrics and auditing requirements," it said.

Ordered by Insurance Commissioner Steve Poizner, the audit was conducted by RSM McGladrey Inc., an international business consulting and accounting firm.

It cited lax corporate oversight and governance at State Fund, loose control of more than $300 million spent on technology vendors and unnecessary payments of nearly $20 million in penalties for delaying the processing of medical bills and disability benefits for injured workers. It also questioned the need for a fleet of 2,000 motor vehicles -- 1 car or truck for every 4 employees.