September 17, 2021

Audits Aren't So Scary

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GOALS OF THIS GUIDE

If you are anxious about audits, there is no need to fear. Audits can be efficient and productive  when all parties know what to expect, so we’ve put together this guide to help you understand everything involved in an LWCC audit and why you should feel peace of mind when you see one come your way.

“The purpose of the audit process is to ensure that the policyholder is paying a fair premium. Policyholders should remember that an audit can just as easily result in a refund to them as it can a bill,” said Tori Wells, Agency Relations Representative with LWCC.

PREPARATION IS KEY

Every LWCC policy states that it will be audited.  When conducted, the policyholder can be represented by the owner, an employee (ex: office manager, lead accountant), or a CPA. The best technique for an easy audit experience is to be prepared. To do this, the policyholder should review the pre-audit letter or mailed audit packet detailing requested documentation and pull together all relevant documents applicable to their company.

An audit can only be as  good as the records that are kept. The biggest challenge to the process is a lack of documentation to review at the time of the audit.  Collecting the necessary information and documentation ahead of time usually results in a smooth audit process. For example, keeping proper separation of payrolls, such as USL&H payrolls and gross overtime figures, according to class code or person. If payroll documentation isn’t separated, it will result in the wages being allocated to the highest  rated class code.

Policyholders should be keeping records of payments to all employees, subcontractors, and contract labor as they make the payments to them throughout the year. Recreating records for the year at the time of the audit can prove to be very difficult.

Every audit can be slightly different depending on the structure, record-keeping, or operations of a company, which means that not all of the same documents will apply to every business model. The good news is that there are several ways to obtain the necessary information. For instance, a check register and bank statements can be used to recreate a vendor summary if an accounting system is not used.

While necessary at times, cash payments to employees or contract labor can make the audit process difficult.  If cash payments are paid for labor and that laborer files a claim, the claim cannot be verified, which may in turn result in the claim being denied or lead to an unproductive audit.  Other causes for an unproductive audit include unexplainable payments to subcontractors, lack of federal documentation, or when operations don’t match up with payrolls.  

WHAT TO EXPECT DURING AN AUDIT

If you’re wondering which policies are audited and why, the answer is simple: all policies are audited. LWCC follows the NCCI guidelines when it comes to premium inclusion and classification of operations.

When we start an audit, LWCC will assign an auditor to your case who will contact you over the phone, by email, or by mail. From there, the auditor will suggest dates and times to meet for an appointment in which you’ll discuss operations, review important documents, and plan the next steps. Some of the important documents that may be reviewed include annual tax returns, quarterly payroll returns, W2’s, 1099’s, and 1096’s.

In most cases, policyholders have anywhere from 10 to 14 days after their audit meeting to gather any missing Certificates of Insurance (COIs) for subcontractors, receipts, contracts, or documents and prepare them to send to the auditor. During this time frame, the auditor may come back to you with further questions after reviewing the additional documents. If the missing documentation or information is not provided by the deadline, the audit will be considered as unproductive.  An unproductive audit generally results in a 60 day notice of cancellation (NOC) of the policy.  When all the steps are complete, the auditor will submit the verified and finished audit.

In an audit you can expect a painless series of verification steps. Payrolls during the audit period will be verified as well as verifying operations with some simple questions:

  • What is the business doing as a whole?
  • What are the employees within the business doing?

The audit will also ensure the fairness of a premium, which can result in a refund, a bill, change in class codes, change in minimum premium, or no changes at all. Generally, you can expect an underwriter to contact your insurance agent before any payrolls are increased or changed on the current policy.

If the privacy of your financial information is a concern, you can rest assured knowing that LWCC scans all kept documentation into the insured’s file and then shreds all documents to protect your privacy. While online file sharing continues to grow more popular, privacy protection is still a priority. Digital files are automatically deleted after an allotted time set by the auditor.

WHAT TO DO AFTER AN AUDIT

When an audit of a policy is complete, you can start preparing your important documents and records for the next audit period. As a policyholder, it’s important to keep your records as you go throughout the year, so that at the time of the next audit you’ll have access to everything you need: bank statements, quarterlies, payments made, etc.

The policyholder's completed payroll audit statements and any relevant invoices are available at LWCC Interactive. If you have any questions about the audited exposure, you should contact your insurance agent or the LWCC Audit Department for additional information. If you find a discrepancy, you can fill out a dispute form and email it with supporting documentation to audits@lwcc.com. Additionally audit tips can be found here.

WHY LWCC IS AN EXPERT

“While audits can feel overwhelming at times, our expertise is always at your disposal to make things easier. Having experts you can turn to can help give you the full picture of your audit,” said Wells.

Many of LWCC’s in-house audit staff have been working in the field for over 20 years. LWCC follows the NCCI guidelines for classification and inclusion rules. LWCC auditors receive training throughout the year to stay up to date on NCCI and industry changes and other topics related to the audit experience.

Throughout the audit process, it’s our hope that greater understanding from start to finish can result in greater preparedness and transparency for policyholders.

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