WORKERS' COMPENSATION INSURANCE FRAUD PROGRAM
In California, workers' compensation insurance is a no-fault system. Injured employees need not prove an injury was someone else's fault in order to receive workers' compensation benefits for an on-the-job injury. In addition to medical expenses being covered for injured employees, some injured workers are entitled to a portion of their wages lost due to not being able to work. These benefits make fraudulent workers' compensation claims an enticing target for criminals.
Workers' compensation insurance fraud occurs in simple to complex schemes that often require difficult and lengthy investigations. For example, an employee either inflates the extent of his/her injuries, or simply fabricates injuries altogether. At the other end of the spectrum, white-collar criminals, including doctors and lawyers, entice, pay, and conspire with other individuals in cheating the system through fraudulent activity and insurance companies "pick up the tab," passing the cost onto policyholders, taxpayers and the general public.
The Workers' Compensation Fraud Program was established in 1991 through the passage of Senate Bill 1218 (Chapter 116). The law made workers' compensation fraud a felony, required insurers to report suspected fraud, and established a mechanism for funding enforcement and prosecution activities. Senate Bill 1218 also established the Fraud Assessment Commission to determine the level of assessments to fund investigation and prosecution of workers' compensation insurance fraud. The funding comes from California employers who are legally required to be insured or self-insured. The total aggregate assessment for Fiscal Year 2011-12 is $53,445,000.
During Fiscal Year 2011-12, the Fraud Division identified and reported 5,207 SFCs, assigned 556 new cases, made 132 arrests and referred 168 submissions to prosecuting authorities. Potential loss amounted to $361,962,663.
Underground Economy Task Force
Underground economy is a term that refers to those individuals and businesses that deal with cash and/or use other schemes to conceal their activities and their true tax liability from government licensing, regulatory, and taxing agencies. Underground economy is also referred to as tax evasion, tax fraud, cash pay, tax gap, payments under-the-table, and off the books.
When businesses operate in the underground economy, they illegally reduce the amount of money expensed for insurance, payroll taxes, licenses, employee benefits, safety equipment, and safety conditions. These types of employers then gain an unfair competitive advantage over businesses that comply with the various business laws. This causes unfair competition in the marketplace and forces law-abiding businesses to pay higher taxes and expenses.
On October 26, 1993, the Governor signed Executive Order W-66-93, which created the Joint Enforcement Strike Force (JESF) on the Underground Economy. The Governor subsequently signed Senate Bill 1490, which placed the provisions of the Executive Order into law as Section 329 of the California Unemployment Insurance Code, effective January 1, 1995.
The JESF is responsible for enhancing the development and sharing of information necessary to combat the underground economy, to improve the coordination of enforcement activities, and to develop methods to pool, focus, and target enforcement resources. The JESF is empowered and authorized to form joint enforcement teams when appropriate to utilize the collective investigative and enforcement capabilities of the JESF members.
In addition to the Employment Development Department, the other Strike Force members include Department of Consumer Affairs, Department of Industrial Relations, Department of Insurance, Franchise Tax Board, Board of Equalization, and Department of Justice.
The JESF obtains information through a number of sources, which indicate that a business may be operating illegally. These sources include hot line referrals, complaints from legitimate businesses, and information sharing through collaborating agencies' databases. The JESF conducts joint on-site business investigations to identify employers operating in the underground economy. The goal is to identify and bring into compliance those individual and businesses participating in the underground economy that are in violation of payroll tax, labor, licensing laws and workers' compensation insurance premium.
District Attorneys' Workers' Compensation Program
In Fiscal Year 2011-12, the district attorneys reported a total of 819 arrests, which also included the majority of Fraud Division arrests. During the same timeframe, district attorneys prosecuted 1,332 cases with 1,565 suspects, resulting in 708 convictions. Restitution of $53,006,082 was ordered in connection with these convictions and $5,943,570 was collected during Fiscal Year 2011-12. The total chargeable fraud was $341,084,553, representing only a small portion of actual fraud since many fraudulent activities had not been identified or investigated.
Program for Investigation and Prosecution of Workers' Compensation Insurance Fraud Regulations
Effective January 1, 2005, Assembly Bill 2866 (Frommer) enacted Insurance Code Section 1871.9 requiring the posting of all workers' compensation fraud convictions to the CDI website.
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2009 Workers' Compensation Convictions
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Per Section 1871.9, "the department shall post all of the following information on its Internet Web site for each person, as defined in Section 19, convicted of a violation of this article (1871.4), Section 11760 or 11880, Section 3700.5 of the Labor Code or Section 487 or 550 of the Penal Code, if the violation involved workers' compensation insurance, services or benefits:
(a) The name, case number, county or court and other identifying information with respect to the case. (b) The full name of the defendant. (c) The city and county of the defendant's last known residence or business address. (d) The date of conviction. (e) A description of the offense. (f) The amount of money alleged to have been defrauded. (g) A description of the punishment imposed, including the length of any sentence of imprisonment and the amount of any fine imposed.
The information required to be posted under this section shall be maintained on the department Web site for a period of five years from the date of conviction or until the department is notified in writing by the person that the conviction has been reversed or expunged."
Note: If new documentation has been received that in any way affects the conviction information contained herein, please forward that documentation with an explanation to the Bureau Chief, Workers' Compensation Program, 9342 Tech Center Drive, Suite 100, Sacramento, CA 95826. A determination to make any changes will be made within sixty (60) days of receipt of the information.