by Jim Marasco, CPA, CIA, CFE

Fraud Matters, Winter 2012 Estimates by various state insurance departments and task forces highlight some staggering costs as the result of workers’ compensation fraud.  As noted in the attached Case Study discussion, two types of fraud exist: claimant and employer fraud.  This article will focus on assisting employers with preventing fraud by their employees. Workers’ Compensation

Workers’ compensation is a type of insurance that provides wage replacement benefits to injured employees in the course of their employment.  Each state usually manages their own program and the rights of the employee might differ, but overall employees relinquish their right to sue for negligence for receiving this benefit program.  Benefits are usually paid in the form of lost wages, compensation for economic loss, reimbursement of medical expenses and benefits paid to dependents of workers killed on the job.  General damages for pain and suffering and punitive damages for employer negligence are normally not available.

Different Types of Employee Fraud

Generally claimant fraud occurs when an employee knowingly and intentionally misrepresents a material fact about an injury for the purposes of obtaining workers’ compensation benefits to which they are not entitled.  Some general examples of these frauds include:

• Misrepresenting the severity of a claimed injury
• Filing a claim for an injury that did not occur on the job
• Misrepresenting your work status while receiving temporary benefits

Preventing Fraud Whether your organization is self-insured for workers’ compensation or you maintain a commercial policy, it is helpful to prevent claimant fraud from occurring.  One of the first ways to prevent fraud is to screen new applicants by performing workers’ compensation background checks and criminal record checks before they are hired.  This will aid in identifying a candidate who has a long history of claims, especially ones that have been denied or investigated.  Consider sponsoring safety programs to educate workers how to remain safe at work and setup reporting hotlines for them to report any type of suspected abuse. Once an injury occurs, report them to your agent immediately and send a supervisor to accompany the employee if needing medical assistance.  Gather all the facts and document them as soon as possible before the recollections of the event change or memories erode.  Save all surveillance tapes that could be useful for substantiating an incident. Be alert for suspect injuries, especially after a weekend, when some employees may have injured themselves off the job.  Educate employees about workers’ compensation which can actually assist in deterring fraud.  They may believe that it’s the state or the insurance company paying; not their own company.  Make sure it’s understood that fraud is a crime with real penalties and that they could be held liable for misreporting. Detecting Fraud The task of detecting workers’ compensation fraud can be a joint effort.  While some companies outsource this to trained professionals who frequently use surveillance to monitor claimants’ activities, others take up the task themselves.  As an employer, be on the lookout for claims or situations in which:

• No one was around to witness the accident or it wasn’t caught on tape
• The claimants story keeps changing as it is retold or they are having trouble recalling exactly what happened
• The claim wasn’t reported timely or was reported on a Monday morning (or after a vacation), which could have a higher probability of occurring over the weekend while off-site
• The employee is experiencing financial hardship, is disgruntled in his current job or has a poor attendance record
• The employee is new to the company or is actively involved in extra-circular athletics
• Employees on leave are never home or are missing medical appointments

If you suspect an employee’s claim may be fraudulent, you should gather their current and prior medical records (after obtaining the necessary releases) and compare them against the accident report and continue to monitor them throughout the treatment.  The claim adjuster should be notified in writing as soon as possible.  If the claim is considered fraudulent, insist that your carrier not pay any of the costs and consider pursuing a criminal case against the claimant. Workers’ compensation insurance continues to outpace inflation for many industries around the country.  If this poses a large expense to your company, one way to help manage it is by thwarting fraud and educating your management team to the risks that exist. – James Marasco, CPA, CIA, CFE