This information has
been provided by:
The National Society
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.
auditing these policies, insurance companies see that all businesses pay their
fair share. 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 you that guarantees that you pay only the premium that you owe.
What Records Are
Needed For The Audit?
Payroll Records - including Federal 941 forms, as
well as State Unemployment tax forms
Sales Journals - or income statements
General Ledger - may be used to verify other
records or provide sales information
Cash Disbursements Journal - for subcontractor costs
Computer Reports - from software such as QuickBooks
Certificates of Insurance and TWCC
forms (signed and
Tips On How You Can
the proper person available to assist the auditor and answer their questions.
you pay overtime to employees, properly summarize overtime paid by individual
and class code.
companies should maintain payroll records to show time spent in different types
use of Subcontractors or Independent Contractors requires certificates of
Workers’ Compensation and General Liability insurance from each subcontractor
or independent contractor.
records should show breakdowns for your various products or services, including
sales tax amounts.
sure you identify for the auditor any individuals who perform strictly clerical
office duties, strictly outside sales duties, draftsmen or strictly drivers.
a record of tips declared by restaurant employees.
When Will The Audit Be Done?
after your policy expires (or is canceled), normally within 10-20 days, you
will be contacted in regards to completing the Premium Audit.
How Will The Audit Be Done?
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 job duties of all of the 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 to you for additional
Q: What gives you the right to look
at my books and records?
A: Your insurance policy is a legally binding
contract between you and your insurance carrier. One of the conditions of that contract
states, ‘You will let us examine and audit all of your records that relate to
work alone. The auditor has requested
payroll records and since I have no employees, I have no payroll records. Is the audit still necessary?
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.
cancelled my policy and no longer have insurance with your company. Do I need to be audited?
remember the purpose of the audit is to review your actual business activity
for a previous period, during which your policy with the insurance company was
still in force.
company offers a flexible benefit plan (cafeteria plan, 401k plan) to my employees. Are the non-taxable earnings included as
payroll on my audit?
employee contributions to these plans taken as payroll deductions are included,
even though non-taxable. Any matching
payments made by the employer to one of those plans would not be included.
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