DWC Reports on 1994 Audits


In its fifth annual audit report to the Legislature, the Division of Workers' Compensation reported that 56 audits during 1994 identified $651,613 in unpaid compensation and resulted in penalty assessments totaling $857,595.

The workers' compensation reforms of 1989 required that insurance carriers, self-insured employers, and third-party administrators be audited in order to promote the prompt and accurate delivery of workers' compensation benefits.

Notices of Compensation Due and Notices of Penalty Assessments are issued when certain violations are found. Penalties range from $25 to $5,000 per incident, depending on the seriousness of the violation. A penalty of up to $100,000 may be assessed for a pattern of egregious and willful violations. Penalties collected go to the Workplace Health and Safety Revolving Fund, which funds the activities of the Commission on Health and Safety and Workers' Compensation.

DWC Administrative Director Casey Young noted that the audit results indicate a "disturbing trend" in the amount of undisputed workers' compensation benefits found unpaid in the audits. The $651,613 identified compares with $478,019 found unpaid in 61 audits in 1993 and $316,377 identified in 85 audits in 1992. "This disturbing trend will shape the focus of the audit unit for 1995," Young said in a letter to the Legislature.

On the positive side, the 1994 results show that claims handling practices have dramatically improved for some claims administrators as a result of the audit process.

Of particular note are two adjusting locations who were targeted for audits in 1994 based on results of prior years' audits. One, an insurer located in Visalia, improved from 567 penalties totaling $82,100 in assessments in 1993 to 142 penalties totaling $18,400 in assessments in 1994. A San Francisco insurer assessed 334 penalties totaling $31,475 in assessments in 1993 improved in 1994 to 131 penalties totaling $16,630 in assessments.

The Labor Code requires that at least half of all audit subjects be selected randomly, with the remainder targeted based on information indicating that the subject may be failing to meet its obligations. In 1994, 49 of the 56 audit subjects were selected randomly, with seven targeted for audit based on the results of a prior audit or complaints received by DWC. Entities audited consisted of 31 insurance companies, 10 self-insured employers, and 15 third-party administrators.

Individual claim files are selected randomly for audit. The number of medical-only, indemnity, and denied claim files selected is representative of the proportion of each type of claim file at the audit subject. The number of claim files reviewed at an audit location can range from one to several hundred.

Last year, a total of 13,196 claims were audited. Of these, 4,834 cases were claims in which indemnity benefits were paid or expected to be paid, 4,876 were medical-only cases, 3,310 were claims in which the employer or insurer denied all liability, and 176 claims were selected based on complaints received by DWC. Unpaid compensation totaling $651,813.35 was identified in 630 cases.

In all, the audit unit issued 6,774 penalty assessments in 1994. The most frequent violations cited: failure to provide the proper benefit notice forms, 2,511 citations or 37.07 percent; failure to pay indemnity promptly or accurately, 2,047 or 30.22 percent; failure to comply with vocational rehabilitation time and notice requirements, 651 or 9.61 percent; and failure to pay bills for medical treatment within 60 days, 604 or 8.92 percent.

For a copy of "1994 Audits of Workers' Compensation Insurers, Self-Insured Employers, and Third-Party Administrators," please contact the Division of Workers' Compensation by writing P.O. Box 420603, San Francisco, CA 94142-0603 or call (415) 703-3731.