When a Southern California family was convicted of workers’ compensation insurance premium fraud, it wasn’t due to sophisticated software, a supercomputer or even high-tech surveillance techniques.
It was the result of good old-fashioned detective work, according to Maryann Lazernik, who sees a great deal of workers’ compensation fraud cases as program manager of State Compensation Fund’s special investigation unit.
Lazernik, with 25 years’ experience in the insurance industry, has been involved with a variety of aspects of workers’ compensation insurance, including work with claims investigation and major accounts programs. It was while in claims that she developed expertise in the area of special investigations.
Workers’ compensation fraud costs businesses $7.2 billion annually, roughly a fifth of all workers’ compensation payments, according to the National Insurance Crime Bureau.
In the past, it’s been challenging to prosecute workers’ compensation fraud, but recently passed legislation is making it easier for agencies like State Fund to work together to fight fraud. In June, as a result of a joint task force that included State Fund, more than 100 enforcement actions were taken against companies for failure to comply with state contracting, insurance and payroll requirements.
And earlier this year, State Fund partnered with other agencies on a fraud case that resulted in a conviction with restitution orders to both State Fund and the Employment Development Department.
In the case of family members Jerry Buffington, 69, and Cynthia Russell, 47, a father and daughter who pled guilty in Kern County Superior Court to one count each of workers’ compensation insurance premium fraud and eight counts each of tax evasion, it was literally good old-fashioned foot work that caught the perpetrators, according to Lazernik.
Buffington was the owner and president of Bakersfield-based Safehome Inc., and Buffington’s daughter, Cynthia Russell, was the chief financial officer.
In 2007 State Fund discovered Safehome Inc. was underreporting their employee payroll to avoid paying the proper premium. An audit was completed and indicated that Safehome Inc. had failed to pay the proper premiums for their workers’ compensation policy in the amount of $477,285. Additionally, State Fund determined the business was operating out of its classification, and related payroll was never reported to either State Fund or EDD, according to investigators.
When looking at a claim, auditors are trained to look for oddities or facts that don’t look right, Lazernik said. The State Fund auditor just did that, and found some things that were questionable, so she physically went out and visited the account, according to Lazernik.
There she discovered that workers who were supposed to be installing alarms were actually working as roofers – a higher risk class that justifies a higher workers’ comp insurance rate due to roofing being considered more dangerous.
“Something just didn’t look right to her,” said Lazernik, who likes to leave off as many details about investigations as possible when discussing them to avoid tipping criminals to the department’s techniques.
Others involved in the investigation included the California Department of Insurance’s fraud division, and the San Joaquin Valley Premium Fraud Task Force. The Kern County District Attorney’s Office prosecuted the case. Buffington and Russell were ordered to pay restitution to State Fund in the amount of $475,100, as well as $127,899 to EDD. Both were ordered to serve 10 years’ probation.
Lazernik acknowledges a resistance to rely too heavily on technology even though we are well into the 21st century, but she notes that the three types of most common workers’ comp fraud – injured worker fraud, provider fraud and premium fraud – haven’t changed much.
And from an investigation standpoint, it still comes down finding out what crime is being perpetrated, and then detecting it, she added.
To make Lazernik’s method work, State Fund employees undergo hours of training to spot fraud, she said.
“We do have a very vigorous education program for our staff,” she said, adding that the program teaches staff to detect the “typical red flags.”
Those flags include noticing when an injured worker is not making medical appointments, or some pieces of information in a medical report that can indicate that an injury is not as severe as what is being claimed.
“If it’s something that raises your interest, or if you think you see something wrong, that’s the level of awareness we’re trying to create in our staff,” she said. “If it doesn’t look right or seems odd, that’s what we want someone to look at and notice.”
It seems to be working.
“People have a lot more instincts for what’s right and what’s not,” she said of the results she’s noticed following the training.
Even though she takes the old school approach to investigations, Lazernik and her unit is embracing advances in technology.
“I can say that technology will be a bigger part of investigations going forward,” she said.
She won’t say exactly how they will play a bigger part. She believes workers’ comp violators are becoming increasingly more sophisticated, thanks to technology, and they are searching the internet for ways to commit crimes and ways in which other violators have been caught.
“That’s the one thing fraudsters are really good at, at learning how not to get caught,” she said.
Those fraudsters are also learning to use technology find vulnerabilities, and vulnerable people, in the system, she added.
“Most people who are looking to perpetrate fraud are looking for the easiest mark,” she said. “Technology makes that faster, and doesn’t require them to do as much planning.”