Just One Day of Fraud

We see it all the time, but it appears to be getting worse.

At least anecdotally.

Premium fraud - businesses attempting to skirt their responsibility to society by underpaying, or not paying, the workers' compensation obligation.

The reasons differ: competitive advantage, insufficient cash flow, start up business, greed...

The impact is the same: employees without coverage, increased costs for law abiding businesses, negative perception of workers' compensation (after all, most argue, they would pay for work comp if they could afford it...). Insurance fraud is often viewed publicly as "victimless", but we know differently.

Just one day in the news brings us four employer fraud stories from across the nation, an embarrassing statement of the moral character of some people.

Iowa: The owner of owner of Des Moines, Iowa DES Staffing Services, Dinesh Sethi, who turned in his chief financial officer for embezzling, was sentenced Friday to 57 months in federal prison for defrauding workers' compensation carriers of $778,940 in premium.

After Sethi accused Randy Stringer of embezzling $1 million from his business Stringer provided the FBI with documentation of payroll shifting Sethi directed between two shell companies, Staffing Professionals and KDM Staffing in order to take advantage of premium rates, as well as shift payroll from job classifications that had a high premium rate to job classifications which had a lower premium rate.

According to press reports, the FBI arrested Stringer in Miami after he wired $2,000 from Sethi's business to a woman in the Dominican Republic. He pleaded guilty in February 2010 and was sentenced to 15 months imprisonment, then ratted on his employer about the premium fraud.

The old adage about seeking justice with unclean hands applies - be careful who you accuse as you may put yourself in a worse position!

California: During a Dec. 8, 2011, contractor's compliance check, Francisco Barajas-Castellanos, 30, and another man were observed preparing the interior of a residence for painting in the Rancho Cucamonga area or San Bernardino County. According to senior investigatory Steve Rivera, Barajas admitted that he was the contractor and business owner and the other man was his employee. Barajas also admitted that he did not have workers’ compensation insurance, the District Attorney’s Office said.

At least he was honest about his lack of coverage.

A California statewide sting March 14-15 resulted in the arrest of 110 unlicensed contractors, with 11 contractors facing charges for failing to provide workers’ compensation coverage and one contractor accused of filing a false exemption for coverage, according to the Contractors State License Board (CSLB).

The contractor board’s Statewide Investigative Fraud Team (SWIFT) teamed up with the Employment Development Department local prosecutors and law enforcement agencies in Butte, Fresno, San Luis Obispo, Los Angeles, Riverside, San Mateo and Tulare counties to conduct the sting.

The CSLB has made it quite public in the past few years that they team up with other state agencies to identify non-compliant contractors - despite the publicity folks still try to fly under the radar.

Finally, in Pennsylvania, the Attorney Generals' on Monday office arrested an auditing supervisor at the State Workers' Insurance Find (SWIF) and his wife on charges that that they accepted more than $80,000 in bribes from employers in exchange for premium refunds between 1999 and 2011.

State Attorney General Linda Kelly said in a press release that state agents arrested James McDonnell, 53, and his 44-year-old wife, Michelle McDonnell. Both live in Scranton, Pa.

The attorney general's office said the McDonnells received more than $80,000 through a scheme in which James McDonnell promised he would reduce SWIF premiums in exchange for kickbacks.

Kelly said the businesses either paid McDonnell in cash or put Michelle McDonnell on their payroll as a "ghost employee."

James McDonnell was charged with five counts of bribery in official and political matters, six counts of conflict of interest, two counts of dealing in proceeds from an illegal activity and two counts of criminal activity.

Michelle McDonnell was charged with two counts of criminal conspiracy.

This case is particularly interesting because over the course of 12 years these criminals only managed to steal $80,000 - doesn't seem like much of a pay off for the risk incurred. Apparently auditing doesn't embue the same risk management characteristics as other insurance industry positions.