Workers Compensation Audits – Unobtainable goals in a less than perfect world?

The goal of a workers compensation audit is to gather accurate payroll and exposure information to be used by the insurance company in developing the final premium for a certain policy period. Did that sound like gibberish to you? Certainly lofty ideas that often fall short of their intended application! But let’s talk about a few areas of the audit process that always seem to create problems for employers and insurance companies alike.

To begin you must understand that a workers compensation auditor’s mission is to uncover all premium generating exposures related to an employers business operations. It’s really a two fold job that includes:

  • A thorough review of financial records including payroll, general ledger, cash ledger and cash disbursements, and;
  • A review of all operations conducted by the business.

Typical audit mistakes are then generated from:

  • Incorrect application of remuneration in the form of payroll or some use of subcontract labor;
  • Incorrect application of job descriptions in the form of improper or reclassification of workers compensation codes.

So the auditor works for the insurance company. Don’t be fooled that they’re there to help you! Most auditors are very accomplished at their jobs but remember they get paid to do their job and then move on to another.

In a perfect world the auditor’s job would be easy, classification codes shown on a policy would be correct and projected payroll would be identical to actual payroll for the policy period. Unfortunately it rarely works out this way. In fact there are many places where an audit can go wrong. Here’s just a few:

  • Codes are incorrect from the beginning or improperly changed or added at audit;
  • Projected payroll is wrong from the beginning and not adjusted during the policy period;
  • Lack of or poor communication between the auditor and employer;
  • Improper or poor accounting records;
  • Changes in business operations;
  • Changes in ownership;
  • Self audits or phone audits used in lieu of a physical audit;
  • Fraudulent activity on the part of the employer, agent or auditor.

Shouldn’t the goal of an audit be to get it right? Considering the variables, roadblocks of misinterpretation, poor understanding of the process and improper application of the rules an accurate audit seems a bit like the underdog. Unobtainable? Not really. Difficult? Sure.

When you need help with a workers compensation audit problem be sure to contact our office, give us a call or just drop us an email. We may be able to assist with your problem!

Hope this helps. Thanks!