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Chapter 4.5. Division of Workers' Compensation
Subchapter 1.5. Injuries on or After January 1, 1990
Article 3. Auditing

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§10107. Notice of Audit; Claim File Selection; Production of Claim Files; Auditing Procedure.

(a) Once a subject has been selected for an audit, the Audit Unit shall serve a Notice of Audit on the claims administrator. The Notice shall inform the administrator of its selection for audit, and shall include a request to provide the Audit Unit with a claim log or logs. The audit subject shall provide two copies of the specified claim log(s) within fourteen days of the date of the receipt of the Notice. The Audit Unit may select any or all claim files for audit.

(b) The Audit Unit shall send the audit subject a Notice of Audit Commencement identifying the files to be audited, except that no notice need be given to audit claim files which are the subject of inquiries or complaints. The audit shall commence no less than fourteen days from the date the Notice was sent, unless the audit subject agrees to earlier commencement.(c) The Audit Unit shall randomly select separate samples of indemnity, denied, and medical-only files from two years' of the audit subject's claim logs, except that if the earliest of the last two completed years has already been the subject of an audit, claims will be randomly selected from only the last completed year.

(1) The total number of indemnity files randomly selected for audit will be determined based on the following table:

Population

Sample Size

8 or less

all

9 - 15

1 less than total

9 - 15

1 less than total

16 - 19

2 less than total

20 - 23

3 less than total

24 - 27

4 less than total

28 - 30

5 less than total

31 - 33

6 less than total

34 - 36

7 less than total

37 - 38

8 less than total

39 - 41

9 less than total

42

32

43 - 44

33

45

34

46 - 47

35

48 - 49

36

50 - 51

37

52 - 53

38

54 - 55

39

56 - 57

40

58 - 59

41

60 - 61

42

62 - 63

43

64 - 65

44

66 - 67

45

68 - 70

46

71 - 72

47

73 - 74

48

75 - 77

49

78 - 79

50

80 - 82

51

83 - 84

52

85 - 87

53

88 - 89

54

90 - 92

55

93 - 95

56

96 - 98

57

99 - 101

58

102 - 104

59

105 - 107

60

108 - 110

61

111 - 114

62

115 - 117

63

118 - 120

64

121 - 124

65

125 - 128

66

129 - 131

67

132 - 135

68

136 - 139

69

140 - 143

70

144 - 148

71

149 - 152

72

153 - 156

73

157 - 161

74

162 - 166

75

167 - 171

76

172 - 176

77

177 - 181

78

182 - 187

79

188 - 192

80

193 - 198

81

199 - 204

82

205 - 210

83

211 - 217

84

218 - 223

85

224 - 230

86

231 - 238

87

239 - 245

88

246 - 253

89

254 - 261

90

262 - 270

91

271 - 279

92

280 - 288

93

289 - 298

94

299 - 308

95

309 - 319

96

320 - 330

97

331 - 342

98

343 - 354

99

355 - 367

100

368 - 381

101

382 - 396

102

397 - 411

103

412 - 427

104

428 - 444

105

445 - 463

106

464 - 482

107

483 - 503

108

504 - 525

109

526 - 549

110

550 - 575

111

576 - 603

112

604 - 633

113

634 - 665

114

666 - 700

115

701 - 739

116

740 - 781

117

782 - 827

118

828 - 879

119

880 - 936

120

937 - 1,000

121

1,001 - 1,072

122

1,073 - 1,154

123

1,155 - 1,248

124

1,249 - 1,356

125

1,357 - 1,483

126

1,484 - 1,633

127

1,634 - 1,814

128

1,815 - 2,036

129

2,037 - 2,315

130

2,316 - 2,677

131

2,678 - 3,163

132

3,164 - 3,852

133

3,853 - 4,904

134

4,905 - 6,710

135

6,711 - 10,530

136

10,531 - 23,993

137

23,994 +

138

(2) In conducting the audit, the Audit Unit shall calculate the frequency of files with violations as percentages of the files with exposure for violations after the following number of randomly selected indemnity files are audited:

Population Sample Size
5 or less all
11 - 13 2 less than total
14 - 16 3 less than total
17 - 18 4 less than total
19 - 20 5 less than total
21 - 23 6 less than total
24 17
25 - 26 18
27 - 29 19
30 - 31 20
32 - 33 21
34 - 36 22
37 - 39 23
40 - 41 24
42 - 44 25
45 - 48 26
49 - 51 27
52 - 55 28
56 - 58 29
59 - 62 30
63 - 67 31
68 - 72 32
73 - 77 33
78 - 82 34
83 - 88 35
89 - 95 36
96 - 102 37
103 - 110 38
111 - 119 39
120 - 128 40
129 - 139 41
140 - 151 42
152 - 164 43
165 - 179 44
180 - 197 45
198 - 217 46
218 - 241 47
242 - 269 48
270 - 304 49
305 - 346 50
347 - 399 51
400 - 468 52
469 - 562 53
563 - 696 54
697 - 905 55
906 - 1,272 56
1,273 - 2,091 57
2,092 - 5,530 58
5,531 + 59

