The Connection Magazine AIM MUTUAL Spring 2020 | Page 25

SPOTTING FRAUD
Spotting Fraud In The
Premium Audit
FORTUNATELY, INSURANCE fraud in
workers’ compensation is the exception,
not the rule. Upticks in fraud can happen for
various reasons, often tied to the economic
climate.
When qualified workers are in high
demand, for instance, employers scramble
to hire. They may be tempted to skip the
employment screen and even pay workers
“under the table.”
In another example, during construction
booms, when there’s ample work to go
around, self-employment surges. Many
of these enterprises, however, are not
equipped to set up a payroll system and
withhold taxes, much less purchase the
appropriate workers’ compensation policy.
And if they do purchase a policy, it may be
grossly underestimated and written with
wrong classifications.
Premium auditors are trained to spot
various types of workers’ compensation
fraud during the audit process. Here are
some places we look.
Certificates Of Insurance
A Certificate of Insurance verifies
that a business is covered for workers’
compensation. Certificates are required,
for instance, when a company hires a
subcontractor. In any given week, an auditor
may view up to several hundred insurance
certificates.
Certificate fraud happens when a
policyholder tries to dodge an extra premium
charge when no valid certificate exists. The
certificate may be doctored in some way
or phony from the get-go. Red flags range
from a sloppy white-out effort to policy
numbers that don’t match those issued by
the insurance carrier. In either event, auditors
have tools at their disposal to verify coverage
and identify any fraudulent activity.
Matters Of Coverage
At A.I.M. Mutual, premium auditors
and claim adjusters are in regular
communication. On occasion, there’s a
question of whether the injured worker was,
in fact, an employee of the policyholder.
If he or she is a subcontractor or a worker
being paid “under the table,” the claim may
not be compensable.
When performing an audit, the auditor
checks the names of all employees who have
filed a workers’ comp claim in the previous
year against a complete staff list for the
policy period. If an injured worker does
not show on payroll records, the auditor
digs deeper. Even if names do match the
records, the nature of injuries may not.
The policyholder may have classified the
employee as Clerical, but the injury is clearly
from a manual labor task. Is it a simple
misunderstanding? Or a deliberate intention
to misclassify in order to pay a lower
premium?
While the insured may consider this
pushing the envelope, it’s actually more
serious.
Premium Evasion
Premium evasion occurs in several forms.
In cases of misclassification, an employer may
provide a long list of office employees and
few, if any, in higher risk occupations. An onsite
visit reveals just the opposite. On other
audits, a contractor might insist the company
engages only in lower-rated construction
codes, like carpentry. Meanwhile the auditor
has just walked past trucks emblazoned
with “Roofing” on the side and stacked with
ladders and roofing brackets. In a similar
scenario, there were no trucks, but the
auditor did note the logo on the owner’s polo
shirt: “John Doe Roofing Company.” All these
scenarios really happened.
Most auditors have a “gut feeling” whether
the records provided are legitimate. For
example, an employer might report he has
no employees and works by himself. But
the business tax return tells a different
story. Gross monthly sales as well as ATM
transactions, cash withdrawals, or transfers
between bank accounts are all indicators it
may not be a solo operation.
Finally, there’s the employer who takes
out a workers’ compensation policy with
very low estimated payroll exposures. They
pay a smaller premium and, meantime, pay
other workers via check or cash, ignoring
all requests for an audit. Cancelled for
noncompliance, they re-form the company
under a family member’s name and restart
the process. We have seen situations where
toddlers are listed as company owners.
A.I.M. Mutual’s auditors are charged with
examining all records to be sure each policy
reflects the proper exposure for jobs being
done. There is no substitute for experience
and common sense in this regard. The
overwhelming majority of our policyholders
are trustworthy and law-abiding. But when
fraud is detected, we take action, including
referring the case to the Insurance Fraud
Bureau, which investigates and brings
criminal charges as necessary.
JOSEPH DIRICO is the Workers’ Compensation Fraud
Coordinator for A.I.M. Mutual. As a field auditor, he worked
on A.I.M. Mutual accounts since the company’s inception in
1989 and later joined the premium audit staff in 1997. Since
2005, he has also served as the A.I.M. Mutual liaison to the
Insurance Fraud Bureau of Massachusetts.
25