[net-gold] Employer Fraud is Alive and Well
- From: "David P. Dillard" <jwne@xxxxxxxxxx>
- To: Other Net-Gold Lists -- Educator Gold <Educator-Gold@xxxxxxxxxxxxxxx>, Educator Gold <Educator-Gold@xxxxxxxxxxxxxxxx>, net-gold@xxxxxxxxxxxxx, NetGold <netgold@xxxxxxxxxxxxxxx>, Net-Gold <net-gold@xxxxxxxxxxxxxxxx>, K-12ADMINLIFE <K12ADMIN@xxxxxxxxxxxxxxxxxxx>, K12AdminLIFE <K12AdminLIFE@xxxxxxxxxxxxxxx>, NetGold <netgold@xxxxxxxxxxxxxxxx>, Net-Platinum <net-platinum@xxxxxxxxxxxxxxx>, Net-Gold <NetGold_general@xxxxxxxxxxxxxxxxx>, Temple Gold Discussion Group <TEMPLE-GOLD@xxxxxxxxxxxxxxxxxxx>, Temple University Net-Gold Archive <net-gold@xxxxxxxxxxxxxxxxxxx>, Health Lists -- Health Diet Fitness Recreation Sports Tourism <healthrecsport@xxxxxxxxxxxxxxxx>, Health Diet Fitness Recreation Sports <healthrecsport@xxxxxxxxxxxxxxx>, HEALTH-RECREATION-SPORTS-TOURISM@xxxxxxxxxxxxxxxxxxx
- Date: Tue, 12 Apr 2011 10:33:13 -0400 (EDT)
.
.
Date: Tue, 12 Apr 2011 11:18:48 -0000
From: JonG <jon@xxxxxxxxxxx>
Reply-To: Net-Gold@xxxxxxxxxxxxxxx
To: Net-Gold@xxxxxxxxxxxxxxx
Subject: [Net-Gold] Employer Fraud is Alive and Well
.
.
.
Employer Fraud is Alive and Well
.
.
Perception is reality until proven
otherwise, and when it comes to fraud
in the workers' compensation system
there is the perception that employee
fraud is widespread and costs are up
because of employee fraud. Could that
perception be wrong? For example, are
those individuals who believe in employee
fraud sailing down the same course as the
naval ship identified in the story below?
.
Radio Conversation released
by the Chief of Naval Operations, 10/10/95:
.
Americans: Please divert your course 15˚
to the north to avoid a collision
.
Canadians: Recommend you divert your course
15˚ to the south to avoid a collision.
.
Americans: This is the captain of a U.S. Navy
ship. I say again, divert your course.
Canadians:
No. I say again, you divert your course.
.
Americans: This is the aircraft carrier
U.S.S. Lincoln, the second largest ship
in the United States Atlantic Fleet.
We are accompanied by three destroyers,
three cruisers, and numerous support vessels.
I demand that you change your course 15˚
to the north, that's one five degrees north,
or countermeasures will be undertaken to
ensure the safety of this ship.
.
Canadians: This is a lighthouse. Your call.
.
(End note: "This is the transcript of a radio
conversation of a U.S. naval ship with Canadian
authorities off the coast of Newfoundland in
October 1995. It may or may not be authentic."
.
Perdue, Jim M., Winning With Stories, State
Bar of Texas, Austin, Texas, 2006.)
.
In March of 2010, during a panel discussion
on fraud at an American Bar Association
meeting, a risk manager for Nestlé U.S.A.
told the audience that workers' compensation
fraud was suspected in 35% of all claims.
When asked where she got that statistic she
paused, then said she thought it came from an
insurance company. That's not surprising.
There's been so much misinformation about
employee fraud out there you'd think we are
in a run-up to a war. Well, there is a fraud
war going on against injured workers and it's
been going on for decades. Workers' compensation
lawyers often hear injured workers say "I'm
really hurt. I'm not like those other people
you hear about who fake their injuries."
Sadly, even injured workers have bought into
the employee fraud myth.
.
Let's look at some facts. First of all, there
have been several studies that have evaluated
employee fraud, and these studies show that
employee fraud is less than 1% of all claims
filed.1 Texas Mutual Insurance Company, who
uses the slogan Fighting Fraud. Some Advertise
It. We Do It.,2 publishes fraud statistics on
its website and their percentages of employee
fraud are also low (in 2008 there were 9
convictions of employee fraud in 1,544 reported
cases; in 2009 there were 13 convictions out
of 1,443 reported cases).3 This company also
offers a $1,000.00 reward for information
leading to arrest or indictment of workers'
compensation fraud perpetrators, but its
advertisement is clearly directed at employee
fraud (see poster attached to this article).
