Workers' Compensation

Navigating Workers' Compensation Fraud Prevention in Temp Staffing Agencies

By June 17, 2024 No Comments

According to one recent study conducted by the Coalition Against Insurance Fraud, workers' compensation insurance isn't just prevalent in the United States - it's positively thriving.

For years, people operated under the assumption that there was about $7 billion worth of workers' compensation insurance fraud taking place every single year.

A task force was established to research and update that number.

In doing so, it found out that employees alone make about $9 billion worth of fraudulent claims annually.

When you look at the lengths that employers are willing to go to in order to avoid paying appropriate workers' compensation insurance premiums, that number increases by an enormous $25 billion. 

Regardless of whether you're an employer or an employee, workers' compensation insurance fraud can have devastating long-term consequences.

It can needlessly increase the amount that organizations pay every month for premiums, which can be difficult for small businesses in particular to contend with.

It can prevent sick or injured employees from getting the insurance money they need to get back on their feet and return to work again.

Especially within the context of temp staffing agencies, navigating workers' compensation fraud with an eye towards prevention is something that you always need to remain proactive about whenever possible.

Understanding Workers' Compensation Fraud

At its core, the concept behind workers' compensation fraud is straightforward.

You're talking about any situation where someone knowingly and willingly makes a false statement, or otherwise hides information, in an express attempt to receive workers' compensation benefits they are not entitled to.

Note that if someone lies or hides information in a way that prevents someone else from getting the benefits they deserve, this too would rise to the threshold of workers' compensation fraud.

An example of the first type of situation would be one where an employee claims to have suffered a far more severe injury while on-the-job than they really did.

Perhaps some type of event did take place - but rather than taking a few days off, they insist that they will be out of work for months and will have countless physical therapy sessions to contend with.

This would only serve to increase the amount of money they receive from workers' compensation over time.

An example of the second scenario would be one where an employer knowingly hides important documents that can link a worker's injury to some type of job-specific incident.

Maybe that employee was knowingly exposed to a dangerous environment and there is documented evidence to prove it.

However, upon hiding those documents, the insurance investigation proves to be inconclusive, and the employee is denied benefits as a result.

These are both simplified examples, yes - but they also help to illustrate the two-way street of potential workers' compensation fraud.

Other examples of claimant fraud include but are not limited to ones like:

  • Making a claim for a job-related injury that never happened to begin with.
  • Working while claiming to be disabled and failing to report that income.
  • Trying to turn an injury sustained elsewhere into a work-related injury.

Other examples of employer-related fraud can involve situations like:

  • Intentionally underreporting payroll in an attempt to lower insurance premiums.
  • Misclassifying employees (like by classifying employees as independent contractors) to lower insurance premiums.
  • Deducting workers' compensation premiums from an employee's wages, effectively making them pay for coverage that they are legally entitled to.
  • Knowing that you don't have the proper workers' compensation coverage and failing to do anything about that.

The ultimate consequences for workers' compensation fraud will vary depending on the state the fraud takes place in, along with the severity of the situation.

Typically, people who are found to have committed fraud will need to pay back all misappropriated funds at a bare minimum.

For employers, this can and will usually lead to policy cancelation as well.

Considering that most states legally require you to provide workers' compensation insurance to be able to operate, this could have severe long-term consequences on your ability to run a business.

In particularly extreme cases, you will likely have to deal with fines and possibly even jail time.

In California, for example, this type of fraud is considered a felony and can be punished by up to five years in prison and a fine of $50,000 or twice the amount of the fraud that was uncovered. 

Under normal circumstances, workers' compensation fraud is already a tricky topic.

It becomes exponentially so when you're dealing with a temp staffing agency.

Remember that when a business partners with a temp staffing agency to hire workers, it is the temp agency that traditionally covers those people under its workers' compensation insurance policy.

One potential implication of fraud in this context has to do with the almost immediate financial damage it will cause to your temp staffing agency.

If an employee gets sent to a job site and files a fraudulent claim, you're the one who is going to end up paying back those misappropriated funds - not your client.

You're the one who will need to deal with fines - not your client.

Think about how many people your temp staffing agency sends out on a regular basis to how many different partner organizations, and you can begin to get a sense of just how vast your risk surface truly is.

Then, there is the major reputational damage that you must consider.

If many of the workers you're sending out to client organizations successfully commit workers' compensation fraud (or at least attempt to do so), that is going to sour people on the very idea of working with you.

Clients aren't going to want to enlist your services to fill their staffing needs because of the major additional hassle they might have to deal with.

The reverse is also true.

If word gets around that yours is a temp staffing agency who sends people out to clients who willfully hide documentation about injuries in an attempt to impede insurance investigations, top quality people aren't going to come to you for job help.

This is going to decrease the quality of the talent you're able to send out to your partner organizations, harming your ability to remain successful in the long run.

Spotting Red Flags: Identifying Potential Fraudulent Claims

One of the most important things to understand about this entire topic is that not all fraudulent claims are created equally.

You'd be surprised by how sophisticated people with malicious intentions can be and there truly is no "one size fits all" approach to determining whether a claim is legitimate or not.

You must carefully examine the specifics, and all supporting documentation, to walk away with the clearest picture possible regarding what happened and what to do next.

Having said that, there are certain red flags that can indicate someone has filed a potential fraudulent claim that should at the very least lead to further investigation.

