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Employer responsibility in auditing FSA claims.


Guest Deb H
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Guest Deb H

Is there any legal responsibility for an employer by NOT auditing Flexible spending account claims submitted by an employee if they are administering the plan themselves? If so, where could I find documentation?

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It dependes what you mean by "audit". Each claim has to be looked at to make sure of several things: that it was incurred (date of service and not date of payment)during the plan year and after the employee enrolled, and that it is one of the permissible expenses, that the documentation from the 3rd party provider of the service contains the necessary info. If the IRS audits your plan, one of the things that they will want to see is a denied claim log, showing that not everything submitted was rubber stamped and approved.

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Guest Deb H

Thanks. Do you know where I could find documentation on that. My new employer, is telling me that I don't have to audit claims (checking to make sure they are eligible claims). My manager told me it is the responsibility of the employee if they get audited by the IRS and that all the company needs is a signed claim form.

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The five Proposed and one Temporary regulations as well as the new IRS audit guidelines.

This is one of the main reasons along with the potential liability of seeing that documentation that companies outsource the actual administration of their cafeteria plan.

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For denied claims, it is wise to, first, retain a copy and second, the reason for denial should be detailed in writing referencing the particular reason, in accordance with the IRC and the plan documents, that the claim is being denied. Your plan documents and summary plan description should detail the claims procedure, how claims are denied and the rights of the participant to appeal denials. Once again a good reason to outsource to a TPA.

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Guest myvettee

I've been looking at your "Employer Responsibility in Auditing FSA Claims" and you hit on a subject that just now is of concern in our dept.

The issue is what is the plan administrator's responsibility in auditing claims. How far do we go in making the decision on what is acceptable and what is not? I also read where someone asked if a "DENIAL CLAIM LOG" should be kept. Is this recommended? I've not heard in my 7 years of administering the plan in house of any denial claim log. If I receive a claim and it is not complete all I do is return it. I would very much appreciate a response. Thank You!

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Guest JPCMPLS

I regularly hear similar comments from employers - ("it is the employee's problem right?"). The IRS didn't think so and was successful in collecting back payroll taxes against American Family Insurance Company which allowed retroactive claims to be reimbursed in violation of the proposed cafeteria plan regulations. This case is a reported decision as American Family tried to contest the assessment in the courts.

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Guest Deb H

I spoke with someone from the IRS, who directly deals with FSA's. He did tell me that if there was an audit, that not only would they penalize the employee, but they would go after the employer with stiff penalities. My employer finally agreed to let me audit the claims. As for documentation of denied claims, it's always been my policy to write letters to the employees either requesting additional information or why the claim they submitted was not eligible. Then I attach a copy to the claim form they submitted and it goes into their flex file. I agree with Lisa, if you've never had training in this area, it is best to outsource.

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I just wanted to add a coment about outsourcing. Over the years I have had conversations with thousands of employees and many said they would not use the FSA plan if someone inside the company would have access to their claim information. For example,an employee who is going to psychiatrist for emotional counseling mught be reluctant to have someone in the company know their private business. Outsourcing the administration of the FSA plan maintains the confidentiality that many employees require before they participate.

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In addition to providing peace of mind to the participants, out-sourcing provides the employer with a vaulable protection from liablity such as a former employee suing for wrongful dismissal based on medical reasons. For example, doing claims in-house same situation described by Joe, you have to terminate the employee and they come back and sue saying you fired them because of their counseling or the genetic testing they had done or that one of their RXs is AZT. A TPA protects the employer from this risk.

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