Ineligible Benefit Usage

When a business extends benefits to the family of an employee, the benefits are only intended for those family members who qualify. Over time, children grow up and become too old to still be covered by the corporate benefit plan, and spouses may divorce. However, employees do not always notify the employer when these transition events take place, so the company continues to pay for benefits. Consequently, an obvious cost reduction technique is to conduct an eligibility audit from time to time, to see if any employee dependents can be removed from the corporate benefit plan.

The Eligibility Audit

An eligibility audit can encompass the following areas:

Dependent eligibility tracking. Review the process by which dependents are initially reviewed for acceptance into the corporate benefit plan, as well as the process by which the status of dependents is subsequently tracked. Ideally, the process should result in the prompt elimination of benefits as soon as a dependent is no longer eligible.
Eligibility documentation. Review the documents that were originally provided as proof that someone is an eligible dependent, such as marriage certificates, birth certificates, adoption papers, and so forth. The review may reveal situations where someone is not eligible for benefits, such as a spouse who is now divorced, and children who are now too old to receive benefits.
Overpayment recovery. Review the process for obtaining repayment from employees in those situations where benefits were extended to a dependent who is no longer eligible.

An element of eligibility auditing is the development and distribution of a policy that states the exact circumstances under which dependents are eligible to receive benefits, and the company's commitment to ensure that these standards are upheld. Doing so informs employees of the company's standards, and makes it less likely that they will attempt to circumvent the standards.

Related AccountingTools Course

How to Audit Benefit and Compensation Plans

Employee Relations Issues

The concept of an eligibility audit for benefits may not sit well with employees, since they may feel that it requires an excessive degree of company interference in their personal affairs. If so, it can help to point out that eligibility audits reduce the total cost of benefits, and so allows the company to continue offering benefits to employees at a reasonable cost.

A likely response to an eligibility audit is the occasional request for a waiver, so that an unqualified dependent can be provided with coverage. These requests should be rejected in all cases, since a waiver would violate the terms under which third parties provide benefits to the company, and because one waiver opens the door to additional requests for waivers from other employees.