Bulletin No. 99-02
June 16, 1999

DWC's 1998 Report of Audit Activities Released


The Division of Workers' Compensation's Audit Unit issued 7,774 penalty assessments totaling $1,069,285 to workers' compensation claims administrators during 1998, according to DWC's  Annual Report on its audit activities.

 Unpaid compensation due to injured workers was found in about 16 percent of the 2,589 audited indemnity and complaint files and totaled $356,787.  The average number of penalty citations per audit subject was 229, the average amount per penalty assessment was $138, and the average total in penalty assessments per audit was $31,450, according to the report.

 All of these statistics were approximately the same as in last year's report, which concluded that these were unacceptably high numbers which have in fact increased over recent years and that this industry needed to improve its performance.

 Overall, the division's Audit Unit completed 34 audits during the year, down from 39 in 1997.  Of these, 29 were randomly selected and five were "targeted" audits, which are based either upon the results of a previous audit or the investigation of  complaints received by the DWC.

 The total number of audits completed in 1998 was down somewhat from previous years as a direct result of the Audit Unit's ongoing involvement in several lengthy investigations into claims handling practices at certain adjusting locations, according to the report.

 The number of cases audited in 1998 totaled 6,493, of which 2,425 were cases in which indemnity benefits were paid or were expected to be paid, 2,283 were medical-only cases, and 1,621 were cases in which the employer or insurer denied all liability.  A total of 108 cases were selected based on complaints received by DWC.   The number of cases audited in 1997 totaled 8,504.

In addition to the audits, the unit scheduled 16 investigations in which claim files will be reviewed as a result of complaints received by DWC.  Under DWC's audit regulations, these subjects were selected for investigation based on ratios of points assigned to alleged violations compared to the number of claims reported at the adjusting locations.  The number of non-random audits to be conducted will be determined by the results of the investigations.

 A record amount in penalties for one audit was assessed in 1998 against Ralph's Grocery in Los Angeles, which was assessed 1,179 penalties totaling $217,530.   The non-random audit of this self-administered, self-insured employer was initiated in 1997 and revealed $106,017 in unpaid compensation in 76 claims.  The audit was conducted after a 1996 complaint investigation.

 Also in 1998, the Audit Unit asked the Administrative Director to issue an Order to Show Cause as to why three civil penalties of $100,000 each should not be assessed against Fremont Compensation Insurance Company pursuant to Labor Code Section 129.5(d).   The complaint alleges that three separate adjusting locations of the company have engaged in practices that would warrant imposition of civil penalties.

 On the other hand, many 1998 audits showed good results, the report says, with auditors finding little compensation due after reviewing a number of files at some adjusting locations, including several that had been audited previously.

 Again in 1998, auditors found unpaid compensation due to employees in about 16 percent of the indemnity and complaint files audited, about the same as last year and up from 12.7 percent in 1996.  In those files where there was unpaid compensation due, the average amount was $843, compared to $894 in 1997 and $819 in 1996.  The continuing existence of high numbers of files with unpaid indemnity and high amounts of unpaid indemnity remains a problem, according to the report.

 Another area of concern continues to be the high number of penalty assessments involving the issuance of benefit notices.   Statewide, over 21 percent of indemnity files had at least one penalty for failure to send a benefit notice, and over 25 percent of files had at least one penalty for late issuance of a benefit notice.  Also of special concern is the fact that the vocational rehabilitation "Notice of Potential Eligibility" was not properly issued in over 50 percent of files requiring such a notice.

 While sometimes derided as "paper violations," benefit notice violations are an important part of keeping injured workers informed of the status of their claim.  Failure to provide them increases the chances of unnecessary litigation.

 The full audit report is available on-line at the Division of Workers' Compensation's website: http://www.dir.ca.gov/dir/Workers'_Compensation/DWC/dwcrep.htm.

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