If any of the following criteria are met after auditing the sample size as set forth in this subsection (c)(2), the Audit Unit will proceed to audit the remaining number of randomly selected indemnity files selected for audit pursuant to subsection (c)(1):

(i) The number of randomly selected audited files with violations involving the failure to pay indemnity exceeds 20% of those files in which indemnity is accrued and payable and the average amount of unpaid indemnity exceeds $200.00 per file in which indemnity is accrued and payable;

(ii) The numbers of randomly selected files with violations involving the late first payments of temporary disability indemnity, permanent disability indemnity, vocational rehabilitation maintenance allowance, late subsequent indemnity payments, and late payments of death benefits, as mitigated for frequency under Section 10111.1(e)(3)(i) through (v), exceeds 30% of the files in which those indemnity payments have been made;

(iii) The number of randomly selected audited files with violations involving the failure to issue benefit notices, as assessed under Section 10111.1(a)(7)(ii) of these regulations, exceeds 30% of those files in which there is a requirement to issue those notices.

The determination of whether or not to audit the number of files selected pursuant to subsection (c)(1) of this section shall not be the subject of appeal, and no preliminary report of findings will be issued to the audit subject before the determination is made.

(d) The total numbers of denied files and medical-only files randomly selected for audit will be determined based on the following table:
Population Sample Size
7 - 10 1 less than total
11 - 14 2 less than total
15 - 17 3 less than total
18 14
19 - 20 15
21 16
22 - 23 17
24 - 25 18
26 - 27 19
28 - 29 20
30 - 31 21
32 - 33 22
34 - 36 23
37 - 38 24
39 - 41 25
42 - 43 26
44 - 46 27
47 - 49 28
50 - 52 29
53 - 55 30
56 - 59 31
60 - 63 32
64 - 67 33
68 - 71 34
72 - 75 35
76 - 80 36
81 - 85 37
86 - 90 38
91 - 96 39
97 - 102 40
103 - 109 41
110 - 116 42
117 - 124 43
125 - 132 44
133 - 141 45
142 - 151 46
152 - 163 47
164 - 175 48
176 - 189 49
190 - 205 50
206 - 222 51
223- 242 52
243 - 265 53
266 - 292 54
293 - 323 55
324 - 360 56
361 - 405 57
406 - 461 58
462 - 531 59
532 - 623 60
624 - 749 61
750 - 931 62
932 - 1,217 63
1,218 - 1,731 64
1,732 - 2,934 65
2,935 - 8,990 66
8,991 + 67

(e) In addition to randomly selected indemnity, denied, and medical-only files, the Audit Unit may also select for audit any or all files for which the Division of Workers' Compensation has received complaints within the past three years.

(f) The audit subject shall pay all expenses of an audit of an adjusting location outside the State of California, including per diem, travel expense, and compensated overtime of audit personnel.

(g) The audit subject shall make each of the files selected for audit available at the audit site at the time of audit commencement. If files are maintained in an electronic or other non-paper storage medium, the claims administrator shall, upon request, produce legible printed paper copies of the claim files, including all records of compensation payments.

(h) The Audit Unit shall have discretion to audit files in addition to those identified with the Notice of Audit Commencement. The audit subject shall make each of the additional files selected for audit available at the audit site within 14 days of receipt of written notice identifying the additional files.

(i) The audit subject shall provide the auditor(s) an adequate, safe, and healthful work space during the audit, which allows the auditors a reasonable degree of privacy. If this work space is not provided, the Audit Unit may require the audit subject to deliver the files to the nearest Audit Unit office for completion of the audit.

(j) The Audit Unit may obtain and retain copies of documentation or information from claim files to support the assessment of penalties.

(k) The audit subject shall have the opportunity to discuss preliminary findings and provide additional information at a post-audit conference.

(l) The Audit Unit may at any time request additional information or documentation in order to complete its audit. Such information may include documentation that, as specified by Labor Code Sections 3751(a) and 3752, compensation has not been reduced or affected by any insurance, contribution, or other benefit due to or received by or from the employee. The audit subject shall provide any requested documentation or other information within thirty days from the Audit Unit's request, unless the Audit Unit extends the time for good cause.

(m) The Audit Unit shall issue a report of audit findings which may include, but is not limited to, the following: one or more requests for additional documentation or compliance, Notices of Intention to Issue Notice of Compensation Due, Preliminary Notices of Penalty Assessments, Notices of Compensation Due, or Notices of Penalty Assessments. If any additional requested documentation is not provided within thirty days of receipt of the report, additional audit penalties may be assessed under Section 10111.1(d)(2) of these Regulations.

NOTE: Authority cited: Sections 59, 129.5, 133 and 5307.3, Labor Code. Reference: Sections 11180, 11180.5, and 11182, Goverment Code. Sections 111, 124, 129, 129.5, 3751 and 3752, Labor Code.

HISTORY

1. Repealer and new section filed 1-28-94; operative 1-28-94. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 94, No. 4). For prior history, see Register 90, No. 4.

2. New subsections (c)-(e), subsection relettering, amendment of newly designated subsection (g) and amendment of Note filed 10-26-98; operative 11-25-98 (Register 98, No. 44).

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