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2004 Audits of Workers' Compensation Insurers, Self-Insured Employers, and Third-Party Administrators

April 2005

This fifteenth annual workers' compensation audit report summarizes the accomplishments of the Audit Unit of the Division of Workers' Compensation for all audits commencing during calendar year 2004.

The audit process

Selection of PAR audit subjects

In order to implement the changes mandated by AB 749, audit regulations have been revised extensively. Pursuant to Title 8, California Code of Regulations, Section 10100.2, effective January 1, 2003, separate underwriting companies, self-administered, self-insured employers, and/or third-party administrators operating at one location will be combined as one audit subject for the purposes of PAR audits conducted pursuant to Section 129(a), but only if claims are administered under the same management at that location. Where claims are administered from an office that includes a satellite office at another location, claims administered at the satellite office(s) will be considered as part of the single adjusting location for auditing purposes when demonstrated that the claims are under the same immediate management.

The number of adjusting locations is constantly changing as a result of administrators opening, closing, and consolidating offices. For the past several years the total number of adjusting locations of California workers' compensation claims has averaged approximately 500. The Audit Unit's intent was to select most audits to be conducted during 2003 from locations that had not been audited in the recent past. However, audit subjects that merited targeted audit selection based on criteria listed below were also selected for audit.

Targeted audit subject selection

The bases for the targeting of audit subjects by the Audit Unit are specified in 8 California Code of Regulations Section 10106.1(c), effective January 1, 2003:

  • Complaints regarding claims handling received by the Division of Workers' Compensation.
  • Failure to meet or exceed Full Compliance Audit Performance Standards.
  • High Numbers of Penalties awarded pursuant to Labor Code Section 5814.
  • Information received from the Workers' Compensation Information System.
  • Failure to provide a claim file for a PAR.
  • Failure to pay or appeal a Notice of Compensation Due ordered by the Audit Unit.

Notices of audit and audit commencement

The Audit Unit usually issues Notices of Audit far in advance of the actual audits, a procedure that allows for flexibility in planning. A Notice of Audit informs the administrator that it has been selected for audit and requests that copies of claim logs be sent to the Audit Unit, but it does not indicate when the audit will be conducted or which claims will be selected for audit. The audit may not be scheduled for several weeks, or even months, after the Notice of Audit is received. Only after the audit has been scheduled is the administrator issued a Notice of Audit Commencement. This notice, issued two to three weeks before the audit is to begin, identifies the claims that are selected for audit and includes instructions for preparing the claims for audit.

Selection of claims for audit and performance standards

  • Profile audit review (PAR) - Beginning in 2003, indemnity claims have been randomly selected for PAR audits from the indemnity claim populations reported on the claim logs for the three years preceding the audit. For audits conducted in 2004, claims were selected from the claim logs for the years 2001 through 2003. Another change for audits conducted since 2003 is that indemnity claims randomly selected for audit will be taken from the population of claims in which indemnity has been paid, not from the population of claims in which indemnity may be payable. The Audit Unit utilizes a table based on an expected frequency rate of 10% with a confidence level of 90%, give or take 5%, to select the indemnity claims for the PAR audit. The table is in 8 California Code of Regulations Section 10107.1(c)(1).
  • If the Audit subject fails to meet or exceed the profile audit review performance standard, the sample of indemnity claims will be expanded and a full compliance audit (FCA) will be conducted. The profile audit review performance standard for 2004 is 1.92667. If the audit subject's profile audit review performance rating is less than 1.92667, the audit subject will be required to pay any unpaid compensation, but no penalties will be assessed. A PAR performance rating of 1.92668 or greater will result in a full compliance audit.

