There is a saying among law enforcement officials that a law is only as good as those who enforce it. That saying is being reinforced by the efforts of the Division of Insurance Bureau of Workers' Compensation Fraud (BWCF)and the Division of Workers' Compensation Bureau of Compliance (BOC) as they continue to take an aggressive approach to ensure that employers and workers are toeing the line when it comes to complying with the law. Whether it is making sure employers are not scheming to pay lower premiums than they should, or investigating whether workers are trying to game the system by misrepresenting their injuries, the two bureaus are working hand-in-hand to send a strong signal that fraud will not be tolerated.

“Through our efforts, more and more employers are becoming aware of the workers' compensation law and the requirements to be in compliance,” said Andrew Sabolic, chief of the Bureau of Compliance. “And they are starting to understand the consequences of not following those laws.”

The BWCF is charged with enforcing the criminal provisions of the law while the BOC oversees the administrative requirements of the law. The agencies both refer cases to the Department of Business and Regulation if an employer is found to not have the necessary professional license. Just how effective have the state's workers' compensation fraud efforts been? A quick look at the numbers tells the story.

According to the latest annual report released by the two agencies, in fiscal year 2006-2007 the joint efforts of the BWCF and the BOC resulted in 233 arrests. The arrests came as the agencies opened up 660 cases, as compared to the 486 cases opened in the previous fiscal year. The cases resulted in a fraud dollar restitution amount of $254 million. The money is substantially higher than the $8.7 million in evaded premiums and money paid on false claims recorded in 2005-2006, and is largely the result of one case against a major employer, which involved the efforts of the two state agencies and the FBI.

Looking at convictions, 58 individuals were convicted on charges of claimant fraud and 65 employers for working without workers' compensation insurance. Another 13 employers were convicted on charges of purposely evading paying their fair share of premiums, and 29 employers were found to be using a false certificate of insurance to mislead their clients and state inspectors. Continuing their aggressive efforts to police the construction industry, the BOC also issued 2,517 stop-work orders, assessing fines exceeding $75 million, as compared to the $58 million levied in the previous fiscal year.

Background

As with any line of insurance, fraud in the workers' compensation arena has always been pointed to as one reason for higher costs. Although the impact of fraud on the system is difficult to measure, one concern is that it creates a climate where evading the law becomes a pervasive business practice among employers. For years, fraud was viewed as something to be tolerated or just the price of doing business. This was especially true before the Department of Financial Services acquired the responsibility of overseeing the state's compliance efforts.

Under the former regulatory structure, the division proved unwilling to impose significant fines or enforce many provisions in the law. As a result, some economic sectors became rife with fraud, with no greater example than the construction industry.

There is a reason the state agencies target the industry as its top priority. Prior to a number of regulatory and law changes, contractors were willing to break the law because the chances of getting caught were slim and the penalties negligible. As a result, phony uses of exemptions were rampant and many workers were paid in cash, leaving them without proper coverage.

Fighting this tide of illegal business practices, the BOC was hampered by a lack of regulatory authority and few cases were referred to the BWCF. Fines were insignificant, and the emphasis was placed on claimant fraud instead of premium fraud, which constituted the greater economic problem. In 2003, however, lawmakers, carriers, and even parts of the construction industry decided that they had had enough. Adopting a “law and order” approach, they took aim at the heart of the problem with the goal of seriously combating fraud.

The legislature and regulators took two primary approaches to compliance. First, they increased the division's enforcement ability by substantially increasing the oversight of employers by hiring additional compliance officers. Lawmakers also granted officers wide-ranging powers to investigate employers' records and coordinate the division and bureau activities. By hiring an additional 35 compliance officers, lawmakers beefed up the bureau to include 71 investigators, seven district supervisors, and two investigative managers located in 18 cities around the state. Between July 1, 2006, and June 30, 2007, the BOC's investigators closed a total 24,800 cases with an average caseload per inspector of almost 30 per month.

Construction Industry Remains Job One

The second major change in the 2003 law was the enactment of a provision limiting exemptions to three officers of a corporation or a limited liability company that owns at least a 10 percent stake in the company. The new regulations were designed to reduce the number of exemptions by ensuring that they were only issued to eligible employers. At the time, the conventional wisdom was that it would reduce the number of exemptions. However, the level of exemptions has remained fairly level between the pre-2003 and post-2003 period. The BOC reported that it issued 98,000 construction exemptions and 23,700 non-construction exemptions in 2006-2007.

