Workers Comp Audit: Preventing Scams

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1 Audit isn t a four-letter word If you re like most people, audit is a word that sets your heart pounding and not with excitement. Here at Summit, our audit team works hard to dispel that negative perception. Believe it or not, an audit can often have a positive impact on the long-term financial health of your company, even if you end up owing money. Not buying it? See below for a couple of our real audit cases that resulted in five- to six-figure corrections in favor of the insured business. Be sure to keep reading to find out how our audit team can help your company, too. Classification accuracy matters Correctly identifying your NCCI class codes is one of the primary goals of an audit. In one recent audit case, the employer, who was less than eager to complete the audit, ended up saving more than $19,000 in premium because our auditor caught a classification error. An audit of a recycling company resulted in $100,000 credit to a client when our auditor realized the company had changed some business practices and, therefore, its employee classifications. Not only can classification have a major impact on your premium, it can make all the difference in your company s experience modification factor, or mod. For example, if a business misclassifies a carpenter (who occasionally answers the phone) as a secretary, the expected claim potential is very low because secretaries aren t expected to have many accidents. Carpenters, on the other hand, have a higher chance of sustaining an occasional injury. If this carpenter has an accident while misclassified, the mod could take a much more significant hit compared to the same accident for a carpenter who was correctly classified. For more information about mods and how they impact your premium, please visit our website (search: mods). Fall/Winter 2013 Our people make the difference We use our own in-house auditing team for nearly 90 percent of the audits we complete, compared to an industry average of roughly 50 percent. So how does this benefit you? First, our staff specializes in workers comp audits. Most third-party auditors deal with many different types of business audits. Using in-house auditors who are strictly focused on workers comp usually means more accurate audits. Second, in most cases, you will be assigned the same auditor, year after year. That means your auditor gets to know your business saving you the time and hassle of reeducating a new auditor on the fundamentals of your business each year. Beyond the audit In addition to your annual audit, our team is available to assist you in a variety of ways throughout the year (upon request). Take a look below to be sure you are taking full advantage of these services. Classification review. Our team is available prior to the underwriting application and at midyear to offer classification expertise. Fraud prevention. General contractors often run into premium fraud issues with subcontractors. We can help ensure that subcontractor documents, such as certificates of insurance and workers comp exemptions, are valid. We can also educate you on how to verify employee documentation, such as Social Security numbers. Audit preparation. Before the annual audit, our auditors are available to answer your questions, to set up paperwork and to prepare records so everything runs as smoothly as possible. Give us a call Our auditors are always available to assist you in any way we can. So call us. We want to help make a difference, and you may be surprised at how valuable that difference can be. ❶

2 A Message from Carol Sipe, Summit president and CEO Carol Sipe Summit President and CEO Working together to do the right thing Doing the right thing is a message you ve probably heard from Summit before because we believe in it. It characterizes the way our people operate on a daily basis. At Summit, we believe that successfully creating an atmosphere of doing the right thing lies in great partnerships. In other words, for us to operate at the level of integrity we strive for, we need your help. That could mean asking you to implement safety protocols in your workplace, create a return-to-work program for injured employees or just work with your auditor once a year to get the numbers right. In return, you can rest easy knowing that you won t go it alone when it comes to workers comp. Our hundreds of staff members can help you set up a safety program, get your return-to-work plan going and provide you with the resources and answers you need. So, let s work together to do the right thing. And let us help you with any questions or concerns you have about your workers compensation insurance. New audit cancellation procedure When businesses don t comply with audit requests, eventually their policies can be cancelled. Most states and NCCI consider two attempts to be reasonable before an audit is closed as unworkable. Please note that beginning December 2013, Summit will begin the cancellation process after three failed attempts to perform a final policy audit. For a cancellation audit, we will begin the litigation process after two failed attempts. Active account final audits After two unsuccessful attempts to schedule an audit appointment, or after two requests have been made for mail audit records, a third and final letter will be mailed. The business will have 30 days to complete the audit, or the account will be set for cancellation. If the business complies with the 30-day cancellation period the account may be reinstated. If, however, the business does not complete the audit, the account may be turned over to litigation. Depending on the state, the business may be responsible for up to three times the estimated premium, attorney fees and any other applicable charges. Cancelled account audits After one attempt to audit the account, either in person or by mail, we will mail a final letter to the business. If 30 days pass, and the business has not complied, we will turn the account over to litigation. If you have questions about preparing for an audit, give us a call. Or visit our website at and check out the Premium Audit section of the Employer Resources. Workers Comp Premium Audit FAQs Q: What is a workers compensation insurance premium audit? A: A premium audit is a verification of your company s payroll for the period during which your insurance carrier provided workers compensation coverage. Q: Why are audits performed? A: Your policy contract, and some state workers compensation laws, require audits. The audit allows both you and your insurance carrier to be certain that your workers compensation coverage has been properly and fairly billed. Q: When are audits performed? A: Yearly audits are performed at the end of each policy period. Cancellation audits are performed as soon as possible after a workers compensation policy is terminated. Q: Who will perform the audit? A: There are two types of audits: mail and physical. If your account qualifies for a mail audit, we will request your records via U.S. Mail. Otherwise, an auditor will schedule a time to meet with you in person. ❷

