November 4, 1998
Revised DWC Audit Regulations Go Into Effect on Nov. 25
The revised regulations will help the Audit Unit better allocate
its resources as well as perform more audits overall by focusing more of
its attention on audit subjects with poor performance records and spending
less time at adjusting locations where fewer problems are being found.
In addition, the new rules will provide a better methodology for choosing
subjects for non-random audits and in selecting claims to be reviewed.
Other provisions strengthen and clarify the administrative penalty
schedule, including a new $5,000 penalty for providing auditors a backdated
or otherwise altered or fraudulent document. The new rules also set
a standard for referrals to the Administrative Director for possible assessment
of a civil penalty of up to $100,000 for knowingly committing specified
prohibited practices with a frequency to indicate a general business practice.
The revised regulations were developed with the full participation
of the workers' compensation community. The original draft regulations
were proposed at public hearings held in November 1997 and have been subject
to several additional public comment periods since then.
The revisions included input from DWC's Audit Simplification Subcommittee,
an advisory panel consisting of representatives from the insurance industry,
self-insured employers, third-party administrators, as well as applicant's
and defense attorneys. The committee was helpful in providing ideas and
proposals from the community for streamlining the audit process and increasing
the efficiency of the audit program.
Specifically, the revised audit regulations, which are contained
in Sections 10106 through 10113 of Title 8, California Code of Regulations,
Set forth the criteria to be used in selecting claims administrators for
non-random audits on the basis of prior audit performance.
Specifically name the Audit Unit as the investigatory arm of the Administrative
Director in regards to business practices for which the civil penalty may
Revise the methodology for choosing the number of indemnity claims to be
examined at each audit location, so that auditors will not be required
to allocate more resources than necessary to review files at adjusting
locations with relatively low violation rates. Indemnity claims will
be sampled with a two-tiered approach. An initial sample will be
examined, and if the violations identified exceed specified performance
standards, the sample will be expanded. The revised rules also provide
audit subjects with notice of the random sampling methodology used in selecting
the number of claims to be reviewed at an adjusting location.
Prevent audit subjects from escaping the possibility of a follow-up
non-random audit by cleaning up their file penalties after being notified
which files will be examined. Under the new rules, violations that are
corrected only after notice of the file being selected for audit will be
assessed as though the required act had not been done at all, rather than
as if it were merely done late.
Restructure the schedule of administrative penalties for violations to
provide incentives for good performance by reducing and eliminating penalties
for failure to issue benefit notices and late benefit notices if specified
performance standards are met.
Add a $5,000 penalty for providing a backdated or otherwise altered or
fraudulent document to the Audit Unit or intentionally withholding a document
from the Audit Unit which act would have the effect of avoiding liability
for the payment of compensation or an audit penalty.
The California Labor Code currently provides that claims administrators
who knowingly commit specified prohibited practices with a frequency that
suggests that those practices are a general business practice may be assessed
a civil penalty of up to $100,000 by the Administrative Director.
The amended rules provide notice to administrators that if, on the basis
of two consecutive audits, an audit subject qualifies for a third non-random
audit of indemnity and or denied claims, the Audit Unit will refer the
audit subject to the Administrative Director for the possible assessment
of a civil penalty.
The revised audit regulations, as well as the other Title 8 DWC
and WCAB regulations, can be accessed from the Department of Industrial
Relation's website at http://www.dir.ca.gov.