  • Full compliance audits - Stage 1 (FCA-1) - If a full compliance audit is conducted, the total number of indemnity claims randomly selected for audit will be based on the table in 8 California Code of Regulations Section 10107.1(d)(1). The number of claims in this full sample of indemnity claims is determined from a table utilizing an expected frequency rate of 10% with a confidence level of 95%, give or take 5%. The formula for the calculation of each year's full compliance audit performance standard is the same as for the PAR performance standard, but is based on audit results from the full sample of indemnity claims. The full compliance audit performance standard for 2004 is 2.77703. If the audit subject's full compliance audit performance rating is less than 2.77703, the audit subject will be required to pay any unpaid compensation, and penalties will be assessed, but only for violations involving the failure to pay indemnity or late paid indemnity.
  • Full compliance audits (Stage 2) - If, after the review of the expanded sample of indemnity claims, the audit subject's performance rating is 2.77704 or greater, the audit subject has failed to meet or exceed the full compliance audit performance standard, and an additional sample of denied claims will be audited. The number of denied claims randomly selected for audit are based on a table utilizing an expected frequency rate of 1% with a confidence level of 90%, give or take 3%. That table is set forth in 8 California Code of Regulations Section 10107.1(e)(1).
  • Following the review of all audited claims, penalties will be assessed for all violations. In addition, if there is failure to meet or exceed the FCA audit standard defined in 8 California Code of Regulations Section 10106.1(c)(1) the Audit Unit will return for a target audit within two years.

Audit procedures

Audits vary in size based on the populations of claims at the audited claims administrator adjusting locations. It is expected that one or two auditors can conduct routine PAR audits in one or two weeks. However, some may exceed this time frame. Audit subjects that fail to meet or exceed performance audit review performance standards or full compliance audit performance standards will take longer to conduct than PAR audits and may involve higher numbers of auditors.

A lead auditor who is responsible for coordination of the audit and the completion of the audit report is assigned for each audit. During the course of the audit, the auditors complete worksheets for each audited claim. The worksheets list relevant information, such as identifying data, due dates for various required actions, the bases for those actions and due dates, and amounts payable per specific periods per type of benefit. The auditors will copy documents from the claim files to support the bases for any compensation due or proposed penalties. They also provide the claims administrator with copies of proposed notices involving compensation due or possible penalties at daily or other agreed upon intervals, so that the administrator may research the issues and determine whether it agrees with or disputes the findings.

Preliminary report and post-audit conference

Once the audit is completed, the lead auditor conducts a short exit interview and returns to the audit office to complete a preliminary audit report that includes a Notice of Proposed Penalty Assessments and Notices of Intention to Issue Notices of Compensation Due. After an assigned Senior Compliance Officer and/or the Supervising Compliance Officer reviews the report, the preliminary report and enclosures are issued to the claims administrator. Depending on the schedules of the participants, a post-audit conference is scheduled. Periods between the receipt of the preliminary report and the post-audit conference usually do not exceed a few weeks unless it is at the request of the claims administrator.

The post-audit conference is usually held at the audit subject's adjusting location and is attended by the assigned lead and Senior Compliance Officer, the Supervising Compliance Officer, and/or whomever the claims administrator wishes to attend (i.e., claims manager, supervisors, corporate officers, legal counsel). The post-audit conference may be waived if the claims administrator wishes. The claims administrator is encouraged to notify the Audit Unit in advance and in writing of any disputed penalty assessments and/or mitigating circumstances, and can then present any arguments and discuss any issues on an informal basis at the post-audit conference.

If the audit subject's profile audit review performance rating meets or exceeds the PAR performance standard, however, the audit subject may choose to waive the preliminary report. In those audits, the final audit report and any Notices of Compensation Due may be issued within one to two weeks after the completion of the audit, and no penalties will be assessed.

Final audit report, payment of penalties and compensation due, and appeal of penalties and/or compensation due

The lead auditor prepares and issues to the audit subject by certified mail the final audit report, Notice of Penalty Assessments, and any Notices of Compensation Due. Although the goal is to issue the final report within two weeks of the post-audit conference, the process occasionally takes longer. Delays can occur if follow-up information from the claims administrator is needed or because of other audits or assignments. Copies of any Notices of Compensation Due are also issued to the appropriate injured workers. Unless appealed, penalties must be paid within 15 days of receipt of the Notice of Penalty Assessments. If some but not all penalties are appealed, those penalties that are not appealed must still be paid within 15 days of receipt of the report. Compensation due to injured workers must be paid within 15 days of receipt of the Notice of Compensation Due unless appealed within that time to the appropriate local Workers' Compensation Appeals Board pursuant to 8 California Code of Regulations Sections 10110 and 10115.1.

