Inspection of employers by social insurance fund

Accountor would like to inform you that scheduled inspections of employers by the Social Insurance Fund of Ukraine (further the “Fund”) have been resumed since March 2019. The purpose of these inspections is to verify that employers duly use the funds allocated to them by the Fund. The inspection schedules for the second quarter of 2019 were published on March 19-20, 2019 on the web portals of the Fund executive board’s bodies in the regions and the city of Kyiv.

The Fund executive board’s bodies and their branches are currently inspecting employers to verify whether they use the insurance proceeds from the Fund as set out in the Guidelines on the Procedure for Conducting Inspections to Verify How Employers Use the Funds for Temporary Inability to Work Provided by the Fund (further the “Guidelines”) because no new procedure for inspections has been approved after the unification of the Social Insurance Fund for Temporary Inability to Work with the Social Insurance Fund for Work Accidents.

As with other state authorities, the inspections from the Fund may be either scheduled or unscheduled, and only documented.  The Fund uses the following criteria to include employers in its inspection schedule:

1. Violations of the use of insurance proceeds provided by the Fund, in particular, as identified during previous inspections;
2. Failure to submit a notice of payment of funds to insured persons within three months of the payment by the Fund of the amounts specified in the relevant application;
3. Increase in the number of paid days for temporary inability to work (pregnancy and childbirth) and in the amounts of material support for these purposes by 1.5 times and more in the reporting period compared to the previous year’s same period with no increase in the average number of full-time employees and payroll in the reporting period;
4. Payment of material support to insured persons within the upper limits for maximum amount per day;
5. Insurance proceeds paid by the Fund with no payment of unified contribution by the employer and/or no insured persons in the register of insured persons.

The Guidelines provide that the Fund is entitled to conduct unscheduled inspections without prior notification if:

• there are inconsistencies between the data specified in mandatory reporting documents and the applications submitted to the Fund;
• after review of reporting data, it is established that the average daily allowance for maternity benefit exceeds average daily wage;
• a procedure for reorganization or termination of business entity has been initiated, bankruptcy proceedings have been initiated or an application for company de-registration has been filed.

The Guidelines also set out that during inspections the Fund verifies, in particular, the validity of assignment, payment and use of material support to insured persons, the correctness of accrual of average wage for calculation of benefit to insured persons, as well as the compliance of accounting data with reporting data on the funds provided by the Fund and with statistical reporting data.

It should be noted that part 6 of Article 15 of Law of Ukraine No. 1105 On Compulsory State Social Insurance dated September 23, 1999 provides for the liability of employers in case of violation of the procedure for using insurance proceeds, which entails full reimbursement to the Fund of insurance funds unlawfully spent and/or the cost of the social services provided and a fine of 50% of such amount.

If the amount of insurance funds received from the Fund exceeds actual benefit costs, unused insurance funds should be returned to the Fund’s body that has provided them. Such refund should be made within three working days. In case of late refund or incomplete refund of insurance funds, the Fund will impose a fine of 10% of the amounts of late or incomplete refund of insurance funds on the employers or other recipients of the funds provided by the Fund. The amounts of late or incomplete refund of insurance funds will also be subject to a penalty of 0.1% for each day of delay.

Our consultants, accountants and lawyers have extensive experience in assisting companies subject to inspections from various state authorities. We will be happy to share our experience and recommendations!