In addition to being a crime, workers’ compensation fraud can also cause significant problems for a business. Temporary staffing companies work hard to find workers’ comp coverage that is affordable and responsive. Fraud can cause a massive disruption in the employer-insurer relationship, potentially threatening the viability of the business itself.
What is workers’ compensation fraud?
The specific definition of what constitutes workers’ comp insurance fraud varies from state to state and from policy to policy. A key feature common to every definition is intent on the part of the person committing a fraudulent act. Fraud could involve intentionally making a false claim to get special benefits, helping someone else deliberately deceive an insurer, filing a claim for reimbursement for services that were not actually provided, or falsely claiming eligibility for benefits to which one is not entitled.
The three sources of workers’ comp fraud
There are three potential sources of fraud that a temporary staffing firm needs to be aware of:
- Employees. The most important source of concern for a temporary staffing firm is that an employee will file a false claim. A claim could be false because the injury does not exist, or because the claim overstates the nature of the injury. An employee could also commit fraud by not disclosing other sources of income while claiming to be disabled.
- Insurers. Fraud by an insurer is obviously something that an employer is less likely to be able to control. Such fraud might involve collusion between an insurance agent and a physician selected to conduct an independent medical exam on the insurer’s behalf.
- The employer. Businesses need to be mindful about the risk that a manager will engage in fraud, whether to help a favorite employee by supporting a fraudulent claim, or by submitting false information to the insurer in hopes of getting a better rate.
Ways to protect your staffing business from fraud
Workers’ comp fraud carries steep criminal penalties for the individual fraudster. Note that an employer that commits fraud on an institutional level can also be charged with a crime and subjected to heavy fines as an organization. But even if an employer was not directly engaged in fraud, a defrauded insurer likely will take an employee’s fraudulent claims as a sign that the employer is not doing its part to manage risks. In some cases, the insurer may raise rates or even cancel a policy.
Temporary staffing firms can be especially vulnerable to fraudulent workers’ comp claims due to their diffuse labor force. These are some of the steps that a staffing business can take to protect itself:
- Know the warning signs. A risk management expert can help a firm develop a good understanding of what to look for when evaluating an employee’s claim for benefits. The timing of the claim can be a red flag. Claims made right at the end of an assignment, or after a weekend or holiday when the employee might have been injured on personal time, should receive extra scrutiny. Other signs include a claim relating to an accident that was not seen by anyone other than the claimant, and contradictions between the workers’ comp paperwork and other records about the incident.
- Have a robust claims handling process. A clearly defined, expertly managed claims management process will be less likely to miss fraud by an employee or a manager. If the business does not have the in-house skills and resources to manage its own claims with sufficient care to screen for fraud, it should outsource some or all of its claims to a third party.
- Encourage whistleblowing. Employees should feel empowered to report fraudulent activity by others—including by the clients they work for—to managers or, even better, to a risk management officer. Many businesses are adopting a “fraud hotline” that allows employees to express concerns by phone. Such a program needs to provide clear protections for employees who submit reports from suffering retaliation for their disclosures.
At Gunnin, we help temporary staffing firms develop effective risk management strategies to lower costs and improve insurance outcomes. We can help your business examine its fraud risk and adopt practical safeguards. Call us today.