Non-Profits and the Dreaded Workers Compensation Audit

Nearly all Workers Compensation policies and some General Liability policies are audited by the insurance carrier every year after the expiration/renewal date. This can be a traumatic experience for some nonprofits. The following is an explanation of the audit process and some information that will help you to prepare for a stress-free audit.

 

What is the Process?

Audits may be voluntary disclosure audits that require you to fill out an audit form and return it with supporting documentation (usually by mail), a telephone audit or an in-person audit.

In the case of an in-person Workers Compensation audit the auditor will make an appointment to come to your office and perform the audit. The auditor will review your payroll records including DE6, DE9C-Quarterly State Wage and Withholding Reports as well as other payroll records. The auditor may also require that you provide your Federal Form 941. If you utilize a payroll service, then you may be able to take advantage of custom reporting options to help you to prepare for the audit. It may also be helpful to prepare a spreadsheet, listing each employee with their job title and a brief job description. By providing job descriptions to the auditor you will avoid any potential classification issues. The spreadsheet must include all persons employed by your organization during the policy period, including all terminated employees.

Initially the auditor will attribute all payroll to the specific governing class for your organization, usually the class code that generates the highest rate per $100 of payroll or the class code that has the highest amount of payroll in your organization. CLASS CODES EXAMPLES-class codes define specific employee activities and job duties i.e. 8810-clerical or 8742-outside sales. Once the total payroll has been established the auditor will then move the payroll into specific class codes based on the job duties of specific employees.

It is important to remember that the auditor is not engaging in an adversarial process. Auditors should be treated respectfully and provided with an appropriate space to conduct the audit. Most auditors are employed by third party private auditing firms and are not beholding to the insurance company for whom they are conducting the audit.

Important Things to Remember

  • Always ask for a copy of the Auditors Worksheet before the auditor leaves. Otherwise all that you will receive from the auditor is a completed analysis which looks like a modified and adjusted declarations page. This report will not breakdown how the auditor came to their conclusions and will not allow you to identify any potential mistakes.
  • Always schedule the audit for Friday afternoon if possible so as to limit the time available and streamline the process.
  • Remember that the auditor cannot attribute payroll to any class code not currently on your policy regardless of the employee’s job duties.
  • Make sure you have insurance certificates for the entire policy period from every independent contractor that did work for your organization.

Finally—

Auditors make mistakes. If you do not agree with the final audit calculations, you can dispute the audit. If you choose to dispute the audit, or are just looking for more information on how the audit calculations and conclusions are promulgated then enlist the aid of your Insurance Broker who should be a specialist in audit analysis and dispute.

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