Bulletin 96-5
June 20, 1996



DWC Publishes 1995 Audit Results

The DWC Audit Unit conducted a total of 64 audits and 40 investigations of workers' compensation claims administrators during 1995, according to the unit's Annual Report to the Legislature.

"While the audit program continues to find some overall improvement in the performance of many claims administrators, those with excessive violations remain a concern," said DWC Administrative Director Casey L. Young. "The statistics in this report indicate that there are some important, troublesome areas that need to be addressed by this industry," he continued.

"One of our major concerns is the number of instances in which we are finding undisputed, unpaid compensation due injured workers," he said. "For the second year in a row, over $640,000 in undisputed, unpaid compensation was found in the files we audited. Finding this much unpaid compensation in just the relatively small proportion of files audited -- less than five percent of the files at less than 10 percent of claims administrator locations -- indicates the scope of this problem industry-wide is likely very large," he added.

The report shows that over 58 percent of the unpaid compensation found in the audits was in permanent disability indemnity. Temporary disability indemnity and salary continuation in lieu of temporary disability accounted for 22 percent, 7.2 percent was in vocational rehabilitation maintenance allowance, and the rest in self-imposed increases for late indemnity payments and in interest and penalties.

"Also troubling is the frequency of late payments of both permanent and temporary disability benefits, as well as the abysmal performance of claims administrators in timely initiating the vocational rehabilitation process in appropriate cases, " Young continued.

While the rate of late first payment violations improved, particularly in the case of temporary disability benefits, nearly a quarter of permanent disability benefits and over 15 percent of the temporary disability benefits continue to be commenced late. Claims administrators failed to timely notify employees of their eligibility for vocational rehabilitation services in nearly half the cases in which they were required to do so.

In the 40 investigations conducted by the unit, 116 claim files were reviewed based on complaints regarding claims handling practices received by DWC. Nine non-random audits have been selected for 1996 as a result of these investigations.

"On the positive side, it should also be noted that most claims administrators show marked improvement when they are re-audited after an earlier audit showed problems, " Young said. "Audits are proving to be an effective tool in the effort to improve claims administration."

As in recent year's reports, the number of penalty assessments involving violations for the failure to issue or the late or inaccurate issuance of benefit notices to injured workers remains high. Over 47 percent of the penalties assessed in 1995, and over 28 percent of the total dollar amount assessed involved the provision of benefit notices.

A new Benefit Notice Instruction Manual issued by DWC in 1996 is expected to help claims administrators address this problem. At the beginning of the year, an advisory group consisting of members of the claims administration industry as well as employer and employee groups assisted DWC staff in developing the new manual along with recommended forms and fact sheets to help simplify the process and reduce the number of violations in this area.

The complete 1995 Audit Unit Annual Report is available at the Department of Industrial Relations' worldwide web home page located at http:/ /www.dir.ca.gov. The new Benefit Notice Manual, forms, and fact sheets are also available for downloading by visiting that location.