There is a saying among law enforcement officials that any law is only as good as those who enforce it. That saying is being more than proven by the efforts of the Division of Insurance Bureau of Workers' Compensation Fraud and the Division of Workers' Compensation Bureau of Compliance, as they have continued 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 workers who 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. "They are also starting to understand the consequences of not following those laws."
A quick look at the numbers tells the story. According to the latest annual report released by the two agencies, in fiscal year 2004-2005 the joint efforts of the BWCF and the BOC resulted in 224 arrests. The arrests represent nearly $9 million in evaded premiums or monies paid on false claims. In February alone, the BWCF made 25 arrests, nearly one per day. Additionally, 48 individuals were convicted of claimant fraud along with 136 employers who purposely evaded the law by misrepresenting their payroll, worked without coverage, or used a fraudulent certificate of insurance. The BOC also issued 2,963 stop work orders assessing fines exceeding $58 million.
Background
Workers' compensation fraud has always been a major feature of an analysis of the system. However, all too often, it was viewed as something to be tolerated or just part of the price of doing business. Nowhere was this more evident than in the construction industry, which was perennially identified as an industry rife with employers who were willingly to break the law in order to gain an economic edge over their competitors. For years, employers could willingly ignore the old law since the chances of getting caught were slim and the penalties negligible. As a result, the phony use of exemptions was rampant and many workers were paid on a cash basis.
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 they had had enough. Adopting a "law and order" approach, they took aim at the heart of the problems 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, 2004 and June 30, 2005, the BOC's investigators contacted 30,000 employers to verify their workers' comp coverage at an average caseload of 34.18 monthly, per investigator.
One 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 own at least a 10 percent stake in the company. The new regulations were designed to reduce the number of exemptions by ensuring 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 law.
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 that a large number of employers may not be in compliance with the law. Teams of compliance officers conducted the so-called sweeps, which targeted certain cities, counties, and occupations. In fiscal year 2005-2006, the bureau conducted two such campaigns aimed at drywall contractors, drywall subcontractors, and general contractors. The first of the sweeps were conducted over a three-day period in April in St. Johns, Flagler, and Volusia counties, where investigators contacted 449 employers and issued 53 stop-work orders. In Lee County, investigators contacted 708 employers and issued 34 stop-work orders.
All told, the compliance efforts in fiscal year 2005-2006 resulted in 2,693 stop work orders, which generated over $58 million in fines and penalties. Additionally, the work of the compliance officers caused 12,000 workers to be covered through the workers' comp system while yielding $30 million in additional premiums. Under Rule 69L.6.025, employers are allowed to pay their fines under a periodic payment plan. The employer can pay in monthly installments of between one and five years. In fiscal year 2005-2006, employers entered in 1,546 payment plans that resulted in $11 million collected by the state. There is also another $30 million in fines to be paid in future years.
Fraudulent Activity
Despite the best efforts of the BOC and DIF, individuals are still finding ways to circumvent the system. One such scheme has suffered in southern and central parts of the state. 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. Last year, investigators cracked down on one such operation and seized $1 million from the check-cashing store and two Boca Raton residences. Six people were arrested and now await trial.
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