Tuesday, March 10, 2009

Workers' Compensation Fraud

In every recession, workers' comp agencies increase diligence on compliance issues.

  • Firms are required to register for and obtain workers' compensation, declare the type of work they do, report accurately their payroll, and submit premiums accordingly.
  • Workers are expected to participate in their own recovery, be honest about the extent of their injuries and disability, declare earnings from employment and return to suitable and available work when it is safe to do so either as part of their rehabilitation or recovery.

Most workers and employers play by the rules but some don't. The evidence of alleged worker violations of these rules are sometimes much heralded in videocasts; employer non-compliance and outright fraud doesn't lend itself to video journalism but it is often larger than the collective value of alleged worker fraud and abuse. Provider fraud, supplier fraud and even internal fraud within insurers are not unheard of. What's important is to acknowledge the potential for such frauds and put in place the controls necessary to mitigate against that potential. The process must be dynamic. New fraud's are perpetrated and new means of detection and control are always required.

How much fraud is out there? In the words of one Australian parliamentary 2003 report:

The Committee could not quantify the significance or otherwise of fraud within any sector without sound data, which is presently not available. While fraud may not be common, when it does happen in workers’ compensation schemes it does have costs and it is very expensive. [Australian] House of Representatives Standing Committee on Employment and Workplace Relations, "Back on the Job: Report into aspects of Australian workers’ compensation schemes", 2003 page xx

In the big scheme of things, the actual amount of fraud is probably a very low percentage of premium or benefit costs. One workers' compensation chair is quoted as calling fraud 'insignificant' [Peter Criscione, "Instances of workplace fraud in Ontario insignificant: WSIB chair", Brampton Guardian, Thursday March 5 2009] . Having said that, any amount of fraud means that those playing by the rules are disadvantaged by those intentionally breaking them. That disadvantage means closer scruitiny, audits, delays while facts are checked, and even surveillence and investigation.

For there to be fraud, there must be intent. Intentionally under-reporting payroll, suppressing claims or misrepresenting classification for the purpose of paying the appropriate premium are obvious and well documented fraud cases from the employer side. Worker fraud cases usually involve collecting full workers' compensation benefits for temporary total disability while still working. Supplier and provider fraud cases can involve billing for services not rendered.

Workers' compensation fraud is not a victimless crime. The victims of such frauds are not really the workers' compensation insurers. Instead, the victims are those who play by the rules--the workers, employers and providers/suppliers of services. Workers receive more scrutiny of their claims, employers are subject to more audits and must bear the costs not being covered by those fraudulently under-reporting payroll. Everyone pays for the oversight and increased administration and controls. Programs like WorkSafeBC's Report Fraud line and Washington State's Labor and Industries fraud initiative are just two programs that seek to level the playing field and protect the system for those who need it and play by the rules

Workers' Compensation fraud is a sad but real aspect of every workers' compensation system. Compared to the billions collected and paid, the amount lost to fraud may be low but in tight economic times, even small amounts have significant costs --not just to the bottom line.

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