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Department of Industrial Accidents (DIA)-Review of Certain Aspects of the Workers' Compensation System

August 21, 2014 · Department of Industrial Accidents · Read the full official report (PDF) ↗

Published August 21, 2014 Audit covers July 1, 2010 – September 30, 2012 Under Suzanne M. Bump · 2011–2023

In plain English
The audit found that Massachusetts’ Department of Industrial Accidents generally handled worker injury claims and employer insurance checks properly, but it needed to do a better job checking whether insurance companies paid the right assessment amounts and whether self-insured employers had enough money or bonds set aside.
source
“However, we found problems with the process DIA uses to help insurers establish their workers’ compensation assessments and its review of those assessments, as well as its process for determining the amount of surety bonds or deposits of self-insurers that need to be deposited with the State Treasurer.”
Read the plain-English breakdown
What is this?

This is a state performance audit of the Department of Industrial Accidents, the agency that oversees Massachusetts’ workers’ compensation system.

“I am pleased to provide this performance audit of the Department of Industrial Accidents.”
Why was it audited?

Auditors checked whether the agency was making sure employers had workers’ compensation coverage, collecting fees and fines properly, setting self-insurer security amounts correctly, and paying claims only to eligible people.

“Our audit objectives were to determine whether (1) DIA’s internal controls and systems were effective in ensuring that all employers who are required to do so carry workers’ compensation insurance or an acceptable alternative, (2) DIA’s system for the review and collection of assessment fees and stop-work-order fines was adequate, (3) DIA’s procedures for determining the amount of surety bonds or deposits of self-insurers complied with applicable statutory requirements, and (4) DIA was only paying various injury-related claims to eligible claimants and these payments were being approved by appropriate DIA officials.”
Why it matters

Workers’ compensation protects employees who are hurt on the job, and the system depends on accurate payments from insurers and enough financial backing from self-insured employers.

“The Private Trust Fund makes payments to uninsured injured employees and to employees denied vocational rehabilitation services by their insurers.”
The bottom line

The main problems were not about individual claim payments; they were about weak checks on insurer assessment payments and self-insurer monitoring.

“DIA does not ensure that assessment amounts paid by insurance companies are accurate.”
What happens next

The audit recommended faster checks of insurer payments, better online tools and guidance, reviews of all insurer sizes, and semiannual reviews of self-insurers unless the law is changed.

“DIA should take the following actions:”
Why it's significant

The audit found real money at stake: outside reviews had recovered millions of dollars from past insurer assessment problems, showing that payment errors were not just theoretical.

“In a report issued by the Massachusetts Workers’ Compensation Advisory Council for fiscal year 2012, reviews by private accounting firms resulted in recoveries totaling $14,348,188 by DIA during fiscal years 2000 through 2012.”
Jargon, unpacked

A stop-work order is a state order telling a business without required workers’ compensation insurance to stop operating and pay a daily fine until it gets coverage and pays the fine.

“The SWO directs the noncomplying business to cease operations immediately and pay a $100-per-day fine until the insurance coverage is obtained and the fine is paid.”

2 figure(s) pending source verification - not shown

What the Auditor checked

What the Auditor found

DIA did not ensure workers’ compensation insurance assessments were accurately calculated and paid.
internal controlsrecordkeeping/documentationvendor oversight

Why it matters: Incorrect assessment payments could remain unresolved for years, and errors by small and medium-sized insurers might never be detected or corrected.

Standard: Chapter 152, Section 65(12), of the Massachusetts General Laws, and DIA’s internal control plan. ( Chapter 152, Section 65(12), of the Massachusetts General Laws )

4 recommendations
  • Review quarterly assessment calculations and payments on a timely basis to ensure that the correct assessment rates are used and correct payments are submitted.agency: already implemented
  • Modify its reporting template so that when an insurance company enters the policy inception date, the assessment rate applicable to that policy’s year is automatically loaded.
  • Educate insurance providers to minimize recurring mistakes with assessment rates, standard premiums, and classification codes.
  • Conduct reviews of calculated assessments and payments made by all companies, including small and medium-sized companies.agency: already implemented
Agency response & Auditor reply
Agency: "Since 2012, the department has hired two additional internal auditors to conduct continuous reviews on all insurance companies, including small- and medium-sized companies, to ensure the accuracy and validity of the assessment data and the submission of quarterly filings."
DIA reviewed self-insurers’ liabilities annually instead of semiannually as required.
internal controlsrecordkeeping/documentation

Why it matters: DIA may not receive timely information needed to assess a self-insurer’s financial position and require additional deposits to ensure required benefits can be paid.

Standard: Chapter 152, Sections 25A(a) and 25A(b), of the General Laws. ( Chapter 152, Sections 25A(a) and 25A(b), of the General Laws; 452 Code of Massachusetts Regulations 5.04(2) )

1 recommendation
  • Unless Chapter 152, Section 25A, of the General Laws is amended, conduct semiannual reviews of self-insurers’ deposit and surety bond amounts.
Agency response & Auditor reply
Agency: "DIA continues to work on a legislative change to amend the statute from semi-annually to annually so that the department can effectively utilize resources, continue to ensure sufficient levels of bonding coverage from self-insureds and minimize duplicative and ineffective burdens on businesses."

Verified dollar findings

Recovered / repaid $16,509,723 not in headline

Funds recovered or repaid to the Commonwealth.

$14,348,188 - recoveries
$2,161,535 - recovered funds

More audits of this entity

Other Office of the State Auditor reports on Department of Industrial Accidents .

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