Fraud in any benefits system contributes to improper cost-shifting and negatively impacts bottom lines on both local and national levels. In the world of workers’ comp, fraud comes in many forms: employer misclassification, falsified accidents, misrepresentation of causation, underreporting of payroll, facial noncompliance, etc. Although catching and prosecuting bad actors remains an uphill battle, the Office of Workers’ Compensation Administration doggedly pursues tips with Kaye Fournet (Fraud and Compliance Manager) at the helm. Louisiana Comp Blog sat down with Fournet to get details on the day to day operations of her department – and find out what we can all do to help.
Comp Blog: Can you tell us about your background with fraud investigations?
Fournet: I’ve been with the [Louisiana] Workforce Commission for 35 years. Back then it was the Department of Labor and went through other name changes. I began working with the Office of Workers’ Compensation in 1996 as a fraud investigator. I’ve been the Manager since 2004. Prior to 1996, I investigated fraud in the Unemployment Insurance division. I’ve been dealing with fraud in one way or another for a very long time!
Comp Blog: So where are your tips coming from?
Fournet: We get our cases from different sources. The workers’ comp courts will send us any judgment with a civil finding of fraud to determine if there are possible criminal violations. We get man tips from anonymous sources; neighbors, relatives, concerned persons through our internet referral form or toll-free fraud hotline. We also conduct a cross match of individuals who may be receiving workers’ comp benefits while also receiving unemployment benefits. We get anywhere from 30 to 35 new cases each week.
As far as tips dealing with employer fraud and noncompliance, the bulk of the cases come from other employers who are seeking a level playing field in which to do business. We receive complaints about employers misclassifying employees as “independent contractors” daily. This problem is not unique to Louisiana, it’s nationwide. We are aggressively seeking out these employers in a joint effort with the Office of Unemployment Insurance. We also receive information regarding employers who fail to carry the required workers’ comp insurance. Sadly, it’s sometimes after an injury has occurred. No week is typical so the number fluctuates.
Comp Blog: How does the process start once a tip comes in?
Fournet: When we receive a tip regarding an injured worker, the first thing we do is make sure there is a workers’ comp claim on file. If we don’t see it in records kept by the OWC, we perform ISO index claim searches. Once we determine there is a valid claim, we contact the insurance company involved to inquire about the status of the claim, the claimant’s medical status and anything else that will help us determine if there is sufficient information to open an investigation.
To prove fraud, we have to find that a false statement was made, it was done willfully, and it was made for the purpose of obtaining or defeating benefits. For example, it’s not considered fraud just to collect workers’ comp benefits and unemployment benefits at the same time. It is fraud to lie about it. What we look for is the source of a fraudulent statement or action. There are tools available to insurers that make our work a lot easier.
All injured workers should sign an Employee’s Certificate of Compliance or Form 1025.EE. This form explains the injured worker’s rights and responsibilities while collecting benefits and states the criminal and civil penalties involved as a result of fraudulent statements or actions. Anytime indemnity benefits are being paid, the claimant should be receiving Employee’s Monthly Reports of Earnings, Form-1020. That form ask specific questions regarding the receipt of earnings, unemployment insurance, social security or any other types of income.
Comp Blog: What records do you keep on tips in a year?
Fournet: We keep quarterly and annual figures to make sure our performance measures are met. In 2014 we received just over 1,900 requests for investigations. Our numbers have fluctuated since 2009 and appear to be lower. However, the complexity of our investigations has gone up tremendously. We probably open investigations on about 5 to 10 percent of the requests we receive and only make criminal referrals on a small percentage of the investigations.
Each year, the number of [combined, employer and claimant fraud] criminal referrals have stayed pretty constant – anywhere between 25 and 30 cases. However, each year since 2011, the dollar amount of each of those criminal cases has increased. In 2012, we made 17 criminal referrals totaling $406,000 [in alleged fraudulent gains.] In 2013, we made 24 referrals totaling $476,000. In 2014, we had 22 referrals, fewer than the previous year, but the dollar amount was $656,000. So far this year, we’ve had 10 referrals with a dollar amount of over $349,000.
Comp Blog: What do you think accounts for this dollar amount increase in the referral numbers?
Fournet: Our investigations have become more complex and now we are investigating more employers who are committing fraud. When I first began working with the OWC in 1996, when anyone talked about workers’ comp fraud people immediately assumed it was an injured worker. Now we are increasingly investigating employers who may be committing fraud by providing false information to reduce their insurance premiums, or false certificates of insurance, or false testimony to prevent an injured employee from receiving benefits.
Comp Blog: What’s driving the new increased scrutiny on employer fraud?
Fournet: I believe word is finally getting out that our office investigates these matters. We now receive referrals from the Department of Insurance and the State Police who previously received them. Since Hurricane Katrina, we started meeting with these agencies on a regular basis to determine if the referrals fall under our statute for investigatory purposes.