In order to monitor the business practices of contractors, investigators used a variety of tactics designed to catch employers unaware. The Bureau continues to focus its efforts in those areas around the state where there are indications a large number of employers may not be in compliance with the law. In 2005-2006, compliance officers conducted two so-called “sweeps,” which target certain cities, counties, and occupations. In Jan. 2007, the Bureau conducted a statewide sweep that resulted in 61 arrests, including 30 for a number of charges such as forging documents or failing to secure coverage.

Investigators also are uncovering more sophisticated operations designed to get around the workers' comp coverage law. For example, individuals are forming bogus companies and obtaining small workers' compensation policies in order to obtain a certificate of insurance. The company then sells the certificate of insurance to uninsured subcontractors, who present the proof of insurance to the general contractor. The general contractor then pays the subcontractor with a check made out to the bogus company. The bogus company owner then takes the check to a check cashing store that typically charges three percent for the service. The bogus owner then pays the subcontractor in cash after charging two to three percent of each check.

All told, the compliance efforts in fiscal year 2006-2007 resulted in 2,517 stop work orders, which generated over $75 million in fines and penalties. Additionally, the work of the compliance officers added 6,700 workers to the workers' comp rolls and generated $12.3 million in additional premiums. These numbers are important because they show progress in a number of areas. Compared to the last fiscal year, the number of stop-work orders declined slightly while the penalties increased from $58 million to $75 million. At the same time, the number of new workers added to the rolls decreased from 12,000 to 6,000. This suggests that employers are getting the message about covering workers after facing the prospects of significant fines.

Under a DWC rule, employers can enter into an agreement with the division to pay their fines on a period basis. This allows employers to pay penalties in installments of 12, 24, 36, 48, or 60 months. Recently, the Bureau has established an online penalty- payment service to provide employers with an efficient means to pay fines. The service is free and can be accessed at www.myfloridacfo.com/WC.

The Bureau also has two online track systems so employers and contractors can check the status of companies. The compliance stop-work order database lists each employer's name, the date the stop-work order was issued, the date it was lifted, and the type of compliance violation. The construction policy tracking database provides information to contractors and other parties concerning the workers' compensation coverage status of sub-contractors. The system allows employers, carriers, and state and municipal officials to submit a list of sub-contractors, and the parties are automatically contacted if there is any change in the sub-contractor's status. As of June 30, 2007, a total of 5,600 database registrants are tracking nearly 26,000 sub-contractors.

Looking forward, the BOC has obtained a listing of all corporations that have been dissolved by the state's Division of Corporations. The division has compared the list with its exemption database and found more than 34,000 exemption holders who no longer qualify. The Bureau is currently notifying the employers and providing them with an opportunity to reactivate their corporation and remain eligible for the exemption. If a corporation is not reactivated in 21 days, the Bureau will revoke the employer's exemption.

Other News

The Agency for Workforce Innovations has calculated that the statewide maximum weekly workers' compensation rate for work-related injuries and illnesses will equal $746, which is just slightly higher than the $724 from last year. Under Chapter 440.12(2), Florida Statutes, the maximum weekly compensation rate for work-related injuries shall be equal to 100 percent of the statewide average weekly wage, rounded off to the nearest dollar. While the compensation rate increased slightly, there is no change to the medical mileage rate that is set at 44.5 cents per mile. In 2007, lawmakers made the first adjustment in the state's rate for mileage reimbursement in a decade by moving it up from 29 cents per mile to its current level. Though not binding on employers/carriers by law, the state's rate has long been an industry standard for paying medical-mileage benefits.

The DWC also announced the assessment rates for the Special Disability Trust Fund and the Workers' Compensation Administration Trust Fund. Since 1994, the SDTF assessment has sent at 4.52 percent on carriers' net written workers' compensation premiums. The assessment rate covers the fund's obligations for fiscal year 2007-2008. Since the fund was closed to new claims as of 1997, its liabilities have steadily gone downward. The last actuarial report found the fund's liability to have fallen around $1.7 billion on an undiscounted basis. In 2007, carriers were assessed a total of $246 million, with $244 million being returned to carriers to pay off claims.

The DWC also announced that the assessment rate for the WCATF would be set at .25 percent for 2008. The assessment covers the administrative cost of the DWC and also supports the Office of Judges of Compensation Claims. The money also covers certain programs in the Agency for Health Care Administration, the Department of Education, the Division of Insurance Fraud Workers' Compensation Bureau, and the Department of Business and Professional Regulations. In 2003, carriers paid out $160 million in assessments, an amount that was cut in half last year to $83.5 million.

Special Reports /

The Fight Against Workers' Comp Fraud

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