The audit subject is required to submit to the Audit Unit within 30 days documentation to indicate compliance with claims handling regulations. Documentation of compliance can include items such as copies of benefit notices, wage statements, and checks issued to injured workers and/or medical providers. Additional penalties may be assessed if the audit subject fails to submit documentation of compliance.

The audit subject may appeal disputed penalties to the Administrative Director within 7 days of receipt of the Notice of Penalty Assessments by requesting an appeal conference or a written decision on the appeal without a conference. Within 21 days of filing the request for appeal, the audit subject must file with the Administrative Director a statement specifying the penalties appealed and the basis for contesting each penalty, and submit any documentation relevant to the appeal.

The Administrative Director is required to issue a Notice of Findings within 15 days of the date the appeal is submitted for review following a conference or within 15 days after receipt of the Audit Unit's written answer if no appeal conference is held. Any subsequent appeal may be made by filing a petition for Writ of Mandate to the appropriate Superior Court.

2004 audit results

Profile audit review standard - 1.92667 / Full compliance audit standard - 2.77703

The Audit Unit of the Division of Workers' Compensation completed a total of 48 audits which began in 2004. Of these, 40 were routinely selected PAR audits and the remaining 8 were target PAR audits. Target audits for 2004 were selected based upon either results from prior audits of calendar year 2001 or return audits by stipulated agreement to a prior civil penalty. The total number of audit subjects included 10 insurance companies, 15 self-administered, self-insured employers, and 23 third-party administrators (TPAs).

At all audits, claim files were selected for audit on a random basis, with the number of indemnity and denied cases being selected based on the numbers of claims in each of those populations for the audit subject. No medical-only claims were selected for audit in 2004. In addition, if any complaints were received regarding possible violations of the Labor Code or regulations of the Administrative Director, each respective claim file related to a complaint may have been part of the audit pursuant to Title 8 CCR 10107.1(c)(2), (d)(2), and (e)(2).

The number of claims audited is based upon the total number of claims at the adjusting location and the number of complaints received by the Division of Workers' Compensation related to claims handling practices. Pursuant to Title 8, California Code of Regulations, Section 10107.1(c) and (d), either a "PAR sample" of up to 59 or a "FCA sample" of up to 138 of indemnity claims is audited, depending on the claims administrator's performance as measured in certain key areas after the PAR sample is audited. Pursuant to Title 8, California Code of Regulations, Section 10107.1(e), a sample of up to 67 denied claims may be audited, depending on the claims administrator's performance as measured in certain key areas after the review of the indemnity claims in the "FCA stage 1 sample" is audited.

In 2004, compliance officers audited 3,276 claim files, of which 3,182 were randomly selected claims in which some form of indemnity benefits were paid. Six audits included randomly selected claims in which the employer or insurer denied all liability. Targeted claims audited included 72 based on complaints received by the Division of Workers' Compensation. Twenty-two claims were designated as "additional" files. "Additional" files include:

  • Claims chosen based on criteria relevant to a target audit but for which no specific complaints had been received.
  • Claims audited in excess of the number of claims in the random sample that were audited because the files selected were incorrectly designated on the log.

Violations of administrative director's regulations

As a result of audits conducted during the calendar year 2004, the Audit Unit issued 6,594 administrative penalties assessable to claims administrators totaling $1,354,593. However, the Audit Unit waived $518,605 of the assessable penalties pursuant to Labor Code Section 129.5(c) and regulatory authority. The total penalties assessed claims administrators were $835,988. These waivers occurred within 37 of the audits that met or exceeded the PAR performance standard and 5 other audits that met or exceeded the FCA-1 performance standard.

Unpaid compensation due to employees

There were 559 claims in which injured workers were owed unpaid compensation totaling $635,141.31, an average of $1,136.10 per file in which there was unpaid compensation. The unpaid compensation is broken down as follows: $190,446.16 in temporary disability indemnity and salary continuation in lieu of temporary disability (30% of the unpaid compensation), $317,421.05 in permanent disability indemnity (50% of the unpaid compensation), $24,094.48 in vocational rehabilitation maintenance allowance (3.8% of the unpaid compensation), $101,732.44 in 10% self-imposed increases for late indemnity payments (16.0% of the unpaid compensation), $0 in death benefits (0% of the unpaid compensation), and $1,447.18 in interest and penalty and/or unreimbursed medical expenses (0.2% of the unpaid compensation).

