Audit Shows Flaws in Anti-Fraud Program

Staff Reporter

California employers are not getting their money's worth when they plunk down $30 million in insurance premiums each year to fight workers' compensation fraud, a new state audit concludes.

The report from California State Auditor Elaine Howle criticized the state Department of Insurance the agency chiefly responsible for cracking down on workers' comp fraud for failing to measure the extent of fraud, and also failing to come up with a comprehensive strategy for fighting it.

Howle said the Insurance Department does not have an effective system to handle referrals from the fraud units of insurance companies. Also, the system set up to allocate funds and refer cases to local district attorneys for prosecution is inadequate, she said. As a result, she said, 84 percent of the cases the DOI does receive never even get to district attorneys for prosecution.

"Simply put, they cannot justify the amount employers are assessed each year to combat fraud," Howle wrote in her audit.

A major factor cited in the doubling and tripling of employer workers' comp costs in recent years has been fraud and abuse. Howle issued a series of recommendations, including revamping the way cases are referred and developing a baseline to measure workers' compensation fraud trends.

Insurance Commissioner John Garamendi said that many of the problems uncovered in the audit started before he took office in 2003.

"One of my first acts was to reorganize and re-energize the fraud investigation efforts of this department," Garamendi wrote in response to the audit. He said he created a separate workers' comp fraud bureau within the department's fraud division and appointed a new director to run it.

Garamendi also said that the department last year drafted a strategic plan to fight workers' comp fraud and enacted emergency regulations to spur more case referrals from insurance companies. He disputed the audit's criticism regarding the amount of cases never referred to prosecutors.

"Cases are selected based on the best probability for prosecution," Garamendi said, adding that the number of cases referred was "acceptable."

The audit's findings were discussed last week in a state Senate hearing, where state Sen. Charles Poochigian, R-Fresno, said he intends to push for additional legislation.

"Employers need a much better return on the $30 million assessment they're being charged to fight workers' compensation fraud and abuse," Poochigian said.

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