Unfortunately, there is still fraud that does not get reported. For example, let’s say a contractor provides someone with an altered certificate of insurance stating that they have a valid workers’ comp policy. If we aren’t notified to take either civil or criminal action, they will do it again and again until one of their employees is injured and there is no comp in place to take care of his or her medical and financial expenses.
Comp Blog: On that same issue of employer fraud, what about independent contractors? Do you see a lot of those misclassification cases?
Fournet: The workers’ comp statute defines an independent contractor and an employee. An independent contractor has a vested interest in his own business and is paid for a specific result. He is under the control of a principal, like a general contractor, as to the results of the work but not the means of how he gets it done. Even if an individual is an independent contractor, he or she may be entitled to comp benefits if they perform manual labor.
An employee is someone who performs a service or any type of manual labor for an individual to profit his business. Employees are subject to a greater degree of control concerning their work. Ultimately, whether someone is an employee or an independent contractor, they should be covered by workers’ comp. We are trying to educate all parties involved so that coverage is in place when required.
Comp Blog: What kind of tools do you have to help people with this compliance issue?
Fournet: On our agency website we have several tools. There is a simple test anyone can take to determine if they think they may be misclassified as an independent contractor or if an employer thinks he may be misclassifying his employees.
We also have an Employer Coverage Verification System that works through NCCI’s proof of coverage system, where anyone can search for an employer’s workers’ compensation coverage. This is especially helpful in determining whether insurance certificates provided by employers are authentic. We also provide a service where a user can register to be notified if any policy is cancelled before the set renewal date. We’ve made this search even easier thanks to our former Director Wes Hataway. Through his insight, NCCI has created a mobile app so these searches can be made anytime and anywhere.
Comp Blog: Have you found that people have been utilizing the Coverage Verification System?
Fournet: Yes we have. This online tool has been available since 2013 and usage has increased steadily each year. So far this year  there have been over 15,000 users performing almost 56,000 searches. There have been over 5,000 mobile searches done as well.
Comp Blog: How big of a problem is fraud overall across the state?
Fournet: It’s very difficult to get a picture of what the amount of fraud is in any state, or even nationally, because you only know what’s reported.
Comp Blog: What do you think the deterrents are for failing to act on fraud suspicions?
Fournet: Well for insurance carriers sometimes it’s just easier to pay a settlement and make it go away and not investigate it. That’s a business decision. Then some of them will come to us and voice their suspicions after the fact and want an investigation – we can’t do that.
Comp Blog: What prevents you from pursuing those settled cases?
Fournet: It’s a closed case after a settlement. The Attorney General’s office will not prosecute a case after an employee was just “rewarded” with a lump sum settlement.
In short, if you’re going to make a criminal referrals to us, you’ve got to commit to us until we get a disposition. If we go forward with it and the AG accepts it, don’t turn around and settle the case and not tell us – that’s not going to work. And really the reason for that is that we don’t want to be used as an extortion tool, where an insurer might tell a claimant, ‘We’re going to go the AG if you don’t take this lower settlement and go away.’
Basically, you’ve got to let it go through the process. But unfortunately, we can’t guarantee a criminal referral or even guarantee that the District Attorney or the AG will take the case if we do refer it. So restitution might not be there and I understand that sometimes it’s a business decision for the insurer side.
Comp Blog: What are the most common fraudulent situations that you encounter?
Fournet: The most typical calls we receive are from individuals reporting a workers’ comp claimant who they feel isn’t really hurt or are doing things they feel an injured person shouldn’t be doing. Most deal with the extent of disability and normally don’t pan out. Those issues where a claimant has gone back to work or has lied about prior medical issues are easier to pursue criminally if the insurer has done their part and used the forms I mentioned earlier to prove a willful violation.
As far as employer fraud, the most common referral we receive is someone reporting that employer’s lack of coverage or the fact that they are hiding payroll.
Comp Blog: So what are your final thoughts on fraud prevention for the comp community?
Fournet: Vigilance. For adjusters, don’t just pay a claim, manage the claim. Look at what the medical providers are saying about the claimant’s medical status and keep in touch with the claimant as well. For premium auditors and CPAs, if something doesn’t look right during an audit, question the employer and ask for backup documentation.
I’ve worked under many administrations and can truly say that the current administration stresses fair play by all parties. Fraud by any side, whether it’s the employer, the employee, an adjuster, or anyone else involved in the claim, adversely affects the people who play by the rules. When everyone plays fair, injured workers get back to work faster and the costs of doing business in Louisiana go down. It’s a win, win situation for everyone. We are not unapproachable. If anyone suspects fraud, we encourage you to call our office at 1-800-201-3362.
Image Credit: Zalma on Insurance