California State Fund’s Fraud Program Nets $5 Million Via Premium Fraud Convictions for Workers’ Comp System

California’s State Compensation Insurance Fund’s anti-fraud program has reportedly enabled statewide district attorneys to win more than $5 million in restitution orders.

The restitution judgments are a direct result of 155 premium fraud convictions during the last six years. In San Diego County alone, restitution decisions this year totaled more
than $2 million.

For example, the owners of the Branco Construction Company were ordered by San Diego County Superior Court to pay $834,000 in restitution following their conviction on felony workers’ compensation and unemployment insurance fraud.

In a similar case, owners of C & H framing were ordered to pay State Fund $800,000. C & H pleaded guilty to workers’ comp fraud, state income and payroll tax evasion, and conspiracy to file false tax
returns.

On May 25, 2004 the owners of JDM Enterprises – a construction
company operating in Carlsbad, Calif., – were ordered by a San Diego
Superior Court judge to pay $394,940 to State Fund following JDM’s conviction on premium fraud.

In most cases, premium fraud involves an employer misrepresenting business operations to obtain workers’ comp insurance at a lower rate. Common examples include an employer under-reporting the number of staff on the payroll or misclassifying payroll and hourly wages.

Donna Gallagher who manages State Fund’s Fraud Investigation Program (FIP) said, “Fraud is a huge problem and is a contributing factor in driving rates up for California employers.” Gallagher added, “If all employers reported and classified payrolls accurately, we would undoubtedly see a drop in the overall rates.”

In recent California Department of Insurance (CDI) annual reports
submitted to the legislature, CDI cited 23 fraud cases of which 17 were the result of State Fund referrals or involved State Fund.