How to Conduct a Workers Compensation Global Audit in Five Easy Steps
by Mary K. Hollis

A risk management audit is designed to review the total process, not just a few fragmented pieces or areas where there are unfavorable loss trends. Based on the audit results and a comparison of your company's procedures against the industry's best practices, a program can be designed that includes measurable objectives to realize an overall reduction in losses and costs.

Beginning The Audit Process

To begin the audit process, it is necessary to establish the areas of your program that require an in-depth review. Some recommended areas are:

• Pre-incident management

• Incident reporting

• Incident investigation

• Medical management

• Disability management

• Litigation management

• Information management

No matter what area of your program is going to be audited, there are five critical steps that should always be followed to conduct an effective audit. To make the evaluation manageable, each area should be divided into subparts or categories that can be easily distinguished and measured. For example, the disability management area may contain categories for evaluating disability communications programs, return-to-work programs, rehabilitation protocols, or vocational rehabilitation programs.

Step 1: Review Current Written or Established Procedures

You will need to determine if your current procedures are up to date, consistent with your corporate philosophy, and meet legal requirements. For instance, are your employment practices in compliance with ADA requirements?

Step 2: Determine the Actual Process

Procedures are great but of little value if not understood and consistently implemented. One of the most effective ways to determine if a policy is actively enforced is to interview the end user. Ask the most recently hired employees if they received training on accident procedures at the time of hire. If so, ask them to describe the training program. You will find out what the actual procedures are as well as the retention and effectiveness of the program.

Step 3: Establish Best Practices

This is your "perfect world" wish list. If you were entering your risk management program into the Malcolm Baldridge Award competition, what would be your practices?

Step 4: Set Measurable Criteria to Reach Objectives

Review your best practices list and select the areas where you can effectively implement change. Establish your program, training needs, and measurements to determine progress toward meeting the objectives.

Step 5: Monitor the Process

Achieving results means changing behavior. Feedback and reinforcement are needed on a regular basis to strengthen the importance of the objectives. Otherwise, it becomes one more program that will move to the bottom of the pile as other business issues develop in your company. Reminders of progress toward meeting the objectives provide opportunities to move the program to the top of the pile.

Example: Auditing A Return-to-Work Program

To illustrate the process, a return-to-work program is analyzed. The following steps need to be taken:

• Step 1: The first step is to review your current corporate return-to-work program or policy and how it is being administered. Is it in a training handbook where the latest revision was in 1945? Are all key people aware of the policy with results measured and incorporated into performance reviews?

• Step 2: Interviewing key contacts to determine the actual implementation of the policy and diagramming the process of returning an injured employee to work is the second critical step. What are your carrier's or administrator's protocols for assisting your company in returning an employee to work? Who recommends accommodations or job redesign? Do you have an on-site therapy or rehabilitation program?

• Step 3: The next step is to establish best practices for your company as compared to your corporate policy or benchmarked against the industry standards. To determine industry standards, request statistics from your carrier or industry groups for information such as average days of disability, average cost per claim, or average cost and outcomes of litigated cases.

• Step 4: Based on reviewing best practices, the fourth step is to establish objectives with measurable performance criteria. For the return-to-work program, the objective may be that there are management and employee rewards provided for achieving a 90 percent return-to-work rate or 10 percent performance improvement as compared to the prior year results.

• Step 5: The last step is to establish a system that provides easy access to statistical evaluation of the progress in meeting all the objectives. Either internal reports or carrier statistics should be distributed on a timely basis so trends can be evaluated and appropriate corrections implemented or recognition provided.

The risk management audit process is a comprehensive evaluation. To accomplish maximum results, it is necessary to have commitment and support from senior management. This requires a commitment to review the total workers compensation process, analyze the results, and design a program that will achieve a net reduction in losses and costs.

Since there will be an accurate assessment of the risk management program with specific objectives and performance criteria, you will also be in a strong position to negotiate a partnership program with your carrier, which may include financial and performance guarantees. In the end, the difference is having a risk management program with overall and individual performance objectives versus what you have now.

Mary K. Hollis is manager of claims services for Liberty Mutual's Claims department.