3 Things You Should Know about Premium Audit How to prepare for an audit Here are some of the documents your auditor will need for the policy period being audited. Additional records, including bank statements, may also be needed for your auditor to accurately determine your payroll. State unemployment quarterly payroll tax reports, including 941s Cash disbursements journal General ledger (posted to date) Certificates of Insurance (if subcontractors were used) Also, be sure to provide the following information for the audit period: Overtime If you paid overtime to your employees, your records must show the overtime pay separately by employee. Be sure to also summarize the overtime pay by classification code. Split of classification If an employee s classification code can be split, you must have the employee s time separated by the hour. It cannot be separated by percentage of time worked. Subcontractors and contract labor If you use subcontractors or contract labor, please have all certificates of insurance and payroll records available for the audit. If you are unable to provide evidence of insurance, you must pay the workers compensation premium for that uninsured labor. Also remember that paying workers by 1099 does not necessarily make them an independent contractor, and you may be subject to paying premiums on them. If you aren t sure of your state s statutes regarding coverage of subcontractors, please give us a call. Did you know? When a Summit auditor finds that we owe money to a business, we may pay back up to four years worth of overpaid premium to that business. Premium audit fraud can cost us all Did you know that employers who do not pay for state-mandated workers compensation insurance, or pay less than they should, are committing fraud? This can include underreporting payroll, intentionally misclassifying workers, paying workers cash under the table or calling employees subcontractors. Whenever and however it happens, insurance fraud costs everyone. The Coalition Against Insurance Fraud estimates that nearly $80 billion in fraudulent claims are made annually in the U.S.* Industry wide, this can translate to higher premiums for employers and then higher product prices for your business. That, of course, can result in fewer sales and lower employee salaries. Nobody wins. One of the goals of a premium audit is to identify any fraudulent activity. But, rest assured, we know that most errors are simply honest mistakes, and we re quick to give the benefit of the doubt unless there is clear evidence of deceit. In those clear cases, however, we owe it to everyone to pursue legal action. Take a look below at some warning signs of premium fraud. If you suspect abuse of the workers comp system, you can call Summit at , and we ll check it out. Premium fraud warning signs Certificate of insurance (COI) with inaccurate data Cross-outs, white-outs or erasures on documents Number of employees, classifications and payroll are inconsistent *Source: htm#.unei2razeum ❸

