According to the National Insurance Crime Bureau (NICB), workers compensation fraud costs American employers, workers, consumers, and shareholders about $7.2 billion per year. There are many types of workers compensation fraud, and fraud can be perpetrated by just about anyone in the system.
One type of workers compensation fraud is employee fraud, which involves workers who “work the system” to receive benefits under false pretenses. As a business owner, there are steps you can take to help prevent workers compensation fraud when it comes to your own employees. Experts call attention to four main categories of employee fraud:
- False claims. Either the injury didn’t occur, or it was staged in order to allow the worker to collect benefits.
- Exaggerated claims. An injury did occur, but the worker overstates its severity in order to get more benefits.
- Off-the-job injuries. The worker is injured away from the job site, but falsely claims that he or she was injured at work in order to collect benefits.
- Collecting benefits while working. The employee “double dips” by working a different job (often off the books) while collecting benefits after an injury. According to some sources, this is the most common type of employee fraud. (http://www.ic.nc.gov/ncic/pages/dbfraud.htm)
Sometimes, an employee committing workers compensation fraud will enlist co-workers as accomplices to his or her crime. Encouraging and covering up for fraudulent activities is also fraud.
Red Flags for Fraud
Workers compensation fraud can be difficult to detect, but there are some warning signs that should elevate your suspicions. Be careful, though. Most claims are legitimate, and making a false accusation can lead to claims of harassment and defamation.
That said, there are plenty of recognized “red flags” that might suggest a claim deserves a little extra scrutiny:
- The injured employee has a history of frequently changing jobs, medical providers, or addresses.
- The employee has a history of multiple workers compensation claims.
- The injured employee is difficult to reach at home.
- The employee’s description of the accident is vague, contradictory, or doesn’t support the cause of injury.
- The reported injury occurred immediately before or after employment changes, such as termination of employment, layoff, the end of a big project or seasonal work, or a labor force strike.
- The injury isn’t reported immediately, and the employee has no reasonable explanation for the delay.
- The injury is reported as occurring late Friday or early Monday morning. (This sometimes indicates that the injury may have actually come from a non-work-related activity.)
- There are no witnesses to the accident.
- The injured employee refuses a diagnostic procedure to confirm the nature or extent of the injury.
- The injured employee refuses the opportunity to return to work on modified duty and/or delays returning to work.
- The injured employee is found participating in work or recreational activities that are not consistent with the reported injury and claimed physical limitations.
Most employees are honest. It’s just a small percentage who commit fraud and increase costs for everyone. But the existence of one or more of the circumstances above can help alert managers to the possibility that something might not be exactly right.
Never directly accuse an employee of committing fraud. If you suspect fraud, simply contact your insurance carrier, claims adjustor, or state fraud unit immediately.
Preventing Employee Fraud
Most companies see workers compensation insurance as a fixed cost of doing business. But workers compensation fraud can actually raise the cost of running your business. The best way to prevent your employees from cheating the system—and increasing your premiums—is through prevention.
Consider taking the following steps to help prevent workers compensation fraud before it happens:
- Carefully screen job applicants. Good predictors of fraud often include criminal backgrounds and a history of suspicious injury claims.
- Listen to your employees. The Coalition Against Insurance Fraud indicates “the strongest predictor of fraud is a chronically disgruntled workforce.” Are there frequent complaints and concerns about working conditions? If so, take action to correct the situation and show you care about safe working conditions. VIEW PDF
- Stay in close contact with injured employees. Frequent communication will help an injured employee feel valued and know that someone cares. This can also help encourage an early return to work because the employee knows his or her progress is being monitored.
- Implement modified duty. Bringing your employee back to work as soon as possible, even with modified job duties, can help reduce medical costs and increase communication.
- Establish and follow consistent procedures. Use the same process for reporting and investigating all accidents. Document all reported injuries. Interview the injured employee for details of the accident. Also interview witnesses and get written statements. Pay attention to what other employees are saying to each other about the accident.
- Communicate your policies. Educate new employees during hiring orientation, and then remind all workers of your policies and procedures on an annual basis. Help employees understand that it is their right to seek workers compensation for legitimate work-related injuries, but make sure they understand fraud is illegal and will not be tolerated.
- Educate your employees. Studies have found that employees who have been educated on the purpose and program benefits of the workers compensation system are less likely to commit fraud. Help your employees understand what fraud is and the consequences. Reinforce that everyone loses when fraud occurs—if your premiums are excessively high, this takes away your ability to reward employees with raises, bonuses, and other incentives.
- Make it easy to notify management. Establish a fraud-reporting process to allow employees and supervisors to report suspected fraud. In no case should anyone in the company make any accusations, but do take every suspicion seriously. All cases of suspected fraud should be reported to your insurance company or the insurer’s special investigative unit immediately.
With early intervention and the establishment of firm policies and procedures, you can make an impact on the occurrence of fraud in the workplace. To learn more about identifying and preventing workers compensation fraud, please contact your Leavitt Group insurance consultant.