The claims administrator is required to pay these employees within 15 days after receipt of a notice advising the claims administrator of the amount due, unless a written request for a conference is filed within 7 days of receipt of the audit report.

When employees due unpaid compensation cannot be located, the unpaid compensation is payable by the claims administrator to the Workers' Compensation Administration Revolving Fund. In these instances, application by an employee can be made to the Division of Workers' Compensation for payment of moneys deposited by claims administrators into this fund. In 2004, $259.24 was paid into this fund because the injured workers could not be located.

Frequency of violations

A statewide frequency of the 5 key areas under review for violations used in determining the PAR and FCA performance standards was calculated after combining the individual audit findings (Individual Exhibits 1A, 1B, and 1C). The frequency noted in each area is actually the ratio of files in which there is an assessment for a specific type of violation to the total number of randomly selected files in which the possibility of that type of violation exists. Statewide Exhibits 1A through 1C provide a breakdown of performance for audit subjects in 2004.

Unpaid Indemnity
Of the randomly selected audited claims in which indemnity was accrued and payable, the percentage for assessable penalties for unpaid indemnity is:

  • 2004
  • 2004
  • 2004
37 Audits passing the PAR standard:
5 Audits passing the FCA standard:
6 Audits failing all standards:
12.02%
24.39%
32.36%

Late First Payment of Temporary Disability or First Salary Continuation Notice when Salary Continuation is paid in lieu of Temporary Disability
Of the randomly selected audited claims with temporary disability payments or first notice of salary continuation, the following percentage for assessable penalties for late paid first payment of temporary disability or late first notice of salary continuation is:

  • 2004
  • 2004
  • 2004
37 Audits passing the PAR standard:
5 Audits passing the FCA standard:
6 Audits failing all standards:
24.59%
39.51%
53.68%

Late First Payment of Permanent Disability, Vocational Rehabilitation Maintenance Allowance, and Death Benefits
Of the randomly selected audited claims with permanent disability, vocational rehabilitation maintenance allowance, and death benefits payments, the following percentage for assessable penalties for late paid first payment of permanent disability, vocational rehabilitation maintenance allowance, and death benefits is:

  • 2004
  • 2004
  • 2004
37 Audits passing the PAR standard:
5 Audits passing the FCA standard:
6 Audits failing all standards:
12.03%
32.10%
40.80%

Late Subsequent Indemnity Payments
Of the randomly selected audited claims with subsequent indemnity payments, the following percentage for assessable penalties for late subsequent indemnity payments is:

  • 2004
  • 2004
  • 2004
37 Audits passing the PAR standard:
5 Audits passing the FCA standard:
6 Audits failing all standards:
20.39%
45.27%
26.10%


Failure or Late Provision of AME/QME Notices and Notices of Potential Eligibility for Vocational Rehabilitation
Of the randomly selected audited claims with requirement to issue the AME/QME notice and/or the notice of potential eligibility for vocational rehabilitation, the following percentage for assessable penalties for failure or late issuance is:

  • 2004
  • 2004
  • 2004
37 Audits passing the PAR standard:
5 Audits passing the FCA standard:
6 Audits failing all standards:
24.16%
31.39%
57.08%

Performance ratings of audit subjects

Of the 48 audits conducted in 2004:

