The Red Flags of Workers' Compensation Claimant Fraud

ACFE Staff

Workers' compensation insurance is a type of insurance that provides medical and disability coverage for employees who suffer work-related injuries and illnesses.

While most workers' compensation claims are legitimate, some are inflated or fraudulent. Workers' compensation fraud occurs when someone knowingly makes a false statement or conceals information to obtain workers' compensation benefits or to prevent someone from receiving benefits to which they might be entitled.

Workers' compensation fraud, however, is not rampant. Nationwide studies have shown that only a small percentage of workers' compensation claims are fraudulent. Nevertheless, this type of fraud is costly. Not only does workers' compensation fraud cost insurers billions of dollars every year, it results in higher health care costs and insurance rates for U.S. businesses (according to "Risk Control: Managing Workers' Compensation Fraud" published by Travelers Indemnity Company in 2008).

There are several steps that management and HR teams should take to minimize the risk of claimant fraud and the damage it can cause. For one thing, management should develop and maintain a safe work environment to prevent workplace accidents and control workers' compensation claims. For another thing, leadership should develop post-injury management programs that help guide behavior when workplace accidents do occur.

Also, managers should adopt zero-tolerance policies regarding fraud, meaning that they will investigate and seriously deal with all suspected incidents of fraud. Furthermore, organizations should work with their insurance carriers' fraud investigation units to stay abreast of potential schemes. Finally, organizations' leaders should educate their employees about the various workers' compensation fraud types, schemes and associated red flags.

As instances of claimant fraud rise, management should be aware of the following red flags that can signal abuse:

• The claimant is engaged in seasonable work that is about to end.
• The claimant is a new employee, disgruntled, on probation, facing layoff or about to retire.
• The claimant has a poor attendance record.
• The claimant has financial problems.
• The claimant waited days or weeks before reporting the accident or injury.
• The accident or injury reportedly occurred late Friday or early Monday morning, indicating that it actually occurred off the job over the weekend.
• There are no witnesses to the reported accident or injury, or the only witnesses are individuals who have a "close" relationship with the claimant.
• The claimant provides vague or inconsistent details about the accident or injury.
• The claimant and witnesses provide conflicting details about the accident or injury.
• The accident or injury reportedly occurred at a location away from where the claimant normally works.
• The claimant's coworkers express doubt about whether the accident or injury actually occurred.
• The claimant is unusually pushy about settling the claim.
• The documentation presented by the claimant contains irregularities or questionable content.
• The claimant is involved in physical hobbies or sports.
• The incident report and the medical evaluation contain conflicting information.

Workers' compensation fraud continues to thrive, but management can minimize the risk of such schemes by committing to work safety, implementing post-injury management programs, adhering to zero-tolerance policies, working with insurance carriers and educating employees. And because evidence of illegal activity can come from almost anywhere, as demonstrated by The Price Is Right fraud bust, managers, workers and fraud examiners must be vigilant in their efforts to identify this and similar types of fraud.

New Ways to Incorporate Analytics Into Your Next Investigation

GUEST BLOGGER

Jeremy Clopton, CFE, CPA, ACDA
Managing Consultant, Forensics and Valuation Services, BKD, LLP

As an investigator, much of the data I analyze on a day-to-day basis is standard financial data – accounts payable, payroll and general ledgers. For those of you using data analytics, you likely see these data sets as well. However, a recent presentation by a colleague of mine and an article on insurance fraud reminded me of the many other data sets that are useful in investigations.    

Email Analytics

My colleague and I work closely together, but we do not always have the chance to discuss the behind-the-scenes details of what we do. Always looking for a new way to apply data analytics, I was definitely intrigued by his presentation on predictive coding and analytics surrounding “unstructured” data like email. I quickly realized that email, much like financial data, is just as ripe for mining as accounts payable data. It takes some prepping and cleansing, but at the end of the day, it contains the same types of information: names, addresses, dates, times and keywords. Considering these documents as data can open your eyes to a completely new set of potential procedures in your next investigation.

Visual Analytics

This recent article on insurance fraud did not specifically cover data analytics, though it did highlight some potential applications and red flags. Applying data analytics to claims and employee data can help identify many of these red flags (new employee, poor attendance, late Friday/early Monday claims, unusual location, etc.). For example, an attendee at a recent presentation I gave talked to me about using visual analytics to map insurance claims and identify “hot spots” in a city. Plotting all claim addresses on a map allowed them to focus on streets and neighborhoods with multiple claims during a specific period. This visual analytic helped them discover fraudulent claims.

Social Media Analytics

The beginning of the article also described how an individual who filed for workers’ compensation got busted after appearing on the game show, “The Price is Right.” I’m not advocating watching hours of game shows to identify potential workers’ compensation fraud; however, analyzing social media data could be just as helpful. With Twitter, Facebook, Instagram, Pinterest, LinkedIn and the many other sites out there, individuals create enormous amounts of data every day (much of it about what they are doing). Analyzing this data for keywords, events, times and locations can effectively supplement an investigation. Again, once obtained, this information is much like the financial data we are already accustomed to analyzing. 

You may be aware of these data sources and their applicability, but if you aren’t, I hope this article has you thinking of new ways to incorporate analytics into your next investigation.