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What DOL Asks During Investigation (Audit)

SPBA was formed and has remained as a sharing among professionals for the good of the TPA profession and the markets we serve. The information below comes from two SPBA members as an example that the spirit of SPBA sharing is alive and well. This is based on the letters DOL sent to announce that the TPA firm had been selected for a routine "investigation". Sometimes DOL says it is coming to check the TPA's whole book of business. Sometimes their official target is just one or more specific plans.

What is "investigation" versus "audit" by DOL? This has caused more gray hair in the TPA business than it should. It is actually a funny story. In the old days, sometimes DOL would announce they were doing an "investigation" of a TPA or plan…and sometimes an "audit". Of course, the TPA to be "investigated" was worried sick wondering what terrible thing the firm could have done to cause it to be "investigated", versus the TPA across town only being "audited". The answer has nothing to do with the target. If the DOL person coming had training as an accountant, then it was called an "audit". If the DOL person had any other training, the word "audit" could not be used, so it was an "investigation". Sometimes this confusion would trigger wild rumors that some TPA must be pretty bad to be "investigated" versus "audited". At an SPBA Spring Meeting one year, SPBA members asked DOL to stop this confusing situation, so DOL accepted the request of the SPBA members, and eliminated the word "audit". So even the most random check of the most innocent TPA or plan is an "investigation". (I can hear the collective, "whew!!!")

In any case, under ERISA fiduciary duty, DOL can pretty much follow the dollars anywhere….especially dollars from or impacting plan assets or dollars that might conceivably influence your judgement. In the latter category, that includes commissions and payments from Stop-Loss, PPOs, etc. etc. DOL wants to be sure that your judgement about how you handle claims is not influenced by the bonus or payment you might receive. This is also why they want information about your subsidiary & sister firms.

Much of this is psychology, so if you start getting defensive about how far they are looking, the more you raise their suspicion that you are hiding something. Similarly, if you have a stern attorney or CPA hovering over them, it makes them wonder why you thought you needed that protection, and thus they dig deeper. Just be natural! SPBA has nagged you for so long about fiduciary duty, that it is very very very rare that DOL has more than the most minor suggestions for fine-tuning for SPBA member firms. Chiefs of DOL Enforcement have frankly complimented SPBA Spring Meeting audiences, that they tend to tell their DOL investigators that SPBA firms are good learning places to see how TPA firms are supposed to operate.

So, the process would usually start by you receiving a letter or phone call (in either order). It will say whether the TPA firm's whole book of business or just one or one type of plan is to be "investigated". It will also detail what materials they want on hand, the time period being studied, and they will propose a date/time that they will arrive. Be friendly. You can usually explain if some date is particularly bad….but do not stall to stonewall. By the way, HIPAA privacy does not prevent you from sharing information with this official government agency.

How long does it take? Finding and making two copies of the materials they will want for their files (requested in advance, and a sample list outlined in this article) will be your biggest time commitment. They will probably intimate that it will take a week, but for most clean situations, they almost mysteriously and suddenly disappear in two or three days. Getting the response letter can take months and months, so don't worry if you hear nothing for awhile.

Here's a sample of what is requested: (If the item truly does not apply, say so,)

1. The last 3 years of the TPA's filings with the state insurance commissioner's office. (If your state has absolutely no interaction with TPAs or your kind of plans, fine.)

2. An organizational chart of officers of the TPA firm showing individual officer's positions & responsibilities.

3. A list of the TPA's subsidiary corporations or entities, including mailing address & principal business operation. (To be sure to show that you are not trying to hide anything, we suggest that you also have available a list of all parent or sister entities with addresses etc.)

4. An organizational chart of the officers of each subsidiary, showing individual officer's positions & responsibilities.

5. A list of current members of the Board of Directors of the TPA firm or any subsidiaries which promote its services as a TPA claim administrator.

6. Copies of all literature or advertising brochures used by the TPA firm to promote its services as a TPA.

7. A list of the TPA's clients for the period covered, which are self-insured and subject to ERISA. (Your fully-insured and govt. or church plans do not need to be included.) The list should include the name, address, EIN of the plan sponsor, contact person, and type of services provided to that client.

8. A list of all contracts between the TPA and/or its subsidiary (and probably parent or sister firms) and those clients described in question #7.

9. Financial records relating to fees charged and claims paid relating to the clients listed in #7.

10. Any agreements between the TPA and/or its subsidiaries (or probably parents/sister firms) and other parties and/or medical service providers concerning client plans described in #7.

