Workers Compensation Fraud

What is Workers Compensation?  

Unless winning the lottery is your plan for a main source of income, the few choices left are either acquiring a job under someone else or creating your own business. With these two options approaches the importance of understanding what workers compensation is. Workers compensation is the insurance system in which employers pay a certain amount of money in order to protect themselves from a financial loss in the occasion that an employee gets hurt under working conditions or even worse, a fatality caused by a work related incident. According to the State of California Department of Industrial Relations, “If you have a work-related injury or illness, your employer is required by law to pay for workers’ compensation benefits. You could get hurt by: One event at work, such as hurting your back in a fall….or repeated exposures at work, such as hurting your wrist from doing the same motion over and over…”(SCDIR) This Insurance can help cover any medical bills related to the incident and can even cover rehabilitation costs and lost wages. Because workers compensation is such an advantageous system; Employers, employees, and even medical providers have been known to abuse it and commit fraud in order to receive a financial gain. In an article by Kevin Lisle labeled Fighting Works Compensation Fraud he states that “Workers’ comp fraud costs Americans more than S5 billion annually, threatens the jobs of Americans, and hurts employers so much that in some cases, companies go out of business or are forced to move (Lisle).

Employer Workers Compensation Fraud

The first category of workers compensation fraud that can be committed is by an employer. James Henry Williams III is an individual who built his business, Millennium Powder Coating, from the ground up. His business consists of receiving raw metal products, applying color powder to the products and throwing them into an oven to bake. James notices a large portion of his profit is being consumed by his workers compensation policy and decides that he will begin paying some of his employees on the side with cash and exclude them from being on payroll. James also decides to classify one of his two painters as a regular laborer in order to lower the premiums he pays. This is illegal because James is underreporting his payroll and hiding it from the workers compensation company. Because under reporting is illegal, there are legal consequences behind this. In the article named Understanding Workers’ Compensation Premium Fraud by Kevin M Cruz, he gives the example of a couple caught under reporting, “…the couple pleaded guilty to 29 counts of misrepresenting facts to SCIE and five felony counts of misrepresenting facts to a workers’ compensation insurance company, with sentencing enhancements for a loss of more than $100,000 and a taking involving more than $500,000… They were given 10 years’ probation and ordered to pay $3.4 million in restitution plus penalties and interest.”(Cruz). This shows that these actions of fraud come with costly consequences.

Employee Workers Compensation Fraud

Another type of workers compensation fraud that can be committed is by an employee. Chad and Yesenia Rumpletop are brother and sister and are also employees of Millennium Powder Coating. Yesenia recently got injured while working when a crate fell on her foot and broke it. She filed for workers compensation and began receiving disability. She enjoyed the money she was making while not having to work but felt like she wanted income. Yesenia decides to get a job at her friend’s small business nail salon by answering phone calls and makes an under the table agreement to be paid in cash. This is one example of workers compensation fraud since Yesenia should not be working anywhere else while she is receiving money for disability. Chad sees the money that his sister Yesenia is making and decides he wants to fake an injury in order to receive the same disability benefits. He decides to fake a back injury and tells his employer, James Henry Williams III, that he hurt his lower back while lifting a metal gate to put on the conveyer belt. This is another example of workers compensation fraud by an employee because he is dishonest about an injury that did not occur during work. In an Article named Workers Compensation Fraud as It Relates to the General Contractor, Dr. Richard J. Coble and Brent R Elliot write a report on different aspects of fraud as related to contractors. In the article they showed a survey which showed the percentage of large and small contractors who hire private investigators to expose employees like Chad and Yesenia. The survey showed that out of large contractors (Volume over $200 Million per year) 98% hired private investigators and out of small contractors (Volume under $100 Million per year) only 19% hired private investigators (Coble and Elliot). The majority of small contractors have a significantly lower rate of hired private investigators.

Health Care Provider Workers Compensation Fraud

The final type of workers compensation fraud that can be committed is by a health care provider. Ol’ Yeller Cumberbatch is a friend of Chad Rumple who works for a health care provider. Chad reaches out to Ol Yeller and explains his plan to claim disability with his help and Ol’ Yeller sees it as an opportunity to receive more income from another client. He begins to provide unnecessary treatment to Chad’s back in order to receive financial benefit. He then begins to bill for treatments which never happened to keep the income flowing for the health care company. This is an example of workers compensation fraud by a health care provider. According to an article named 10 Popular Health Care Provider Fraud Schemes by Charles Piper, a member of the Association of Certified Fraud Examiners, there are ten common health care provider fraud schemes. This consist of “…billing for services not rendered, billing for a non-covered service as a covered service, Misrepresenting dates of service, misrepresenting locations of service, Misrepresenting provider of service, Waiving of deductibles and/or co-payments, incorrect reporting of diagnoses or procedures (includes unbundling), overutilization of services, Corruption (kickbacks and bribery), False or unnecessary issuance of prescription drugs (Piper). These are all possible schemes which can be committed by a medical provider when it comes to workers compensation insurance.


Coble, Richard, and Elliot Brent. Workers’ Compensation Fraud as It Relates to the General         Contractor. Cost Engineering, 12 Dec. 1997,                                                                      

Cruz, Kevin. Understanding Workers’ Compensation Premium Fraud. Society for Human                        Resource Management, 1 Feb. 2014,        magazine/pages/0214-workers-comp-premium-fraud.aspx.

Division of Workers’ Compensation – Injured worker information. Answers to Frequently                          Asked Questions about Workers’ Compensation for Employees. State of California                        Department of Industrial Relations, May 2016,

Lisle, Kevin. “Fighting Worker’s Comp Fraud.” Claims, vol. 54, no. 9, Sept. 2006, pp. 33-36.                   EBSCOhost,                                                                                                                                         bth&AN=22351853&site=ehost-live.

Piper, Charles. “10 Popular Health Care Provider Fraud Schemes.” 10 Popular Health Care                       Provider Fraud Schemes, Jan. 2013,


Photo Citation:

Phovoir.Full Length Worker in a Boiler Suit.

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