  • 37 audit subjects (77.1%) met or exceeded the PAR 2004 performance standard thereby having all penalty citations waived in accordance with Labor Code Section 129.5(c) and Title 8, California Code of Regulations Section 10107.1(c)(3)(B). These audit subjects were ordered to pay all unpaid compensation due found within the audit.
  • 11 audit subjects failed to meet or exceed the PAR standard with the audit expanding into the FCA-1 pursuant to Labor Code Section 129.5(c) and Title 8, California Code of Regulations Section 10107.1(d). Five of these audit subjects (10.4%) then met or exceeded the FCA-1 2004 standard. For these 5 audits, the Audit Unit issued Notices of Compensation Due and assessed administrative penalties for late and unpaid indemnity in accordance with Labor Code Section 129.5(c) and Title 8, California Code of Regulations Section 10107.1(d)(3)(B).
  • Six of the 48 audit subjects (12.5%) that failed the PAR also failed the FCA-2 performance standard thereby demonstrating poor performance and these claims administrators will be subject to a return target audit within 2 years. These audits expanded into the FCA-2 pursuant to Labor Code Section 129.5(c) and Title 8, California Code of Regulations Section 10107.1(e) and the audit subjects were assessed all penalty citations in accordance with Labor Code Section 129.5(c) and Title 8, California Code of Regulations Section 10107.1(e).

The DWC Administrative Director's 2004 Audit Results Ranking Report is part of this Annual Report and the complete list of the performance standard scores for the 48 audit subjects can be reviewed in order, from the best to worst performer.

PAR and FCA standards comparison

A look at the PAR and FCA performance standards combining all individual audit findings within the group that met or exceeded the PAR standard with the group that failed the PAR, but met or exceeded the FCA standard and the group that failed both standards. (Individual Exhibits 860 1A, 1B, and 1C) beginning with calendar year 2004 shows:

PAR Standard
  • 2004
  • 2004
Average score of the 37 audit subjects:
Average score of the 5 audit subjects failing PAR:
0.93695
2.91142
FCA-1 Standard
  • 2004
  • 2004
Average score of the 5 audit subjects passing FCA:
Average score of the 6 audit subject failing FCA:
1.98394
3.87911
FCA-2 Standard
  • 2004
Average score of the 6 audit subject failing FCA:
3.78943

Appeals

In 2004, there were no appeals of audit findings.

Civil penalty issues

Civil penalty under pre-2003 Labor Code section 129.5(d)

For 1990 through 2002 California Labor Code Section 129.5(d) states, in part:

"In addition to the penalty assessments permitted by subdivision (a), the administrative director may assess a civil penalty, not to exceed one hundred thousand dollars ($100,000), upon finding, after hearing, that an employer, insurer, or third-party administrator for an employer has knowingly committed and has performed with a frequency as to indicate a general business practice any of the following:

(1) Induced employees to accept less than compensation due, or made it necessary for employees to resort to proceedings against the employer to secure compensation due.
(2) Refused to comply with known and legally indisputable compensation obligations.
(3) Discharged or administered compensation obligations in a dishonest manner.
(4) Discharged or administered compensation obligations in a manner as to cause injury the public or those dealing with the employer or insurer...."

As a result of investigations and audits conducted by the Audit Unit under Labor Code Section 129.5(d), the Administrative Director assessed five separate civil penalties between calendar years 2000 and 2003. The claims administrators were National RV, Inc., Crawford & Company, Cambridge Integrated Services, Inc., City of Los Angeles, and 99 Cents Only Stores, Inc.

The status of the remaining civil penalty issues to other claims administrators under Labor Code Section 129.5(d) follows:

Gates McDonald & Company

This civil penalty investigation and audit of 2001 was conducted based on information received from the Office of Self-Insurance Plans indicating possible business practices involving late paid indemnity, failure to pay self-imposed increases pursuant to Labor Code Section 4650(d), and failure to issue required benefit notices pursuant to Title 8, California Code of Regulations, Sections 9812 and 9813. The investigation and audit consisted of a limited review of a targeted sample of claims of specific clients.

The previously charged civil penalty against Gates McDonald & Company was under Labor Code Section 129.5(d), the pre 1/1/2003 statute. In 2004, this matter went to a hearing for Gates McDonald to show cause why the Administrative Director should not assess a civil penalty. The Administrative Director's decision found in favor of the claims administrator. It was determined that while the claims administrator knowingly committed the violations as charged, it did not do so with a frequency as to indicate a general business practice.

In this civil penalty matter, when the violations took place, pre 2003, the Audit Unit had to prove the charged subject was knowingly committing and with a frequency as to indicate a general business practice. Gates was successful in defending the matter and no civil penalty was assessed.

