Insurance audits can feel intimidating, but they’re a routine part of doing business—especially if you carry commercial insurance like general liability or workers’ compensation. While the audit process is designed to ensure that your premiums match your actual exposure, many business owners unknowingly make costly mistakes that lead to surprise bills or coverage issues.
Working with a reliable insurance agency in Las Vegas can help you navigate audits with confidence. But first, let’s break down the most common mistakes—and how to avoid them.
Mistake #1: Underreporting Payroll or Sales
One of the most common—and costly—mistakes businesses make is underreporting payroll or revenue. Whether it’s intentional or an honest oversight, underreporting results in discrepancies that lead to higher premiums after the audit.
How to Avoid It:
- Keep accurate, up-to-date payroll and revenue records.
- Include all employees, even part-time or seasonal staff.
- Report subcontractors correctly (see Mistake #4).
- Consult your insurance agent before estimating figures on your application.
Mistake #2: Misclassifying Employees
Insurance premiums, especially workers’ compensation, are based on job classifications. If you place an office worker under a construction laborer code—or vice versa—you could end up drastically overpaying (or underpaying and facing penalties later).
How to Avoid It:
- Use accurate class codes for every employee role.
- Review classification codes annually with your insurance agent.
- Document job responsibilities clearly in your records.
Mistake #3: Not Keeping Detailed Records
Auditors may request financial documents like:
- Payroll reports
- Tax forms (941s or W-2s)
- Sales and revenue breakdowns
- Certificates of insurance for subcontractors
Lack of documentation can result in default assumptions—usually not in your favor.
How to Avoid It:
- Maintain organized digital and physical records.
- Have a designated person manage audit-related documentation.
- Store certificates of insurance from vendors and contractors.
Mistake #4: Incorrectly Handling Subcontractors
This one is big. If you hire subcontractors without valid insurance and can’t provide proof, your insurer may treat them as employees—drastically increasing your premium.
How to Avoid It:
- Always collect Certificates of Insurance (COIs) from all subcontractors.
- Ensure their coverage limits meet your insurer’s requirements.
- Keep all documentation accessible in case of an audit.
Mistake #5: Ignoring Audit Notices
Some businesses procrastinate or ignore audit notices altogether. This can lead to policy cancellation, non-renewal, or an automatic premium increase based on assumed high risk.
How to Avoid It:
- Read all communications from your insurance provider or agent.
- Respond to audit requests by the deadline.
- Contact your agent immediately if you need more time or help.
Mistake #6: Failing to Involve Your Insurance Agent
Trying to navigate audits alone can result in avoidable missteps. Many business owners don’t realize that their insurance agent can help them prepare and respond accurately.
How to Avoid It:
- Keep your insurance agency in Las Vegas looped in throughout the year—not just during audits.
- Share any business changes that could affect premiums (new hires, new locations, new services).
- Ask for help reviewing your records before submission.
Final Thoughts
Insurance audits don’t have to be stressful. With proper preparation, accurate reporting, and the right guidance, you can avoid penalties, prevent surprise bills, and ensure your business stays protected without overpaying.
Looking for trusted support through every step of your insurance journey? As a leading insurance agency in Las Vegas, Inspirion Insurance Solutions offers the expertise and personalized service you need to navigate audits with ease. Let our team help you stay compliant, save money, and get the coverage that truly fits your business.