11. Written policies, guidelines and procedures for servicing client plans described in #7.

12. Fee schedules for the clients described in #7

13. Schedule B of Form 5500 series provided to the clients described in #7.

14. Stop-Loss insurance binder, cover sheet or certificate of insurance for the client plans which indicates attachment points, premiums, commissions paid, and entity covered by the policy.

More psychology hints from the experience of SPBA members:

>>Keep in mind that DOL enforcement (both investigations + to report problems) is done from the regional level. The national DOL office tends to shunt you to the region on specific plans, investigations or problems.

>>The key is to be cooperative and give no vibes that you are trying to hide anything. So, let that advice be your guide in the whole process. It may be that your "investigator" knows next to nothing about benefits. Fine, help him along, and don't make him feel incompetent. If the person is truly truly off the wall in his attitude or accusations, then you can say, "I think we better move to the next stage with one of your supervisors." However, remember that the supervisor is going to start out assuming his person was right, so this is a desperation fall-back.

>>As noted, it is almost always better not to have some stern legalistic attorney or CPA present, which gives the impression of something being hidden. Instead, it will usually start with a friendly chat with senior staff. Then give the person an office or room to work (thus not wandering around the office on a fishing trip). A priceless hint from one of your fellow members is to stop by to check in with the investigator every 30-60 minutes to ask if everything is OK, and/or ask if he'd like anything. Why? If you are right there, the investigator can ask any question early that pops up. If he has too long to stew on it, his professional vanity may get invested in making it seem like a big scandal. For example, one TPA had shifted his fiscal year. Another TPA took over a client mid-year in a crisis situation. Both items looked fishy until the logical reason was explained. So, if there are things that might lead to that kind of confusion, mention them up front.

>>In the "old days" (before we arranged for SPBA members top have a heart-to-heart talk with the top DOL enforcement officials at a Spring Meeting), it was not unusual for TPAs to lose one or more clients from even the most innocent "audit". Why? DOL used to routinely go to clients to confirm fees, conditions, etc. The clients would panic or let their imaginations go wild when they heard the DOL was "investigating" their TPA. It rarely happens anymore, but we suggest you both alert the clients and turn it into a PR plus. There is a sample letter on the SPBA members-only website under "ERISA, Fiduciary Issues etc…" Under the "Fiduciary Issues" first subcategory, a few items down is "DOL Audits - Sample Letter to Clients when DOL says it's coming to audit you". Essentially, the letter says that you are honored and pleased that your TPA has been selected as part of the ongoing protection of ERISA and fiduciary duty. Through your professional association, you have been working with DOL and encouraging these constructive visits. You then urge clients to be totally open, and if they have any questions, the TPA firm is happy to help. The letter turns a potentially touchy topic into a commendation of your firm and the national leadership role of your profession.

I hope this article also shows you the importance of having your firm adequately represented at SPBA meetings, both to be an influential guide to government to improve their systems….and being able to add to the letter (above) something like. "Our firm invests the time and money to meet with the top national officials who shape (DOL, IRS, etc.) policy so that your plan and our service to it can be as smooth, safe, and cost-efficient as possible."

How & why are TPA firms or plans selected?

It is not sinister. It is often funny. DOL likes to show that they checked a large number of plans each year to be sure they are complying with ERISA. Coming to a TPA for a few days lets them wrack up big numbers (count all your clients) and a service provider very quickly. Also, frankly, good TPAs are seen as a training ground to show new investigators how good operations work.

When the request is for an individual plan, there is often some trigger reason. If the news is saying that the XYZ company is in tight financial straits and is cutting corners or there are signs of corruption, DOL might decide to see if they are cutting corners on the ERISA plan. Or, if DOL receives a complaint about a plan (even one that sounds frivolous or misdirected…such as an angry doctor who wanted more money) they might do an investigation of the plan to both say they had checked a plan and that they had checked out the complaint. They probably would not tell you up front the reason for the selection, but it is fair to ask in a friendly way, especially after establishing a good rapport.

Let me end this article with a funny relevant story. One of our SPBA member TPAs owned a building next to a overpass used by commuters in a major city. He decided to put the big blank wall to use, so he had a large ad for the TPA painted on the building facing the overpass. Not long after, he got a DOL investigation. It went well, and the TPA asked, "How did you happen to choose this firm?" The DOL person said that he sits in rush hour traffic several minutes in front of that sign every day, so when his regional office said, "I guess we should do some TPAs.", the DOL person said, "I know where one is!" The TPA laughed that he did not think that the sign had attracted any new clients…but he could not argue that it sure did raise the visibility of the firm among some people.

This article is also being placed on the SPBA members-only website under the ERISA Fiduciary category, Fiduciary subcategory, then listed as DOL AUDITS