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Introducing the

Learning
Center

SLA's new
online center for broker
education and broker license
renewal assistance.

SLA's new online center
for broker education and
broker license renewal assistance.

SLA's new online center for broker
education and broker license
renewal assistance.

Learn More

Introducing the

Learning
Center

SLA's new
online center for broker
education and broker license
renewal assistance.

SLA's new online center
for broker education and
broker license renewal assistance.

SLA's new online center for broker
education and broker license
renewal assistance.

Learn More

CDI Audit Tips for Brokers

Preparing for a CDI Audit

One recurring question members ask the SLA is how to prepare for an audit from the California Department of Insurance (CDI). In turn, we asked four of our members who had previously undergone an audit for their feedback. Although each experience was different, we thought it might be valuable to share some of their insights.

Notification of Audit

CDI notifies broker two weeks to five months in advance to set up the date for the onsite audit. The broker is sent a Notice of Premium Tax Audit, which includes the following information:

  • Date of the audit
  • Name of the auditor
  • Nature of the audit
  • Audit objectives
  • Tax years being audited
  • List of documents to be presented to the auditor prior to or on the first day of the audit
  • Two page questionnaire on operating procedures and types of policies you write

Entrance Conference

On your first meeting with the auditor:

  • Identify key personnel as the auditor’s contact person(s)
  • Reserve office space for the auditor to work. The work space should be close to the contact person for easy access for questions.
  • If the building requires security clearance, provide a security badge

The Audit

Types of documents requested:

  • Invoice amounts and dates
  • For brokers filing monthly vouchers, documents should be separated by each month of invoiced activity in an orderly and clear fashion to avoid confusion and expedite the process
  • All payments by the insured
  • Photocopies of the “Licenses” and “Bonds” of the surplus lines broker and insurance broker
  • Photocopies of the trust bank account statements and related instruments for years under audit
  • Bordereaux / Monthly Detail Productions Reports that contain: Policy number, insured name, effective/endorsement date, invoice date, gross premiums, taxes due, and return premiums, if any
  • Policy files available for all years under audit: 1) policies should be organized in the same order requested by the auditor, 2) invoice date and effective date should be clearly noted, 3) files may be uploaded into Dropbox, and 4) excel reports preferred
  • Photocopies of the broker’s authorization from insurer if trust fund is invested to an interest bearing account(s)
  • Completed Excess (Shortage) of Trusteed Assets over Liabilities worksheet/statement
  • Photocopies of the declaration page of your E&O coverage for the years under audit
  • Photocopies of binding authority with non-admitted insurers if applicable
  • List of branch offices and locations
  • Organization structure
  • A brief written description of the broker’s internal procedure(s) on: Placement of insurance with non-admitted insurer, filing with the Surplus Lines Association, invoicing, maintenance of policy files, maintenance of trust accounts(s), and remittance of premiums

Length of Audit

The length of the audit depends on the amount of transactions being audited.


Exit Conference

Discussion with management may provide an indication of the types of recommendations and issues that will be forthcoming in the final audit report.


Issuance of Audit Report

The time frame for the final audit report can vary from a few weeks to over a year.


Helpful Hints

  • Some invoices and revised invoices are best presented as separate documents
  • Adjustments and revisions should be assigned a separate code from the policies for a clearer transaction trail
  • Document procedures for surplus line placements, filing procedures, and tax payment procedures. Be able to account and explain any deviations from the processes
  • When responding to the auditor through both verbal and written communication, your answer should focus specifically on the question asked and to the point.

*Key contact person should be available to answer any procedural question.