.
The most surprising information contained in
these statistics, however, was the amount of
money discovered from employer fraud. In 2005
there was $446,826.00 in employee fraud, but
$12 million dollars in fraud by employers.4
Texas Mutual reported the following statistics
in July of 2009:
.
Claimant Fraud Discovered
.
2007 $462,611.00
2008 $467,435.00
2009 $406,028.00
.
Premium Fraud Discovered
(in Millions)
.
2007 $8.0
2008 $9.3
2009 $4.35
.
As can be seen from the above numbers,
the amount of money being recovered
from employer fraud dwarfs the amount
of money recovered from claimant fraud.
Also, the average claimant fraud in
Texas between 2006 and 2009 was
$2,152.00 per claim.6
.
Premium Fraud is where the employer
misclassifies its workforce and gets
a lower rate on its premium (like
telling the workers' compensation
carrier the employer has 15 clerical
staff when it actually has 15
construction workers), or when the
employer reports that it only has 5
employees but actually has 105, or
where the employer doesn't bother to
take out insurance at all. Nearly
every state requires mandatory
coverage for employees so they get
medical and disability benefits if
they get hurt on the job. Another
way for the employer to defraud the
system is to declare its employees
to be "independent contractors,"
notwithstanding control by the
employer over the worker. Obviously,
if the employee is truly an
independent contractor and not an
employee, no coverage is required.
So, to avoid any legal requirement
to pay premiums the employer just
classifies its employees as
independent contractors. Voilà.
No premiums need be paid.
.
By hiding payroll, employers obtain
an advantage over competitors.
Employers who fail to provide coverage
at all not only cheat their employees
but also cheat the government by not
paying unemployment, Social Security
and Medicare taxes, and if a worker
gets seriously injured taxpayers pick
up the hospital bill as Medicaid,
Medicare and Social Security enter the
picture. In Ohio a 2009 report by the
Attorney General's office estimated
that the extent of annual costs from
worker misclassification may be as much
as $100 million dollars for unemployment
compensation, more than $510 million
dollars in workers' compensation premiums
and almost $180 million dollars in lost
state income tax revenues. Additionally,
the report estimated that Ohio cities and
villages lost more than $100 million
dollars in local income tax revenues in
2006, and school districts lost $7.8
million dollars in 2008.7 In short, the
crooks win. The taxpayers lose.
.
Let's consider a few real-time examples
of employer fraud:
On January 25, 2010 a judge ordered a
staffing firm in Bellflower, California
to pay 20 million dollars in restitution
after a plea bargain was reached in a
workers' compensation fraud case.8
The owners of a roofing company in Orange
County, California were arrested on 106
felony counts and charged with $38 million
dollars in workers' compensation fraud.
Investigators seized $500,000 in jewelry
from their home, as well as two Ferraris,
a Bentley and a Range Rover.9
.
The president and vice-president of a
security firm in Los Angeles were charged
with failing to pay $9.5 million dollars in
premiums. They claimed they had only 20
employees, but it was revealed they had over
1,500 workers.10 The owner of a drywall
company in Marysville, Washington entered a
guilty plea to theft of sales tax and workers'
compensation fraud in November, 2009 and
agreed to pay more than $2.1 million in
restitution.11 On July 10, 2007 the owner
of a gutter business in New York State entered
a guilty plea to workers' compensation fraud.
By falsely claiming he only had two employees,
when he actually had 15, he avoided $519,907
in workers' compensation premiums.12
.
The list goes on and on. For a top ten list of
employer fraud cases for 2009 and 2010 go to
the website listed below.13
.
There is some good news. Various government
agencies are waking up and fighting back.
New York conducted a study to determine the
seriousness of the problem and on
January 25, 2007 the Fiscal Policy Institute
Report concluded that 25-30% of all companies
in New York were not purchasing workers'
compensation insurance, and that this failure
to comply was a growing problem.
