Workers' Compensation is a no-fault system that benefits bothemployees and employers; however, when fraud is involved, faultthen attaches.

If an employee-claimant willfully makes a false statement orconceals information in order to receive Workers' Comp benefits,fraud has occurred. Similarly, if an employer or provider willfullyprevents an employee from receiving benefits to which he or she maybe entitled, that's also fraud—although this type of offense ismore rare.

There's also premium fraud, a complex issue that spans allindustries supported by insurance providers. This type of fraudexists when an employer knowingly misrepresents informationpertaining to its business (for example, under-reporting thepayroll information) to obtain insurance for a lowercost. 

Claimant fraud—which occurs when employees knowingly lie tocollect benefits—is the type of fraud that employers are in thebest position to uncover. This includes claiming an injury waswork-related when it wasn't, exaggerating an injury or secretlycontinuing to work while collecting benefits.

In August 2011, the National Insurance Crime Bureau (NICB)reported that the number of questionable claims (those that haveone or more indicators of possible fraud) in the first half of 2011rose 4.5 percent compared to 2010. Between 2009 and 2011, totalquestionable claims increased 18.3 percent. In Workers'Compensation, inflated medical billing and duplicate billingaccounted for a combined 445 percent increase in questionable-claimreferrals between the first half of 2010 and 2011.

Although addressing Workers' Compensation fraud is a globalissue, employee fraud is one that employers can proactively work toprevent. And, since it is easier to prevent WC fraud than it is toprove it, the following are a few tips to address claimant fraud inthe workplace.

1. Establish a Sound Hiring Policy

Creating a sound hiring policy is the bestplace to begin a policy of fraud prevention. Hire wisely, conductbackground checks on all applicants and monitor new workers until alevel of confidence is reached that they have the skills,character, and work ethic that fit the organization.

Some states have created legislation to support hiring practicesthat protect the employer as well as the employee. For example, the2011 Workers' Comp Reform Act in North Carolina introduced aprovision that no compensation is allowed under the Act if theemployer can prove the employee made a false representation of aphysical condition.

2. Keep safety top-of-mind

Maintaining a safe workplace reduces the chance of accidents andlimits the opportunity for someone to fake an injury. Also, developa transitional duty or return-to-work policy and let job candidatesknow that if they are injured on the job, the company will workwith them and their doctor to help them return to work as soon asis medically reasonable.

3. Education on WC policies

Organizational awareness is key. Training andeducation initiatives designed to explain the impact WC fraud hason everyone, not just the employer or provider, encouragesawareness of the consequences. Employers should adopt azero-tolerance policy and make it clear that fraud can lead totermination and possible prosecution. Employees should be aware ofhow to report fraud and know that the organization's WC serviceprovider will aggressively investigate suspected fraud.

4. Keep in touch with the injured

Stay in regular contact with employees who areoff work due to an injury. Doing so lets them know that theorganization cares about their well-being and wants them back atwork as soon as possible. It's also important to document eachcontact or attempted contact. Failed attempts to contact an injuredworker are considered “red flags” and may indicate that furtherinvestigation is needed. Any type of suspected Workers' Comp fraudshould be reported immediately to the appropriate resource.

Joseph J. Abriola, AIC, is the senior vice president of claimsand managed care for Key Risk, a member company of W. R. BerkleyCorp. With more than 25 years in the insurance industry, Abriolahas held various management positions focused on Workers'Compensation-claim and managed-care operations. Contact him [email protected].