Workers Compensation Audit Rules – What they are and where to find them.

Where can I find the rules for a workers compensation audit?

The real answer….there is no single rule book, page or guide book published by any governing authority that provides in one location a step by step guide for conducting a workman’s compensation audit!

I am often asked this question by employers, insurance company workers compensation department employees, field auditors and insurance agents.

It astounds me!

Ok, I get it that an employer would not know about this…but insurance company personnel? The very folks who oversee the audit process for an insurance company. What’s that all about? A very wise person once told me that knowledge is power and when it comes to the confusing world of workers compensation rules and their application in the real world, no other words ring a truer statement.

Reality…you can’t just go to a state work comp website and find a tab entitled “workers compensation audit rules.” As a matter of fact you can’t go to NCCI and find a single place providing “workmens comp audit rules.”

How can this be and how does it work? To begin, you have to remember what an audit’s all about. It’s the gathering of factual remuneration, or payroll, and other exposure data for an expiring policy period to then be analyzed and compared with the original information used to establish the policy. The gathering of information may include actual payroll or remuneration broken out by individual employee, descriptions of work processes carried out by each employee, materials used within the business operations by employees, the use of independent and sub contractors and of course verification company entity and ownership structure. All of this information will then be used by the auditor and insurance company personell to determine, in their opinion, the correct exposure, premium base and premium adjustments for the employer.

Insurance companies have developed, over time and history, their own individual methods and types of information they want an auditor to gather from an employer during the audit. Some insurance companies use their own employee auditors while others contract out and use independent auditing firms. As with individual insurance companies the independent auditing firms have also developed their own methods for gathering the audit information.  

In fact there is really no such thing as the rules of audit. Why? Because the rules of audit are really just the rules of workers compensation found throughout a myriad of state statutes, governing authority publications and developed over time and history. 

Where’s the protection for an employer from the intrusiveness of this process? Look to the workers compensation policy for the only safeguards that govern the audit process. Found within the typical workers compensation policy under Part Five – Premium; Section G – Audit. It’s here where you will find words like; “you will let us examine all records and items that relate to this policy.” They go on to tell you what those records may be. Then you’ll see; “we may conduct the audit during regular business hours during the policy period and within three years of the expiration of the policy.” So here is where in the insurance contract you give the insurance company the right to conduct the audit and the only safe guards are that they can conduct the audit only during regular business hours and during the policy period or within three years after the end of the policy. 

WOW! Thats it?

So let’s go back to where even some insurance company employees think there are “Rules of a Workers Compensation Audit.” All I can say to that is please take some time and learn about the process and remember…knowledge is power…and that’s all I got to say about that!

Hope this helps you out! Thanks!