Non-compliance increased premiums and shifted
the cost of medical care of injured workers to
taxpayers and other employers. It also
concluded that between $500 million and $1
billion dollars was being lost to the system
annually.14 New York then authorized its
compliance officials to issue stop work orders
if a construction site did not have verification
of workers' compensation coverage. Within the
first fourteen months there were over 1,000
stop orders executed, resulting in fines of
$5.49 million dollars.15 In 2008 its fraud
prevention program accounted for more than
$20 million dollars in total savings.16
.
On March 12, 2008 the governor of Massachusetts
entered an Executive Order creating an
inter-agency task force to attack the
problem.17 Colorado, Delaware, Illinois,
Louisiana, Maine, Maryland, Michigan, Missouri,
Nebraska, New Hampshire, New Jersey, New York,
Ohio, Pennsylvania, Rhode Island,
South Carolina, Vermont, Virginia, and
Wisconsin have taken similar steps to crack
down on misclassification and other employer
fraud.18 Texas, California, and Florida have
been particularly aggressive in attempting to
go after employer fraud.
.
At the federal level, on February 4, 2009 the
Treasury Inspector General for Tax Administration
issued a report (based on a preliminary analysis
of fiscal year 2006) which found that
underreporting attributable to misclassified
workers is likely to be markedly higher than the
$1.6 billion dollars that was estimated in the
tax year 1984, the last time a similar study was
conducted.19 The IRS is looking at a new
definition of independent contractor,20 and on
April 22, 2010 Senator Sherrod Brown, D-Ohio and
Representative Lynn Woolsey, D-California
introduced a bill to get tough on companies that
misclassify employees as independent
contractors.21 The Secretary of Labor, Hilda
Solis, has created a broad based initiative
which will use $25 million to fight
misclassification. 22
.
The United Brotherhood of Carpenters and Joiners
of America have an excellent video called 1099
Misclassification: It's Time to Play by the Rules.
Every government official who wants a brief
summary of the problem should review this ten
minute video.23 In fact, if you've read this far,
take a few minutes to watch the video yourself,
and the next time you hear someone complain about
employee fraud in workers' compensation, ask them
to watch it too. Finally, if you happen to know
some people who work for Nestlé U.S.A., a company
that employs nearly 25,000 people, ask them to
tell the risk management department to get the
facts straight the next time they address the
issue of workers' compensation fraud.
.
1 Wisconsin Division of Workers' Compensation,
Report on Alleged Workers' Compensation Fraud
(Oct.1, 1997); Research & Oversight Council on
Workers' Compensation, Fraud in the Texas Workers'
Compensation System, TEX. MONITOR, Winter 1997,
p 2; Report: Workers' Compensation Fraud
Exaggerated, Santa Rosa, Calif., Dec. 8, 1997
(UPI).
.
2 http://www.texasmutual.com/
fraud/fightFraud.shtm#stats
(accessed April 29, 2010).
.
3 http://web.archive.org/web/20080801153218/
www.texasmutual.com/fraud/fightfraud.shtm
(accessed April 29, 2010).
.
4 http://web.archive.org/web/20080801153218/
www.texasmutual.com/fraud/fightfraud.shtm
(accessed April 29, 2010).
.
5 http://www.texasmutual.com/fraud/
fightFraud.shtm#stats
(accessed April 29, 2010).
.
6 http://www.texasmutual.com/fraud/
fightFraud.shtm#stats
(accessed April 29, 2010);
http://web.archive.org/web/20080801153218/
www.texasmutual.com/fraud/fightfraud.shtm
(accessed April 29, 2010).
.
7 Office of the Ohio Attorney General,
Ohio to Crack Down on Employee Misclassification:
"Underground Economy" costing state hundred of
millions of dollars,
http://www.ohioattorneygeneral.gov/
Briefing-Room/News-Releases/February-2009/
Ohio-to-Crack-Down-on-Employee-Misclassification
(accessed April 29, 2010).
.
8 Workforce Management, Staffing Firm Ordered
to Pay $20 Million in Fraud Case,
http://www.workforce.com/section/00/
article/26/96/84.php
(accessed April 29, 2010).
.
9 ClaimsJournal.com, Couple Arrested
with California's Largest Premium
Insurance Fraud Scam,
http://www.claimsjournal.com/news/west/
2009/05/01/100102.htm
(accessed April 29, 2010).
.
10 The Associated Press, 3 Plead Not
Guilty to Bilking $9M In Worker Fraud,
http://cbs2.com/local/worker.fraud.
Ousama.2.988253.html
(accessed April 29, 2010).
.
