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

§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).