§ 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
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
Population		Sample Size
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
Population		Sample Size
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
6-10		1 less than total
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
Population		Sample Size
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
6 or less		all
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
Population		Sample Size
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 claim files selected for audit available at the audit site at the time of audit commencement. If claim files are maintained in an electronic or other non-paper storage medium, the claims administrator shall, upon request, provide to the Audit Unit direct computer access to electronic claim files and/or 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.

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).

Note

Note: Authority cited: Sections 59, 129.5, 133 and 5307.3, Labor Code. Reference: Sections 11180, 11180.5, 11181 and 11182, Government Code; and Sections 111, 124, 129, 129.5, 3751 and 3752, Labor Code.