Reform and Regulations a Double-Edged Sword to Fight Fraud

Monday, December 17, 2012 | 0

The passage of Senate Bill 863 (de Leon) overhauling California's workers' compensation system is seen by contractors throughout the state as the sharp edge of a double-edged sword to reduce fraud and take a slice out of the construction underground economy. After years of working with state agencies to spotlight the actions of fraudulent contractors at worksites, the California Professional Association of Specialty Contractors (CALPASC) considers statewide reform and a continued focus by the enforcement agencies as necessary to level the playing field.

"The new workers' compensation regulations resulting from SB 863 will be a tremendous help in keeping workers' compensation premiums in check," said CALPASC Executive Director Brad Diede. "Without this reform, prices would have escalated much more, putting law-abiding contractors in an even worse position to compete against contractors who intentionally scam the system."

Workers' compensation fraud in the construction industry runs rampant and includes both large and small companies. Numerous examples of contractors caught and convicted are listed on the websites of the California Department of Insurance and Contractors State License Board.

"The amount of revenue California and other states are losing due to these unscrupulous contractors is phenomenal," said John Upshaw, Executive Director of the Independent Roofing Contractors of California, Inc. "We need to continue the coordinated efforts if we are to see true workers' compensation reform."

CALPASC works with employers, businesses, associations and labor across California, as well as enforcement agencies, to promote coordination of resources in identifying duplicitous contractors. These include contractors who don't pay workers' compensation premiums, misreport payroll, payroll taxes and employee figures and more, all of which put legitimate contractors out of business.      

An example of this type of deceit can be seen in the public record archives, which recently reported on a contractor with offices in Murrieta, who was sentenced in the first week of December to seven years in prison for committing fraud by not paying workers' compensation and unemployment insurance premiums on hundreds of employees totaling $3 million. Similarly, a story reported in the Memphis Commercial Appeal within the last week highlighted a "construction contractor pleading guilty to four counts of workers' compensation fraud and admittedly putting employees on construction jobs while concealing them from workers' compensation insurance companies" demonstrates the problem crosses state lines. Although perpetrators often end up spending time in jail and paying significant dollars in restitution, the temptation to skirt the law remains too strong when jobs are awarded based on lowest bids and no questions are asked.

"Construction contractors who seek to reduce their costs by the use of cheating labor contractors are at fault, along with the prime contractors and awarding authorities who accept the low bid without asking questions as to how the bid could possibly be so low," said Tommy A. Conner, Chief Executive Officer, Superior Tile & Stone.

"When jobs are no longer stolen from law-abiding construction employers," said Diede, "we will be closer to true reform throughout the entire system."

The California Professional Association of Specialty Contractors is a nonprofit 501(c)6 trade association advocating on behalf of trade contractors and suppliers of building materials. This column was reprinted from a CALPASC press release.