NOTE: If this had been a civil penalty action for violations occurring on or after January 1, 2003, the AU would have only to prove knowingly or with a frequency as to indicate a general business practice.

Gulf Insurance Company

The Audit Unit conducted a random audit at the companies adjusting location in 1999. The findings of that audit show it failed to meet the criteria as set forth in Title 8 California Code of Regulations Section 10106(f) and earned a return non-random audit within 3 years. The return non-random audit was conducted in 2002. The adjusting location for the second findings did not meet the criteria as set forth in Title 8 California Code of Regulations Section 10106(f).

While the audit subject failed this second audit, the findings reflect areas of improvement in the handling of claims. Additionally, the presumption of a civil penalty was by regulation but not statute. The reform of AB749 added a rebuttable presumption to Labor Code Section 129.5(e), providing that the failure to meet the performance standards of two full compliance audits shall be rebuttably presumed to have engaged in a general business practice of discharging and administering its compensation obligations in a manner causing injury to those dealing with it.

The civil penalty issue was held in abeyance with another target audit set for 2005. The findings of the 3 audits will be reviewed to determine whether civil penalty charges will be filed with the Administrative Director pursuant to Labor Code Section 129.5(e) and Title 8 California Code of Regulations Section 10114(c).

Civil penalty under 2003 Labor Code section 129.5(e)

Under AB 749, effective January 1, 2003, California Labor Code Section 129.5(e) was modified and states, in part:

"In addition to the penalty assessments permitted by subdivision (a), the administrative director may assess a civil penalty, not to exceed one hundred thousand dollars ($100,000), upon finding, after hearing, that an employer, insurer, or third-party administrator for an employer has knowingly committed or has performed with sufficient frequency so as to indicate a general business practice any of the following:

(1) Induced employees to accept less than compensation due, or made it necessary for employees to resort to proceedings against the employer to secure compensation due.
(2) Refused to comply with known and legally indisputable compensation obligations.
(3) Discharged or administered compensation obligations in a dishonest manner.
(4) Discharged or administered compensation obligations in a manner as to cause injury the public or those dealing with the employer or insurer....

Any employer, insurer, or third party administrator that fails to meet the full compliance audit performance standards in two consecutive full compliance audits shall be rebuttably presumed to have engaged in a general business practice of discharging and administering its compensation obligations in a manner causing injury to those dealing with it." (Emphasis added in bold)

No civil penalty investigations and target audits occurred in 2004. However, in 2004 the Audit Unit conducted 8 Return Target Audits.

Other violations and penalties

In addition to the penalty assessments totaling $835,988 that were assessed as a result of audits, an additional 2 penalties totaling $37,770 were assessed based on the failure of the claims administrators either to timely file an appeal or timely pay administrative penalty assessments. These penalty assessments are not included as part of the audit data within this report, but are summarized below.

Title 8, California Code of Regulations Section 10111.5.1 reads in pertinent part:

" (a) Within 7 days after receiving a Notice of Penalty Assessment issued under Labor Code Section 129.5(a) and (c), the claims administrator may appeal all or a portion of the penalty assessments in the Notice by filing with the Administrative Director and serving the Audit Unit with a request for an appeals conference or a request for a written decision without a conference.

(b) If a request for a written decision or request for appeals conference is not timely filed and served, the Notice of Penalty Assessment will become final 7 days after the claims administrator received it, and must be paid in accordance with Labor Code Section129.5(c) within 15 days of receipt."

Title 8, California Code of Regulations Section 10111.2(a)(12) reads in pertinent part:

"Notwithstanding Labor Code Section 129.5(c)(2) and whether or not the audit subject has met or exceeded performance standards calculated pursuant to Section 10107.1(d)(3), additional penalties will be assessed for late payment or failure of the audit subject to pay any administrative penalties assessed pursuant to this section that are not timely appealed pursuant to Section 10115.1. Penalties will be assessed as follows:
An additional penalty of 50% of the amount of each late paid penalty will be assessed for each penalty paid more than 30 but not more than 60 days from receipt of the Notice of Penalty Assessments;"

Based on these regulations, the audit subject, following receipt of the final audit report that includes the Notice of Penalty Assessments must either appeal or pay the assessment.

