Insurance audits are typically performed on commercial insurance policies which have adjustable or variable premium bases. When you purchased your policy, you paid a deposit premium based on your best estimate of those bases and at the end of the policy period, the final premium base must be determined. This process is called a Premium Audit.
By auditing these policies, insurance companies see that all businesses pay the correct amount. In addition, the Premium Audit provides valuable information on your business operations and allows you to have personal contact with a representative of your insurance company. This entire process is designed as a service to ensure that you pay only the premiums that you owe.
Records Generally Needed During
the Audit Process
Payroll summary reports by employee
Quarterly federal 941 forms and state unemployment tax forms
Disbursement Journals, vendor payment detail, profit and loss statement or any other company reports to verify subcontractor/contract labor payments
Business or individual federal tax filings
Certificates of Insurance (if applicable for subcontractor/contract labor paid)
Current signed affidavit forms for sole proprietors or one owner LLC or corporate entities paid to subcontractors/contract labor. (Individual state restrictions apply)
Please note, that the auditor can and may ask for additional records as needed to determine the correct exposure to apply for the policy period being audited.
Summarize wage documents by regular pay, overtime pay and total pay for each employee.
Construction companies should maintain labor or hour documents for time spent at each job site and type of work performed.
Have available current Certificates of Insurance (COIs) for each subcontractor/contract labor vendors paid.
Properly maintained wage documents for tips paid if applicable to the business.
Have a knowledgeable representative of the company present to identify the work duties of all employees or contract workers.
Frequently Asked Questions
When will the audit be completed and what can be expected during the audit process?
Audits are assigned to an auditor within a week after the policy has expired full-term or the policy has been canceled mid-term. The auditor will proceed to schedule and complete the audit within 30 – 60 days after the expiration or cancel date. This is accomplished by mail/email or physical appointment. The auditor will obtain all wage and labor payments from requested records and inquire about job duties for each employee or contract/subcontractor labor payments to properly classify each. This will ensure accurate exposure amounts for final billing processes. The auditor will review the final audited exposure results upon completion of the audit and answer questions. In most cases, the initial premium determination was billed from estimated exposures by class codes (rated separately). The final audit exposure will replace the estimated exposure amounts and be processed to generate a final audit billing invoice (balance due or credit due).
How will the audit be done?
It is necessary for the auditor to ask questions about your records and business operations. If you cannot be present, it is extremely important for someone to be available that is familiar with the specifics of your entire operation and the job duties of all employees. If you direct the auditor to an outside accountant, he or she will obtain as much of the necessary information from them as possible, but will likely still have to speak with you for additional information.
Upon completion of your payroll audit, be sure to meet with the auditor to review your audit report. By addressing your questions then, you will avoid any unnecessary surprises when you receive your final audit invoice. If your premiums have been under-reported, you will receive an invoice for the amount due; if you have overpaid, a credit or refund will be issued. It is important to know that deliberate under-reporting of payroll is considered insurance fraud and can be prosecuted to the fullest extent of the law. If you have any questions or encounter any problems during the audit process, please contact our office at (800) 311-0997.
What gives you the right to look at my books and records?
Your insurance policy is a legally binding contract between you and your insurance carrier. One of the conditions of the contract states, "You will let us examine and audit all of your records that relate to this policy."
I work alone. The auditor has requested payroll records and since I have no employees, I have no payroll records. Is the audit still necessary?
Yes, the auditor will need to verify that you do indeed work alone. To do that, he/she will look at disbursement records, check stubs, or possibly income tax returns. The auditor is also required to look for and review your relationship with any independent contractors who you may have used during the policy period.
I canceled my workers’ compensation policy and no longer have insurance with your company. Do I need to be audited?
Yes, remember the purpose of the audit is to review your actual business activity for a previous period, during which your policy with our company was still in force.