In the insurance business it's common to hire third party administrators (TPA's) to handle claims. TPA services typically involve an outsourced, specialized company handling all claims processing in a coverage line. Often, TPAs work for large employers who provide their employees' insurance themselves. The employer will underwrite the cost of the insurance, thus taking on the liability, but outsources the management of the insurance to third party administrators who know all the ins and outs of the insurance industry. Thus, the employer saves money but still has experts handling their employees' insurance.
Of course, as with any situation where highly complicated work is outsourced, there is a need for transparency. Third party administrators have their reputation at stake and are unlikely to commit intentional fraud, but in such a complex business it's possible for accidental errors to slip through, which the client is unlikely to notice until it's too late. Thus, a third party administrator audit is routine.
A good auditing company is not only well versed in the insurance industry and in the types of accounting involved in TPA services, but is also ready to sit down with both companies and get communication going. Before the audit even begins, the auditor should sit down with both parties and work to proactively identify any likely misunderstandings. They should also inform themselves about company philosophy and the goals and aims of the company for its insurance plan. This contextual information, as much as the contracts themselves, can help clarify and resolve many potential concerns.
The audit itself should involve the expected steps of reviewing contracts and agreements, auditing accounting and finances, and spot-checking handling of individual policies and claims. However, it should go beyond that. A good auditor will create a database that's easy for their client to use so that the client can look at the data directly and not rely just on the report. They will also review and test the effectiveness of all internal controls and procedures used in the TPA services.
Taken together, these steps make third party administrators' methods and actions completely transparent and help resolve any differences between a client and their TPA services.