If you have business insurance, it's probably going to happen: Your insurance company will conduct an audit. Insurance companies conduct audits to make sure the premiums you're paying are in line with the amount of coverage they're providing.
The initial contact from the auditor is either by phone or mail, and you're generally given a week or two to prepare. The auditor will let you know in advance what records need to be examined so you can have those documents available. In most cases, you can't deny the auditor access to requested records; chances are, there's a clause in your policy stating that by purchasing the coverage, you agree to the audit process. If the auditor finds evidence of fraud, it's reported to the insurance company and to the appropriate investigative unit of your state government.
Here are some tips to make the auditing process go smoother:
Have all requested records available. If, for example, certain records are maintained by your accountant, either bring them into your office or arrange for the audit to be conducted at your accountant's office.
Get certificates of insurance on any contractors not covered by your workers' comp policy. Be able to prove that any contract labor source doing work on your premises or on your behalf has coverage, or you may have to pay additional premiums based on those labor costs.
Discuss record-keeping procedures with your insurance agent and accountant. Proper bookkeeping may reduce your workers' comp premiums. When you pay overtime, for example, you may be entitled to a partial credit against your total payroll for those hours.