Two of the 48 audit subjects failed to appeal or make the required payment of administrative penalty assessments timely:

Crum & Forster Insurance did not file an appeal to the Notice of Penalty Assessments. The Notice of Penalty Assessments was received by Crum & Forster on 9/19/04. Assessments were paid on 11/13/04, more than 30 days but not more than 60 days late. Additional penalties paid were $22,922.50.

Ralph's Grocery Company - Sedgwick Claims Management Services, Inc. did not file an appeal to the Notice of Penalty Assessments. The Notice of Penalty Assessments was received by the claims administrator on 11/5/04. Assessments were paid on 12/29/04, more than 30 days but not more than 60 days late. Additional penalties paid were $14,847.50.

The annual report of inventory

In addition to the penalty assessments totaling $835,988 that were assessed as a result of audits, and the penalty assessments above, an additional 25 penalties totaling $7,860 were assessed based on the failure of claims administrators either to timely file or having filed an inaccurate Annual Report of Inventory of Claims with the Audit Unit, as required by Title 8, California Code of Regulations Section 10104. The penalty assessments are pursuant to Title 8, California Code of Regulations, Sections 10111.1(b)(11) and 10111.2(b)(25). These penalties are not included as part of the audit data within this report, but were assessed as follows:

Failure to timely file a report

Claims administrator
Location
Amount assessed
Amount collected
Unpaid
balance
7UP/RC Bottling Company Los Angeles
500
500
0
Adventist Health Roseville
180
180
0
Broadspire Services, Inc. Anaheim
500
500
0
Buckeye Claims Administrator Elk Grove
280
280
0
Century National Insurance Company North Hollywood
280
280
0
City of Burbank/Risk Management Burbank
280
280
0
City of Glendale Glendale
280
280
0
Complink, Inc. Irvine
400
400
0
County of San Diego/Workers' Compensation Division San Diego
180
180
0
Equity Claims Management, Inc. Aliso Viejo
100
100
0
Fleming & Associates Salinas
500
500
0
Ford Motor Company Manteca
100
100
0
Ford Motor Company Los Angeles
100
100
0
Ford Motor Company Rancho Cordova
100
100
0
Ford Motor Company Richmond
100
100
0
Indiana Lumbermens Mutual Insurance Company Indianapolis, IN
500
500
0
Kaiser Permanente Medical Care Program Oakland
100
100
0
Murphy and Beane Culver City
100
100
0
Nationwide Insurance Company Santa Rosa
500
500
0
Ohio Casualty Group Hamilton, OH
280
280
0
Risk Management Services Group, Inc. Westlake Village
500
500
0
SAFECO Insurance Company Aliso Viejo
500
500
0
Sedgwick Claims Management Service Long Beach
500
500
0
Solar Turbines, Inc. San Diego
500
500
0
Springfield Insurance Company Covina
500
500
0
TOTALS  
$7,860
$7,860
$0

Failure to file an accurate report

No assessments were issued for an inaccurate Annual Report of Inventory.

DWC profile audit performance standards and full compliance audit standards for 2005

The PAR and FCA performance standards will be updated pursuant to Labor Code Section 129(b) and Title 8, California Code of Regulations, Section 10107.1(c), (d), and (e). This will be accomplished by taking the 2003 audit results and extracting data for the 5 major keys subject to the new audit program. The results were then combined with the 2002 and 2001 performance rating scores to develop the 2005 profile audit review (PAR) and full compliance audit (FCA) standards. The PAR standard for 2005 is 1.76445 and the FCA standard is 2.47631. Profile audit review audits (PAR audits) for 2005 commenced early 2005 using the new standards. The Audit Unit continues to work to ensure that injured workers receive their workers' compensation benefits and to act as a deterrent to poor claims handling.

Window to the future

The Division of Workers' Compensation expects to complete promulgation of penalty assessment regulations pursuant to Labor Code Sections 4610 and 5814.6 this year. Additionally, the Audit Unit will amend some of the regulations for the profile audit review program pursuant to AB749. Also, regulations will be added to provide for a penalty schedule of violations and assessments to the Workers' Compensation Information System (WCIS) reporting requirements later this year.

