Institute of Management Accountants Student Night at the Spectrum.

Institute of Management Accountants

Student Night at the Spectrum

Premium Fraud & Tax Evasion

DOMINIC I. DUGOChief, Insurance Fraud Division

San Diego County District Attorney’s Office

[email protected](619) 685-6534

By

October 14, 2013

SD Chapter of the Institute of Management Accts.

JESSE NAVARRODirector of Community Relations

San Diego County District Attorney’s [email protected]

(619) 531-3053

BONNIE M. DUMANIS

District Attorney

Mission Statement

The employees of the San Diego District Attorney,

in partnership with the community we serve,

are dedicated to the pursuit of truth,justice and protection of the innocent, and the prevention of crime through

the vigorous and professional prosecution

of those who violate the law.

San Diego County District Attorney’s OfficeDistrict Attorney Bonnie DumanisAssistant District Attorney Jesse

Rodriguez330 W. Broadway, Suite 1300San Diego, CA 92101(619) 531-4040 [email protected]

Public Safety Topics

• District Attorney’s Office Mission & Responsibilities

• Juvenile Justice & Criminal Court System• Anti-Bullying in Schools & Cyber-Bullying

Prevention• Child Abduction & Child Abuse Prevention• Internet Crimes Against Children & Adolescents• Elder Abuse• Domestic Violence & Restraining Orders• Hate Crimes

Public Safety Topics

• Gang Prevention & Enforcement• Narcotics Prevention & Enforcement• Driving Under the Influence & Consequences• Social Host Law/Underage Drinking &

Consequences• Check Enforcement Program & Embezzlement• Identity Theft & Consumer Protection• Real Estate, Immigration & General Fraud• Worker’s Compensation, Employer &

Employee Fraud

San Diego County District Attorney’s

OfficeContact for Public Safety Topics:

Jesse Navarro, Director of Community Relations

330 W. Broadway, Suite 1300San Diego, CA 92101

(619) 531-3053 www.SanDiegoDA.com

USAINSURANCE FRAUD

$80-$90 Billion a Year

USATAX EVASION

#1 Economic Crime followed by Insurance

Fraud

CAL. INSURANCE

FRAUD

$15 Billion a Year.Tax of $500 per Person.

Income Tax Evasion

CALIFORNIA

$6.5 Billion (FTB)

Underground Economy $100 Billion Annually

$5 Billion of Payroll Tax Loss

CALIFORNIA

CAL. WORKERS’ COMPENSATION FRAUDEst. $4 Billion per Year

OUTLINE

I. San Diego’s IF DivisionII. Deterrence ProgramIII. Premium Fraud and Tax Evasion

II.San Diego Insurance Fraud

Division

Grant Funded UnitsWorkers’ Compensation FraudAuto Theft Auto Insurance FraudDisability, Healthcare FraudLife Insurance Fraud

