I was once told by a Florida fraud investigator that the incidence of fraud in workers' compensation was about a 50/50 scenario between employers and employees. He followed that statement up however, by saying "but by far the really, really big dollar fraud is on the employer side". A case that broke a few weeks ago certainly demonstrates what he was talking about.
Authorities in Florida arrested an illegal Honduran immigrant (yes, there is still such a thing as an illegal immigrant. They would best be defined as an immigrant here illegally) for spearheading a scheme that defrauded an insurance company out of more than one million dollars. The entire scheme simply worked this way: The man had another fellow set up a shell company that purchased workers' compensation insurance, telling the carrier it had 10 carpentry and office employees with an annual payroll of about $210,000. That company then "leased" Certificates of Insurance to construction subcontractors, allowing them to "verify" insurance for a worksite. When the job was complete, checks would be made out to the shell company, and would be cashed at a check cashing store.
The program unraveled when the insurance company began auditing the policy and the company would not cooperate. Authorities reviewed confidential law enforcement financial reports and "discovered that in just the months from July to October, more than $7.3 million had been cashed out at check cashing stores" under the auspices of the shell company.
Our miscreant immigrant took 5% from every check for arranging the services. At this point he is the only person charged in this fraudulent scheme.
Of course, my question is, why?
This effort involved far more than one person cashing checks. Authorities say it is unclear whether the man who set up the company and allegedly mislead the insurance carrier will face any charges. He has not even been named. The company, identified as Behar Services Incorporated, was registered with the State of Florida on 6/16/2014, and the only person listed as affiliated with the company is Jose Budasoff of North Lauderdale, FL.
Seems authorities should have a short sit down with him. Someone has some splainin' to do.
And what of the many "subcontractors" who used these fake COI's? And the employees who created them? They were as culpable in committing fraud and exposing workers as anyone else involved. Will they be held accountable for their part in a larger crime?
The reason employer fraud can be so much more expensive than on the employee side is that it is often organized and systemic. More than one person is involved, and many willing participants often engage in the crime. The tentacles of this type of fraudulent behavior reach wide and far, and it would seem the long arm of the law should be stretching a bit farther. Too often co-conspirators are let off the hook, when a more aggressive "scorched earth" prosecutorial policy would have tremendous long term positive benefits.
This is particularly true in the maintenance and construction trades, where people like the subcontractors in this story probably don't even think they are committing a crime. The deluded thinking in those cases probably centers on just trying to bypass the "ripoff" insurance company. I am continually amazed at the ignorance displayed at some levels with these small employers.
Recently our homeowners association contracted with a small tree service to remove a number of trees near our community entrance. When our management company asked for verification of insurance, the owner provided a Certificate of Exemption, implying he was not required to maintain the insurance. Unfortunately for this fellow I am on the HOA Board, and was able to point out to my fellow members that the document he provided was only an exemption for a Corporate Officer, indicating that as President of his company he was exempt from coverage. In response to follow up requests, he revealed he only had two employees, and did not have workers' comp insurance; but did have a $1,000,000 general liability policy. He also told us he makes his employees sign "Waivers of Liability", absolving his company and their customers of any obligation should they be hurt.
While technically he was not violating Florida law for companies with fewer than 4 employees, I nevertheless considered it a "teachable moment" for this imaginative entrepreneur. While he unfortunately lost our contract, he did get the opportunity to learn that his waivers were worthless. He was also enlightened with the knowledge that he was a "total scumbag" for having no interest in protecting the health and welfare of people who work on his behalf.
I love it when I can help people learn useful things.
While this was not an example of criminal behavior, it was an excellent example of the ignorance that drives small and independent employers to schemes such as that found in North Lauderdale. While education will take us only so far, prosecution will get us much further down the path to compliance. People need to know that faking insurance is a violation of the law, and a theft that the rest of us pay for. Authorities should track down all tentacles of employer fraud and hold every player accountable.
Slamming a single illegal Honduran just won't do the trick.
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Robert Wilson is President & CEO of WorkersCompensation.com, and "From Bob's Cluttered Desk" comes his (often incoherent) thoughts, ramblings, observations and rants - often on workers' comp or employment issues, but occasionally not.
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