« February 2013 Table of Contents
Behind the Line: Dubious doings
Protect your business from insurance, compensation fraud
By Lauren Kramer
February 01, 2013
No business is a stranger to theft, and in a restaurant there are many ways owners and operators can be defrauded. Sometimes it’s petty, other times the theft implicates significant losses. They key is to be aware of its potential and try to arm yourself and your staff with the knowledge to recognize theft in the workplace when it occurs.
One kind of theft that has the potential to cripple a business is insurance fraud. As VP of fraud investigations for Employers, a Reno, Nev.-based company that provides workers’ compensation insurance for small businesses, Ranney Pageler has seen it happen time and again. He cites examples like “injuries” that occur first thing Monday morning or late Friday afternoon, but are not reported when they should be, employees whose medical or legal providers have a history of handling suspicious claims and claimants who refuse treatment for their injuries or who are difficult to reach.
A case that stands out in his mind for its egregiousness involved the Madrona Manor Wine Country Inn & Restaurant in Napa Valley, Calif., and its handyman, Francisco Lemus Guzman. “We had an individual who in 2005 was being discharged for not following the rules and for his poor work habits,” Pageler recalls. “At the time he was discharged he claimed to have hurt himself previously but he refused medical treatment.”
The claim was investigated and Pageler and his team learned that Guzman had offered to pay three other employees to be witnesses to a fictitious accident. The case was referred to the Sonoma County District Attorney’s office and though it took six years to apprehend Guzman, he ultimately confessed that his claim had been fraudulent.
“This was a theft that caused tens of thousands of dollars in insurance premiums and Madrona Manor was on the verge of closing as a result,” he says. The premiums from Employers and other carriers that had insured Madrona Manor in the years following the filing of Guzman’s fraudulent claim were refunded. But it would not have happened unless the client and Employers had teamed up to fight this claim in the first place.
Madrona, in fact, had paid out $250,000 in four previously filed false claims prior to Guzman’s, and the company’s workers compensation rate had climbed from $16,000 per year to $132,000 in just six years as a result of those claims. “The other workers’ compensation insurance companies just rolled over and paid the claims as it would be my cost in the long run,” wrote Madrona Manor owner William Konrad, in a letter of appreciation to Employers.
The most common fraudulent workers’ compensation claims are for on-the-job injuries that occurred elsewhere, were self-inflicted or are simply false, and National Insurance Crime Bureau numbers indicate that questionable claims climbed 20 percent between 2011 and 2012. So it’s prudent for business owners to be aware of the top warning signs of workers’ compensation fraud.
“Familiarize your management with the warning signs of a possible fraudulent claim,” Pageler says (see table on page 56 of ePub). “Discuss the penalties of such fraud with your staff and let the people that are working hard for you know that if the guy next door pulls it, they’re likely to lose their job because this kind of fraud diverts employers’ capital from increasing payroll and growing the business.”
Over the past 20 years Pageler had proved fraudulent claims some 650 times in 23 states. “Most states have organized programs to deal with insurance fraud, programs funded by carriers or policy holders,” he says. “Next time you’re talking with your insurance provider’s claim examiner, ask how to contact their special investigation unit. If they don’t know, there probably isn’t much communication between the fraud department and the claim department.”
If you cannot find the carrier’s special investigations unit, visit the Coalition Against Insurance Fraud, an organization that can advise specifically which law enforcement agency investigates insurance fraud.
EDITOR'S NOTE: Read Behind the Lines in the March issue for other types of restaurant theft to be on the lookout for.
Contributing Editor Lauren Kramer lives in Richmond, British Columbia
Find other SeaFood Business articles on theft here.