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Payroll Information Provided to Reduce Workers’ Comp Fraud in Florida

According to an article in the Insurance Journal Online, advocacy groups and government organizations in Florida are bombarding lawmakers with suggestions for litigation which could curtail a rampant practice by disreputable contractors to defraud the state of workers’ compensation premiums.  This occurs when individuals set up fake subcontracting companies with workers’ compensation certificates and use those fake company names to get paid with checks payable to the non-existent companies.  They then cash the checks at check cashing stores, and pay the actual workers “off the books” with the cash.  The scheme has effectively become the status quo for doing business in some areas, and is estimated to cost the state of Florida millions of dollars in unpaid workers’ compensation premiums each year.

In the article, Geoffrey Branch of Florida’s Bureau of Workers’ Compensation Fraud explains how the scheme works:

“The typical scheme calls for an individual to set up a shell company that obtains a certificate of insurance from an agent by purchasing a minimal workers’ compensation policy.  The individual then allows subcontractors to in effect ‘rent’ the certificate to show general contractors in order to be hired.  Once the work is complete, the general contractor cuts a check to the shell company.  The individual running the shell company then goes to a check cashing company, which cashes the check for a fee of up to 2 percent.  The shell company usually collects 3 to 8 % for use of the certificate and the subcontractors’ workers are paid in cash.

“When an insurer goes to audit the shell company or investigate the claim, the individuals involved disappear only to reemerge as a different company.”

Check cashing stores in Florida are currently officially required to keep track of all transactions of $1,000 and above, but so far that information has not been tracked, and Branch noted that “due to the high volume of checks, companies cannot keep up with the paperwork”.

Suggestions given to lawmakers include creating a statewide database for the $1,000 and higher transactions along with the workers’ compensation policy numbers the companies would provide to the check cashing stores.  This could then be compared to the payroll information reported to the state by the companies with each of those names, to see whether the insurance amount seems appropriate for the payroll amount paid for each company.   It has also been suggested that regulators should be allowed to “conduct on-site inspections” of the stores without the current limitation of giving  2 weeks’ advance notice.

As of two weeks ago, Florida’s Division of Workers’ Compensation’s Compliance Proof of Coverage Query Page now includes payroll information, so that contractors may now check whether “a subcontractors’ reported payroll reflected the number of workers they actually have on a job”.

“If a company gets outbid, they can look and see if a policy equals crew members,” said Ashley Mayer, director of the Office of Policy Research and Legislative Affairs for the state’s Insurance Consumer Advocate.

As with much new legislation, lawmakers differ in their support of the recommendations.  Representative John Wood (R-Haines City) wants regulators to “come back with stronger ones”.  Representative Daniel Davis (R-Jacksonville) supports the work of those trying to bring about changes to the industry to remedy this problem.

It will be interesting to see whether continued pressure on contractors who cheat the system will be able to put a stop to this practice.


Drywall Guy's picture

There is no "good" reason to cash a business check at a check cashing store. Business checks cannot, by law, be cashed at banks and financial institutions, and should not be cashed anywhere. The only reason to cash a business check and pay a fee, is to hide revenues and defraud insurance companies and the federal government. This practice of cashing business checks should be completely illegal, with no exceptions. If you want to be in business, then you should have a business checking account.

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