It might be hard to fathom any type of audit being beneficial, but premium audits are important both to you and to your insurance carrier. When you were first issued your policy, the carrier used the estimated sales figures or payroll data you provided to calculate your premiums. Now that you have actual numbers and experience, the carrier can reassess that information and determine the correct premium amount. For additional information on audit-related services, see Alliance Audit Insurance.
How premium audits are conducted
- Mail – your carrier will mail you an audit form and instructions to complete and return.
- Phone – your carrier may hire an independent audit company to conduct the audit over the phone.
- Physical – the carrier usually conducts the audit at your business, though it could take place at another location such as your CPA's office.
Regardless of the method, auditors typically inspect disbursements and payroll journals, ledgers, tax and Social Security reports, state unemployment forms, and other accounting records. An enormous amount of data is reviewed during an audit. If you have questions about recovering premium differences or related procedures, you may find Workers' Compensation Premium Recovery helpful.
Before the Audit
- Get an idea of what the auditor will review by looking at the auditor's work sheets and past audit billing statements.
- Determine which employee is best suited to work with the auditor — someone knowledgeable about the accounting records and about what work is done by various employees and departments.
- Assemble all accounting records that will be used during the audit.
- Have certificates of insurance on hand for all subcontractors you've used and documentation showing contractors have their own general liability and workers' compensation coverage.
- Ensure payroll documents include a breakdown of wages according to class code, department, and employee.
The Day of the Audit
- To make records easily available for the auditor, you might request the audit be conducted at your business.
- Ask the auditor to explain any points that aren't clear to you.
- Request a hard copy of the auditor's findings.
After the Audit
- Carefully assess the audit billing statement and compare it to your original policy.
- Do not agree to pay any additional premium until you've listed all changes and discussed any problematic areas with the auditor.
If you still have concerns after reviewing the findings and discussing them, consider taking the next step and talk to an agent.
Frequently Asked Questions
When can I expect an audit?
Audits commonly occur at the end of a policy term or when a carrier needs to verify actual payroll or sales figures against estimates.
What records should I have ready for the auditor?
Prepare payroll journals, ledgers, tax and Social Security reports, state unemployment filings, and certificates of insurance for subcontractors.
Can I correct errors found in the audit?
Yes. If you find errors, document them, discuss them with the auditor, and request adjustments before paying any additional premium.
What if I disagree with the auditor's classification of employees?
Raise the issue with the auditor, provide supporting documentation, and follow your carrier's appeal or review process if needed.