Auditing As A Performance Tool
By: Liz Scott
The original purpose of an audit was to detect accounting fraud. Today, an audit is a systematic examination of any business activity. Liz R. Scott, an auditing and disability management services consultant, tells how an audit of disability management programs can help both the plan sponsor and the plan member.
Performance measurement has become an important part of doing business. Continuous improvement has gained popularity and although the name may be different in each company, the concept is solid. It may be called Quality Assurance, Continuous Improvement, Auditing, Assessments, or Quality Standards Monitoring, but they all boil down to the same thing – measuring execution against goals and best practices.
There are many forms of auditing from internal to external. Audit tools range from internal organizational reviews that are performed on a regular basis to sophisticated external evaluation systems that are purchased when the need arises. Regardless of how often or which method is used, audits are a valuable measuring tool to ensure quality and results.
As defined in World Book online, an audit is a systematic examination of business activities. The word audit comes from the Latin word auditus, meaning a hearing. Auditing began in ancient times. However, modern auditing techniques originated in Britain during the mid-1800s. At that time, the main purpose of an audit was to detect fraud. A person who conducts an audit is called an auditor. There are three basic types of audits – financial, compliance, and operational.
- Financial audits are used to check the reliability of a company’s financial information. It inspects the accounting records to d e c i d e whether the financial reports reflect generally accepted accounting principles. Strict standards exist for corporations in the area of financial accounting expectations.
- A compliance audit determines if an organization has followed internal policies, laws, regulations, and contracts. It is not unusual to have government bodies perform these compliance audits.
- An operational audit/assessment provides an evaluation of management practices compared to preset goals and recognized best practices. These audits are concerned with the efficient use of resources and the achievement of stated goals. It can be said that best practice must be achieved before innovation can occur and this type of audit helps ensure meeting of best practices.
As employers strive to improve Organizational Health and improve employee retention, the way that disability claims are handled becomes very important to the employee and the corporate wellness equation. The commitment to assist employees when they are disabled is essential to a healthy organization.
Insurance Company Audits
An insurance company ‘claim audit’ would fall into the operational audit category. It provides an opportunity for employers to gain a comfort level with the practices that insurers are using to manage their disability claims. This provides a measure indicating that the insurer is treating employees in a manner consistent with corporate goals and objectives and that they are executing the insurance contract as intended.
As a component of the operational audit, an organizational review provides the opportunity to determine gaps and areas for improvement of processes. This assists in retaining valuable human resources.
The interesting thing about an audit is that it also highlights where clear measurable goals do not exist.
Audits may also be commissioned by the insurer to gain reassurance on their internal practices. In insurer commissioned audits, they are usually looking for an external third-party measurement of success, or gaps in meeting of their claim handling practices and objectives. It also provides some assurance that claims are being handled consistently and appropriately as compared to their defined process. It is crucial that audits are only performed by experienced auditors possessing the appropriate credentials and experience to evaluate and process claims.
Audits requested by employers arise for a number of reasons, including the desire to understand the execution of claims management practices, a concern over the escalation of premiums, or as a result of specific concerns on specific claims.
As an employer in the Canadian market, the number of insurers continues to shrink, making auditing perhaps one of the only methods left for employers to confirm a level of service at an insurer and negotiate service expectations. In short-term disability and illness, many options still exist, with insurers representing but one sector that administers claims in this time frame. If an employer still has an insured program and is unhappy with STD adjudication and claims management/ resolution practices, some competition exists that offers an alternative delivery model that may better suit the needs of the workplace.
The majority of LTD plans are still insured and an employer has fewer and fewer insurers to choose from. This reduces the opportunity to say ‘I am unhappy’ and switch to someone else. It becomes essential to have performance measures in place.
It should be mentioned that auditing is not isolated to insurers. Any third-party provider can be audited. When establishing non-insured arrangements, employers need to specify they want to have this option – even if they will never use it.
Audits are a good tool for monitoring the performance of the provider and setting standards acceptable to all parties. Depending on the findings of the audit performance, standards may be established with the insurer or third-party provider. Defining the relationship based on a common philosophical agreement among the groups can be key to future success. Some of the questions to ask when developing specific performance standards include: Is there an ultimate goal to deliver customer service to the disabled employee and the employer? Are resources used wisely to provide value for the employee and employer? Is there an attempt to find the common elements to gain the best disability outcomes? Can performance be measured and is it reported? Does the contract specify performance measures and definitions? Is there a goal-directed rehabilitation program that provides return-to-work planning in place?
The last question is of the utmost importance. The essence of rehabilitation can be summed up in the old adage, ‘If you don’t know where you’re going, any road will take you there.’ We often don’t give a great deal of thought to where we are and where we’re going. However, imagine a life-altering disability where performing a simple function such as planning what to do tomorrow can be a daunting and onerous task. Lack of assistance and direction by the disability provider can lead to frustration and unfulfilled aspirations and prolonged disabilities which, unnecessarily, keep the employee away from the workplace.
Do employees continue to feel engaged when off work on disability? Are areas of opportunity and growth for employees still identified and do plans exist to use these skills upon their return? Responsibility for keeping career goals in sight falls squarely on the shoulders of the disability carrier, be it an insurer or a third-party administrator. The return-to-work goal should always be in mind.
The overall goals should have four key characteristics:
- Measurable – There must be a way to reflect progress. ‘What gets measured gets done.’ Ensure that targets have a quantitative nature.
- Meaningful – The target must represent something significant. The objective has to be essential to the success of resolving the disability and the health of the employee. The worthiness of the goal must be apparent. It should be obvious that attainment of your objective will improve your employee’s potential of return to function and increase the chances that the employer will have a valuable human resource back at work.
- Achievable – Creation of an unreasonably aggressive goal serves no purpose. Actively or passively, participants will become discouraged and drop out. The goal must be attainable in a realistic amount of time given the current condition and resources.
- Challenging – The goal established should stretch the capabilities of the insurance company and the engagement of the absent employee. The objective must be realistic for those who will end up being participants. The ability to accomplish goals presents a positive impression on the program.
Remember to be careful with the use of absolute goals like ‘no lost time’ workdays or ‘no LTD claims.’ While these are great ambitions and few would dispute the desire to have a world free of illness and injury, they represent an unrealistic future state. Establish significant but achievable goals.
Keep the employee in mind. Make sure you have a firm understanding of ‘value’ from his/her perspective. This may not be as obvious as you think. Ensuring the attainment of goals will result in better service for the employee.
Establishing performance measurements and goals demands serious thought. It requires an understanding of the business operating vision and how the corporation views its employees. It also requires co-operation from the provider to want to understand the needs of the stakeholders.
Audits provide a good means to measure a provider’s execution against expectations. While auditing cannot ensure best practices are implemented, it will identify the improvement required in claim handling practices. It provides an avenue to keep insurers on their toes and a basis for the development of performance standards to reassure employers that the practices in place for managing their claims are consistent with their corporate goals.
Liz R. Scott is a consultant providing auditing and disability management services.
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