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MARINA DEL REY, Calif. -- Whenever there's a financial incentive, there's the potential for fraud in the workers compensation system, experts say.

Anti-fraud measures taken by employers are effectively helping reduce the incidence of claimant fraud, but employer premium fraud is a growing problem that can hurt an honest company's ability to compete in the marketplace, the experts also noted.

Bill Kizorek, president of InPhoto Surveillance Inc. in Naperville, Ill., warned employers against becoming complacent. Even if it's true that workers compensation fraud is occurring less today, "whenever there's a financial incentive, there's potential for fraud," he said at a session during Business Insurance's Sixth Annual Workers Compensation Conference.

Mr. Kizorek then showed a video of fraud surveillance tape highlights that included a man with an alleged back injury participating in a boxing match. "He went on to win the bare-fisted boxing championship while out on disability," Mr. Kizorek quipped.

Jeff Nale, an attorney with Bello, Tede & Nale in Los Angeles, and a former district attorney, expressed his surprise that so many employers are willing to simply "write off" workers comp fraud as a cost of doing business. "You need to change your attitude about workers compensation fraud. It's not a cost of doing business," he asserted. "It's a crime, and it should be made a priority in the workplace."

And even if fraudulent claims represent just a small percentage of total workers comp claims filed, weeding out only a few can translate into significant savings, pointed out Mr. Nale, who represents mostly self-insured employers. That's because employers are eligible to obtain restitution for overpayment of workers compensation benefits, and sometimes even payment of attorney fees, he explained.

"Anyone convicted of work comp fraud is ineligible to receive or retain any workers compensation benefits. So you've just cut your costs, your reserves, your liability with that conviction," he said. And even if an employer doesn't win a fraud conviction, the evidence still can be useful in defending against claims seeking permanent disability, future medical care or qualified injured worker status, which is required to obtain vocational rehabilitation benefits in California, Mr. Nale said.

Cracking down on fraud also produces the intangible benefit of serving as a deterrent, he added.

Indeed, if other workers know that someone has been caught committing fraud, they are less likely to try it themselves, agreed Kevin Saucier, director of environmental health and safety at Guess? Inc.

"Be aggressive. Don't settle these claims; fight them," he said, adding that Guess? invites law enforcement officials to walk guilty employees through the company's plants. "Sure, it's going to cost you a lot more in the beginning. But in the long run, it's going to save you a bundle," he said.

Mr. Nale stressed: "The biggest thing you can do for yourself. . .in the workers compensation field is change your attitudes about fighting fraud. It's not just about fighting fraud. It's about doing the right thing and treating this as a crime."

Since Guess? started cracking down on fraud, its experience modification improved to 6.2 from 2.57. "That translated to a savings of $20 million," he boasted. Mr. Saucier also attributes a reduction of open claims -- they have dropped from a total of 2,500 five years ago to an average of just 250 today -- to the company's fraud deterrent efforts.

"Go to the DA's office and introduce yourself as an employer. Work with the DOI. They will help you out. They enjoy seeing employers come in. Usually they see attorneys come in," he said. Mr. Saucier also encouraged employers to attend the fraud trial. "Treat really injured employees well, but take a hard line on fraud," he urged. "Let them know that you care."

While most employers think injured workers, their attorneys and doctors are the most likely perpetrators, employers themselves have been getting into the act, according to Dominic Dugo, a San Diego County deputy district attorney.

Employers increasingly are committing premium fraud by underreporting their payrolls, misclassifying the types of work performed or the salaries paid or by evading experience modification adjustments, Mr. Dugo told employers. Besides being a crime punishable by up to five years in state prison in California, "it's an unfair business practice. Honest employers cannot compete with those engaged in premium fraud," Mr. Dugo asserted.

To illustrate the amount of money involved in an instance of premium fraud, Mr. Dugo recounted the case of a construction company that misclassified workers and underreported payroll over a five-year period to obtain workers comp coverage at a lower premium. The case, which cost insurers $1.4 million, involved three defendant employers that sought coverage from the State Compensation Insurance Fund using three different names: D.G. Construction, D.G. Inc., and Robertson Construction.

Initially, the company reported $300,000 in payroll, though its actual payroll amounted to more than $700,000, according to Mr. Dugo. But "that wasn't enough for them," he continued. "They changed their name and purchased another insurance policy from Golden Eagle Insurance Co., also underreporting payroll," he said.

Mr. Dugo moderated the panel discussion.