Discovering Workers Compensation Audit Errors and Mistakes
Let's Discover Some Audit Errors!
Workers Compensation Audits Errors and Mistakes are a normal part of the workers compensation audit process. They happen! And on this page we'll help you lay out a roadmap for discovering common mistakes found in audits.
In this section of our website you will learn:
Why audit errors happen;
Categories of audit errors;
How to develop a plan to discover mistakes and errors typically found on audits.
As an Insurance agent imagine that you're in your office and receive a call from a client that goes something like this:
"Hey, remember that audit I just went through? Well I just received a large audit bill from the insurance company and I don't think it's right! What can I do ?"
A typical response would go like this: "Well, why do you think your audit is incorrect?"
A few years ago the Raleigh News and Observer reported from information they learned from the North Carolina Rating Bureau, the NCRB, that there were approximately 140,000 workers compensation policies issued in the state of North Carolina. Some organizations report that audit errors run anywhere between 40% to 80&. The Institute of Workers Compensation Professionals, the IWCP, indicates that their members report that approximately 75% of the audits they reviewed had errors. That works out to be about 112,000 annual audits that contain some sort of mistake or error! And think about it, that's only for the state of North Carolina!
So maybe a better response to that question should be: "Why WOULD you think your audit is correct?"
For insurance agents and brokers how they handle these situatiions often mean the difference between keeping and losing a client!
Discovering audit errors and mistakes can be like "Following the Yellow Brick Road:" ... You don't know where you'll begin, you may not know where you're going, or how you're going to get there or what you may discover along the way!
Categories of Audit Errors:
We break audit errors into two distinct categories. Over the years of working audit problem we've discovered that it's better to separate these items into general categories because each category presents it's own issues and methods required for correction.
Objective Data - Which is made up of the numbers, including rating payroll and other details of fact or origin all supported by factual documentation.
Subjective Data - Which typically include classification code issues along with interpretation and applicaiton of manual rules. You have to be careful with this! Large errors occur when insurance companies are given the opportunity to reinterprete codes and rules!
A Place to Start:
Sometimes errors are obvious - But for those that are not you will need a place to start and that should be with a series of questions. Here's a few to consider:
Has the employer changed insurance carriers? - Changing from one workers compensation insurance company to another often lead to a reinterpretation and reapplication of rules. These situations often end with a reclassification of codes used on the employers policy. Which in turn lead to an increase in cost where the employer ends up paying more for their coverage.
Was the audit a self audit or a physical audit? - We often find errors in self audits just because of the very nature of a self audit. Sure they have a practical use and can save an insurance company money over the cost of sending a human auditor to do the job but how an employer fills out and submits the information back to the insurance company can create mistakes and improper interpretation of the employers actual operations. Be careful with this situation!
Has the same auditor conducted the audit over several years or is this a new auditor who is unfamiliar with your business? - This cuts both ways. Sometimes auditors who have worked the same account over several years will become complacent and may miss changes in operations that may have a positive, or negative, effect on the audit and premium the employer pays.
Is the auditor an independent auditor or an employee of the insurance company? - Independent auditors will typically follow generally accepted methods and practices for conducting an audit while carrier auditors will follow the methods and practices established by their employer, the insurance company. Who can blame an employee for doing what their employer tells them to do?
Was the audit completed at the business premises AND did the auditor discuss the business operations in detail? - This is a key factor for verifying the business operations. After all the auditor is the eyes and ears of the insurance company. In reality most auditors will be unable to complete an audit at your worksite. The computer programs and tools they have to work with are just inadequate to allow them to do this. So in a way, to bring this up may seem unfair and deemed an easy target just to get attention! But there's a balance. You should never let an auditor just take a prepared package along with them to complete at some time in the future. We believe this is a mistake that many employers make. So, even if you have prepared a packet of information the auditor needs to do his job, make sure he stays long enough to go through the information and that he understands your business operations before he leaves!
Was the business owner present at the audit to answer questions? - Who could better answer questions about the business than the owner? And this is an area that is often over looked. An open, honest discussion with the auditor about what the business does, how they do it and who does it will more than likely lead to proper classification!
There are many other questions that should be asked when beginning an audit review. But these should get you thinking along the lines of how to craft the questions you can use.
Always ask for a copy of the completed audit worksheets. - The audit worksheets are the work papers of the auditor. In today's world, they are compiled by way of some type of spreadsheet. It's where the auditor gathers all of the objective data about an employer. It's where they plug that data into the spreadsheet and organizes the data for submission to the insurance company for transfer to the audit statement and billing system.
The auditors worksheets are your guide book!
Your Audit Review Should Include:
A careful inspection of the worksheets for accuracy in all areas. - Worksheets contain very important notes by the auditor about the clients operations, changes in work processes, a general description of the business ownership entities and all objective data that has been collected for use in the final audit calculation.
It should include a detailed review of all objective data collected. - Remember the objective data is the numbers, payroll and other factual information used to develop the final premium. Be sure to check them. You must make sure the numbers add up!
Your review should include a full understanding of the operations. - Operations change. You must know the work processes present in the work place and make sure you identify any changes that the employer may have made since the last audit.
Is should include verification of any changes from the original policy. - Compare the audit information with the original policy including all policy endorsements that may have been issued since the renewal of the policy. Also be sure to compare that information with the audit and final premium calculation.
And finally your review should include a comparison of the current audit with those from previous years.
You Should Look For:
Any changes that may have occurred in the current audit as compared to past audits.
Any unexplained shift in class codes.
And any shift in payroll from one classification to another.
Discovering audit errors and mistakes can really be like discovering buried treasure! If you've experienced any of these situations you may have just stumbled upon a mistake in your audit! However discovering an error is just the beginning. Just because you believe you've found a mistake doesn't really mean that it is a mistake! This is where time and experience come into play.
Most employers are not schooled in determining if a real mistake has happened or not. Mistakes that fall into the objective data category tend to be those of a clerical type and most of the time an employer can have them corrected by simply providing the correct information to the insurance company or auditor. But discovered subjective data errors are another problem all together!