Staff16 Attorneys15 Investigators 8 Paralegals10 Support Staff

2012 - 2013 Workers’ Comp

San Diego

Prosecutions:115

Convictions: 121

Investigations: 516

II.San Diego’s

Deterrence Program

Billboards

Posters

Movie Ads

Ethnic Newspapers

Chambers of Commerce

TV Ads

Billboard Ads, 2009 & 2012

81 Billboards

4 to 6 Weeks

1 Million People a Day

Billboard

Billboard

Billboard

Billboard

Billboard

Billboard

Anti-Fraud Posters, 2009-2013

200,000

English/Spanish/Chinese

Numerous Employers

Workers’ Comp Poster

Movie Theater Ads, 2010

340 Movie Screens

1 Month

1 Million People

Workers’ Comp Movie Ad

Ethnic Newspapers, Anti-Fraud Ads,

2011-2013Spanish

Chinese

Vietnamese

Filipino

Arabic

African American

Brochures, 2008-2013

Mailer- 180,000

Journal Inserts- 16,000

Mailer- 185,000

TV Media – 2012 - 2013

Television PUBLIC SAFETY ANNOUNCEMENT

(PSA)13 Television Stations

English/Spanish/Vietnamese

2,000 PSAs

Radio Media – 2012-2013

KLQV 102.9 FM

KLNV 106.5 FM

Word Syndicated Radio

III. PREMIUM FRAUD

• False statement• Intent to

reduce proper rate or cost of workers’ comp insurance

Insurance Companies & State

Premium Fraud & Tax Evasion

Billions

$

Losing

San Diego Premium FraudTask Force

Summer 1996

San Diego DA

CDI

Franchise Tax Board

Labor Commissioner

Contractors’ Licensing Board

Employment Development Department

Task Force Members

2007 Berkley Study

Fraud 19% to 23% (2002)

$3.2 to 3.8 Billion in lost

premium.

75% of Payroll in high

risk not reported.

2007 Berkley Study

“If you ain’t cheatin, you ain’t tryin.”

Conclusion: NASCAR saying

2007 New York Study

Fraud 15% to 20%

$500 million to $1 billion in lost

premium.

Boston Big Dig

Tunnel Workers Reported to

Carrieras Clerical.

Loss: $11 million

• Workers’ Compensation Required of Employers

• Coverage SCIF or Private Carrier

Workers’ Comp Premium

Payroll x Class Rate x Experience

Modification

$300,000 x 10% ($10 per $100) x 1 = $30,000

Landscaper

PAYROLL x CLASS RATE x EXP. MOD

PAYROLL x CLASS RATE x EXP. MOD

$100,000 x 10% ($10 per $100) x 1 = $10,000

Landscaper

$300,000 x 10% ($10 per $100) x 1 = $30,000

$300,000 x 40% ($40 per $100) x 1 = $120,000

Tree trimmer$300,000 x 10% ($10 per $100) x 1 = $30,000Landscaper

PAYROLL x CLASS RATE x EXP. MOD

$300,000 x 10% ($10 per $100) x 2 = $60,000Landscaper

$300,000 x 10% ($10 per $100) x 1 = $30,000

PAYROLL x CLASS RATE x EXP. MOD

Three Types of Premium Fraud

1. Underreport Payroll

• Cash Pay• Independent

Contractors• Labor paid in

Rent, Vehicle, Supplies

Three Types of Premium Fraud2. Misclassification

a. Type of Worklandscaper v. tree

trimmerjanitor v. rooferclerical v. construction

b. Hourly Wages (Dual Wages)Concrete over $24 hr.Carpentry over $26 hr.Plastering over $25 hr.Roofing over $23 hr.

Three Types of Premium Fraud 3. X-Mod Evasion

a. Identity ChangeSame Company,

change name

b. Fail to Report Injuries

Injured workers not provided WC Benefits.

Consequences of Premium Fraud

Unfair Competition

Theft to Insurance Carrier

Who Uncovers Premium Fraud?

CompetitorsEmployeesTax auditorsInsurance company

auditors

Payroll Tax Evasion

Crime often committedwith premium fraud

Payroll Taxes• Employer - 1 Employee and Payroll Over $100 in

Calendar Quarter

• Employer - Files Quarterly Payroll Tax Returns (DE9)

CALIFORNIA

Payroll Taxes

CALIFORNIA

Out of Employer’s Pocket

1.Unemployment Tax

2.Training Tax

Withheld From Employee’s Wages

3. Personal Tax Income

4. Disability Insurance Tax

Payroll Tax Evasion

1. Underreport Employee Wages

2. Failure to Report Employee Wages

3. Employer Withholds/ Pockets Employee’s Taxes

Consequences of Tax Evasion

1. Reduce Costs

2. Pocket Employees Taxes

3. Unfair Competition

Formula For Success

Law Enforcement

Insurance Industry

Public Awareness

Questions?

Institute of Management Accountants

www.IMASD.org

Jared Sanderson, President