11 Smith, Sandy, EHS Today, Contractor
Pleads Guilty to Workers' Comp Fraud,
Other Charges,
http://ehstoday.com/health/workers-compensation/
contractor-pleads-guilty-workers-comp-fraud-
charges-6313/index.html
(accessed April 30, 2010).
.
12 New York State Workers' Compensation
Board Press Release, Suffolk County
Businessman Pleads Guilty to Insurance Fraud,
http://www.wcb.state.ny.us/content/main/
PressRe/2007/SuffolkCo_InsFraud.jsp
(accessed April 29, 2010).
.
13 http://www.jernlaw.com
.
14 "New York State Workers' Compensation:
How Big is the Shortfall?,"
Fiscal Policy Institute Report,
January 15, 2007.
.
15 ClaimsJournal.com, New York State
Insurance Fund: Anti-Fraud Efforts Saved $20.7M,
http://www.claimsjournal.com/news/east/
2009/02/18/90002.htm
(accessed Feb. 24, 2009).
.
16 ClaimsJournal.com, New York State
Insurance Fund: Anti-Fraud Efforts Saved $20.7M,
http://www.claimsjournal.com/news/east/
2009/02/18/90002.htm
(accessed Feb. 24, 2009).
.
17 Governor Deval L. Patrick, Massachusetts
Executive Order No. 499,
http://www.mass.gov/Agov3/docs/
Executive%20Orders/executive_order_499.pdf
(accessed April 30, 2010).
.
18 Michigan has a good executive summary
of the problem facing these states. See
http://www.michigan.gov/documents/
dleg/R08_07_01Rrt_to_the_Gov_240789_7.pdf
(accessed April 30, 2010)
.
19 Treasury Inspector General for
Tax Administration Office of Audit,
While Actions Have Been Taken to
Address Worker Misclassification,
an Agency- Wide Employment Tax Program
and Better Data Are Needed,
http://www.treas.gov/tigta/auditreports/
2009reports/200930035_oa_highlights.pdf
(accessed April 29, 2010).
.
20 The IRS, Publication 15-A
Employers Supplemental Tax Guide,
http://www.irs.gov/pub/irs-pdf/p15a.pdf
(accessed April 29, 2010).
.
21 Workforce Management, New Federal Bill
Targets Misclassification,
http://www.workforce.com/section/00/
article/27/14/22.php
(accessed April 29, 2010)
.
22 Department of Labor OASAM News Release
2/1/2010, Secretary Hilda L. Solis presents
US Department of Labor budget request for
fiscal year 2011,
http://www.dol.gov/opa/media/press/
oasam/OASAM20100145.htm
(accessed April 30, 2010).
.
23 http://www.youtube.com, search 1099
Misclassification:
It's Time to Play by the Rules
(accessed April 29, 2010).
.
Leonard T. Jernigan, Jr. practices in Raleigh,
North Carolina (The Jernigan Law Firm).
Mr. Jernigan is the author of North Carolina
Practice, Workers Compensation Law and Practice
4th ed. He previously served as president of
the Workers Injury Law and Advocacy Group, and
has been recognized by Best Lawyers in America
and Super Lawyers. Leonard T. Jernigan, Jr. is
an Adjunct Professor of Workers Compensation Law
at North Central University School of Law.
He is one of only 48 workers' compensation
attorneys in the United States authorized by the
National Football League Players Association
(NFLPA) to represent its members. He is also
authorized to represent players in the National
Hockey League (NHL) and the Professional Hockey
Players Association (PHPA) as well as other
professional athletes.
.
.
Complete Article With Links:
http://tinyurl.com/3qvmqu8
.
.
.............
.
.
Jon L. Gelman LLC |
Attorney at Law |
http://www.gelmans.com
1700 State Route 23 Suite 120 |
Wayne NJ 07470-7537
o. 973 696-7900 |
direct f. 973-807-1811 |
mailto:
jon@xxxxxxxxxxx
.
.
Blog-Workers Compensation :
http://workers-compensation.blogspot.com/
.
Twitter :
http://www.twitter.com/jongelman
.
Facebook Group :
http://tinyurl.com/yljckqh
.
LinkedIn-Injured Workers Law and Advocacy Group :
http://tinyurl.com/2f7lsks
.
Blog-Burn Pit Claims :
http://tinyurl.com/28apkym
.
.
Other related posts:
- » [net-gold] Employer Fraud is Alive and Well - David P. Dillard