Therefore, in addition to the profile audit reviews and full compliance audits, DWC will be performing investigations and audit reviews to identify non-compliance with Utilization Review, Labor Code Section 5814.6, and WCIS reporting requirements. Violations for non-compliance will be assessed pursuant to all applicable Labor Code sections and regulations.

Description of statewide exhibits

Ranking Report is the DWC Administrative Director's 2004 Audit Ranking Report issued in accordance with Labor Code Section 129(e). The report ranks all insurers, self-insured employers, and third-party administrators audited during 2004 according to their performance measured by the profile audit review and full compliance audit performance standards.

Exhibit 1 is a summary of the statewide final performance for the 48 audits conducted in 2004. It includes the expanded number of indemnity files and denied claim files with subsequent acceptance and requirements to pay indemnity audited for each of the 5 major areas of key violations and the number of those files wherein one or more of the key violations were found.

Exhibit 1A is a summary of the individual 1A exhibits used in determining the PAR performance standard factor for each audit subject. It includes the number of indemnity files audited for each of the 5 major areas of key violations and the number of those files wherein one or more of the key violations were found.

Exhibit 1B is a summary of the individual 1A exhibits used in determining the FCA-1 performance standard factor for each audit subject. It includes the number of indemnity files audited for each of the 5 major areas of key violations and the number of those files wherein one or more of the key violations were found.

Exhibit 1C is a summary of the individual exhibits used in determining the FCA-2 performance standard factor for each audit subject. It includes the expanded number of indemnity files and denied claim files with subsequent acceptance and requirements to pay indemnity audited for each of the 5 major areas of key violations and the number of those files wherein one or more of the key violations were found.

Exhibit 2A is a summary of the number of files audited by type, the numbers and amounts of penalties, amounts collected, balance due, and the number of appeals for Northern California and Southern California. Exhibit 2B lists the same data for each audit subject audited in or by Northern California staff. Exhibit 2C lists the same data for each audit subject audited in or by Southern California staff.

Exhibit 2D and 2E are summaries of the audit results for each audit by type of claims administrator and by method of selection for audit. There are separate listings for routinely selected and target selected audit subjects, and breakdowns showing the same data for insurers, self-insured employers, and third-party administrators as separate groupings.

Exhibit 3 separates the Schedule of Administrative Penalties in Title 8, California Code of Regulations, Section 10111.2 into various categories. There is a Key to Exhibit 3 describing the nature of each category, and an Exhibit 3 showing statewide totals and amounts of assessable administrative penalties in 2004 by category.

Exhibit 4 summarizes by type of indemnity the amounts of unpaid compensation found in the 559 audited claims for which Notices of Compensation Due were issued.

Description of individual audit exhibits

Exhibit 1A is the worksheet to calculate the audit findings to a score that determines the PAR performance standard factor for this audit subject. It includes the number of indemnity files audited for each of the 5 major areas of key violations and the number of those files wherein one or more of the key violations were found.

Exhibit 1B is the worksheet to calculate the audit findings to a score that determines the FCA-1 performance standard factor for this audit subject. It includes the expanded number of indemnity files audited for each of the 5 major areas of key violations and the number of those files wherein one or more of the key violations were found.

Exhibit 1C is the worksheet to calculate the audit findings to a score that determines the FCA-2 performance standard factor for this audit subject. It includes the number of indemnity files and denied claim files with subsequent acceptance and requirements to pay indemnity audited for each of the 5 major areas of key violations and the number of those files wherein one or more of the key violations were found.

Exhibit 3 separates the Schedule of Administrative Penalties in Title 8, California Code of Regulations, Section 10111.2 into various categories showing totals and amounts of assessable administrative penalties for this individual audit finding. There is a Key to Exhibit 3 describing the nature of each category.

Exhibit 4 summarizes by type of indemnity the amounts of unpaid compensation found in the audited claims in this individual audit for which Notices of Compensation Due were issued.


Statewide audit exhibits version

Individual audit exhibits by audit subject version

Audit report 2004 in acrobat format version