4 Open for Business is now OFB-EZ Did you know that when disaster strikes be it a fire, flood, tornado or even a hurricane one in four businesses never reopens? That s why Summit is proud to offer you OFB-EZ (formerly Open for Business), a web-based recovery tool developed by the Insurance Institute for Business and Home Safety (IBHS). The new OFB-EZ online tool will serve your needs even better than Open for Business, with modern technology and the latest best practices for business continuity planning. OFB-EZ helps you create detailed plans that will allow you to recover essential business functions and remain in operation following a disaster. There is never any cost to you for using OFB- EZ. To get started, simply visit open-for-business/. Note: If you already have an Open for Business account, your saved information can be downloaded by logging in to your current account through the end of You will need to create a new account in If you do not download your current account data by December 31, 2013, please contact Gail Moraton of IBH-S at gmoraton@ibhs.org to request your data. The Globally Harmonized System The Globally Harmonized System (GHS) is a set of guidelines for ensuring the safe production, transport, handling, use and disposal of hazardous materials. The goal is to make workplaces safe for employees exposed to chemicals hazards and to make the international sale an transport of these chemicals easier. The U.S. officially adopted the GHS on March 26, 2012, and the first deadline was December 1, 2013, for employers to have trained their employees on the new label elements and safety data sheet (SDS) format. If you need any additional information or training, please contact your Summit loss control consultant. For more information on the GHS including phase-in dates, visit or call your Summit Loss Control representative.

5 Florida Transportation Builders Safety Award Winners announced in Orlando Congratulations are in order for Florida construction companies that have received one of their industry s most soughtafter awards the Florida Transportation Builders Association Safety Award. In order to qualify, businesses must have more than 500,000 man-hours without a lost-time accident. You may recognize two of these companies in particular; we have highlighted Tampa Tank and Tucker Paving for their outstanding safety programs in a previous issue of the COMPpress and our Back2work marketing materials, respectively. For more than 75 years, the Florida Transportation Builders Association has consisted of individuals and businesses actively engaged in the construction of transportation systems or in the furnishing materials, equipment or services for such construction. The 2013 safety awards were presented during the August 9, 2013, awards breakfast at the FTBA Annual Convention in Orlando. Congratulations to the following Summit clients! Conalvias USA, LLC Hardrives, Inc. Parsons Services Tampa Tank Inc. Tucker Paving, Inc. Turtle Southeast, Inc. Westwind Contracting, Inc.

6 What Can Summit Do for You? How to Reach Us Summit offers a variety of services and programs aimed at controlling your workers compensation costs and making the most of your premium dollars. Here s a sampling of some of the tools we have available at no additional cost to you. Online Business Center, where you can Check claims activity Print and download loss runs Print certificates of insurance (COIs) or waivers Find a doctor in our workers comp network Back2Work, Summit s return-to-work program gives you the tools you need to create a plan for your business. Open for Business. Create and save your own detailed plan for disaster recovery online it s free! Specialized provider network,* consisting of more than 16,000 doctors and specialists experienced in occupational medicine and workers compensation. Tailored loss-control services,** including Safety consultations Drug-free workplace assistance Safety education, training materials, classes and webinars For more information, tips on workers comp and frequently asked questions, visit our website at. * Proprietary network in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee. In Arkansas and Texas, Summit uses contracted networks that offer our clients benefits comparable to our proprietary arrangement. Customer Service Report a Workplace Injury 24 hours a day, 7 days a week by Calling , Faxing your report to or Visiting our website at (login required) Florida/Corporate Office Southeast Region Georgia, Kentucky, North Carolina, South Carolina, Tennessee Southwest Region Arkansas, Alabama, Louisiana, Mississippi, Texas Summit Manages BusinessFirst Insurance Company RetailFirst Insurance Company Retailers Casualty Insurance Company Bridgefield Casualty Insurance Company Bridgefield Employers Insurance Company ** RetailFirst Insurance Company, BusinessFirst Insurance Company, Bridgefield Employers Insurance Company, Bridgefield Casualty Insurance Company and Retailers Casualty Insurance Company provide policyholders with accident prevention services at no additional cost. 12/13 (13-149) For a list of sources related to the information contained in this newsletter, please visit our website: ❹ Summit Consulting LLC has used its best efforts to select information for this publication from reliable sources, but cannot warrant that it is complete or accurate. Summit Consulting LLC does not assume and hereby disclaims any liability to any person for loss or damages caused by error or omission. Please check with your agent or attorney for details about the laws as they may affect your specific business situation Summit Consulting LLC