As a temp staffing agency, you always need to make sure that the number of days worked and the amount of money paid on the claim reflect the actual position someone was filling.

Remember that your client isn't the one responsible for the claim - you are.

A temp employee may know this and hope that because there are two different administrators looking at various aspects of this process, this is the type of "mistake" they can get away with.

They might say they made more money in the position than they really did in an attempt to get a bigger payout.

Or they may say they worked more days in a week than was required of them, hoping nobody would notice.

Both would constitute fraud, which is why these basic factors are among the first you should check for.

Any workers' compensation insurance claim will trigger an investigation from the insurance carrier, which in turn will require documentation being provided by both the worker and your client.

If you see that any information has been blatantly crossed out on those documents, or that white-out has been used, this is another situation where you need to ask yourself why that may be the case.

It could be a sign that information was changed after the fact in an attempt to facilitate a fraudulent claim.

Other red flags include but are not limited to ones like:

  • The worker files for workers' compensation insurance in a state other than the one where they were working, or where the client organization is located.
  • There was some type of odd, unnecessary, or otherwise unexplained delay between when the injury took place and when the claim was eventually filed.
  • The occupation that a worker has listed on their claim form is different from the position they were placed in with your client.
  • A different address for the client organization is listed on the claim form.
  • A sick or injured employee quickly moves away after filing the claim - either out of the state or potentially out of the country.

Implementing Effective Fraud Prevention Strategies

Based on all of the above, it's clear that putting together an effective fraud prevention program for your own temp staffing agency is not a recommendation, but a requirement.

To that end, one of the most important things you'll want to address has to do with employee education.

If people are being placed in jobs that are riskier than average or that expose them to potentially dangerous environments, you need to make sure they have the training and knowledge necessary to successfully work on those conditions.

You would never want to place someone who has never worked in a factory before with a client who is a textile manufacturer.

Operating that type of heavy equipment without formal knowledge or education is a recipe for disaster.

The same concept is true here, regardless of the client organization you're talking about.

Likewise, people need to be educated as to what workers' compensation insurance claims look like and how to properly file one.

They should know what that process looks like and that you expect them to follow it to the letter.

The easier you make this process, the more likely they are to avoid deviating from it.

Claim audits are another essential component of any effective fraud prevention program.

This involves sitting down and conducting a kind of "End of the Year" review of your temp staffing agency's records pertaining to workers' compensation insurance.

Chiefly, what you're trying to do is make sure that you've paid the right premium for the insurance coverage you received.

But in a larger sense, many see this as the "last line of defense" for preventing fraudulent claims that have been filed from actually being paid out.

Finally, you should always put clear fraud policies in place to avoid any confusion should these types of incidents occur.

To cut down on the possibility of fraudulent claims (or to at least mitigate risk from incorrect information), make it as easy as possible for people to report injuries the same day they occur.

Many businesses find success with setting up an "Injury Hotline" in order to do so.

People need to know that they are expected to report the injury, illness, and all other relevant details as quickly as possible.

The faster they do so, the less likely they are to exaggerate (to put it politely) certain aspects of the event later on.

Reporting both at the time of the injury and later can also help identify any other inconsistencies that warrant further investigation.

It's also critical to understand the essential role that insurance providers play in fraud prevention.  

Most insurance companies have special investigative units, otherwise known as SIUs for short, that exist for this purpose.

These are units made up of professionals who will collaborate with your temp staffing agency, your own clients, and other relevant parties in an attempt to investigate suspicious claims.

Because of that, there is an expectation that you will actually collaborate with these professionals.

If you feel a claim is suspicious for whatever reason, don't be afraid to reach out and enlist their help.

It's in everyone's best interest to avoid insurance fraud.

If they are investigating a claim, and they need something from you like additional supporting documentation, do what you can to provide it quickly.

They're experts in investigating fraud - let them, and do what you can to help.

In the End

Another recent study indicated that collectively, employers pay approximately $50 billion per year in workers' compensation insurance.

Most businesses pay about $45 per month, or roughly $542 per year.

These numbers may not seem large, but depending on the size of the business, they could represent a significant portion of their already razor-thin profit margins.

Workers' compensation insurance is far from a victimless crime to that end.

For a temp staffing agency, it can cause your monthly premiums to increase (if you don't lose your ability to get coverage altogether).

It can cause the type of reputational damage with both clients and workers that you might not be able to recover from.

This is why it's so important to understand what those fraud red flags are and how to spot them.

It's also why it's crucial to implement effective fraud prevention strategies like employee education and claim audits.

Unfortunately, the world we live in is far from perfect - meaning that there's likely very little you can do to prevent yourself from becoming a target of workers' compensation fraud.

When you think of the sheer volume of people your temp staffing agency likely places, the numbers are too great for you to think otherwise.

But what you can do is prevent yourself from becoming a successful victim, which is what best practices like those outlined above are all about.

It also helps to understand the importance of choosing not just a workers' compensation insurance provider, but a true partner in every sense of the term.

You need to find an organization that understands the unique risks that your temp staffing agency faces, all so that they can help you put a strategy in place to avoid that type of potential disaster as much as possible.

All this while still making sure that your temp staffing agency has the type of coverage required for your continued operation in most states.

If you're interested in finding out more information about navigating workers' compensation fraud, or if you'd like to discuss your temp staffing agency's own fraud prevention strategy with someone in a bit more detail, please don't delay - contact us today.

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The AIA Team

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