In a case that uncovered a pattern of fraudulent activity, Protegrity Services Inc.’s Special Investigation Unit recently proved in federal court that a Daytona company underreported payroll, in turn underpaying workers’ comp premiums, for nearly nine years. While a judgment of $2.6 million was entered, a settlement of $1.5 million was reached.
The company in question, Selzee Southern Inc., provides underground cable installation and maintenance for telecommunications companies. In early 1996, a claims adjuster informed the SIU that a wage statement from a claimant did not match the company’s payroll report.
The SIU began investigating on behalf of its carrier client, PCA Property & Casualty Insurance Company. Jana Cauley, manager of the SIU, says the department gets tip-offs daily about average weekly wage discrepancies, and tracing and proving payroll fraud is difficult. Protegrity’s annual audits of Selzee Southern never revealed a problem, because Selzee wasn’t turning over all their records. When a subpoena was issued for all of Selzee’s statements and receipts, Protegrity hired a special forensic accounting firm to help collect and piece together all the financial information.
The defense argument was that the second payment was based on a simple formula to cover business expenses, but the company couldn’t produce those receipts. In addition, some employees were reimbursed from a third fund for proven expenses.
The court determined that between 1986 and 1993, Selzee Southern’s workers’ comp premium discrepancy was $395,181; under Florida law, that amount was subject to a 12 percent penalty. Between 1994 and 1997, the underpayment was $131,145, but the statute changed in 1994, making premium fraud punishment more severe, and the penalty for that time period was ten times the underpayment amount.
The judgment entered against Selzee was $2.6 million. However, in an attempt to avoid a lengthy appeal process a settlement of $1.5 million, payable to PCA P&C, was reached.
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