Institute of Management Accountants
Student Night at the Spectrum
Premium Fraud & Tax Evasion
BONNIE M. DUMANIS
District Attorney
By
JESSE NAVARRO
Director of Community Relations
San Diego County District Attorney’s Office
jesse.navarro@sdcda.org
(619) 531-3053
SD Chapter of the Institute of Management Accts.
DOMINIC I. DUGO
Chief, Insurance Fraud Division
San Diego County District Attorney’s Office
dominic.dugo@sdcda.org
(619) 685-6534
October 14, 2013
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 Office
District Attorney Bonnie Dumanis
Assistant District Attorney Jesse Rodriguez
330 W. Broadway, Suite 1300
San Diego, CA 92101
(619) 531-4040
www.SanDiegoDA.com
PublicAffairs@sdcda.org
Public Safety Topics
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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
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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 Office
Contact for Public Safety Topics:
Jesse Navarro, Director of Community Relations
330 W. Broadway, Suite 1300
San Diego, CA 92101
(619) 531-3053
www.SanDiegoDA.com
USA
INSURANCE FRAUD
$80-$90 Billion a Year
USA
TAX EVASION
#1 Economic Crime
followed by Insurance Fraud
CAL.
INSURANCE
FRAUD
$15 Billion a Year.
Tax of $500 per
Person.
Income Tax Evasion
$6.5 Billion (FTB)
CALIFORNIA
Underground Economy
$100 Billion Annually
$5 Billion of Payroll Tax Loss
CALIFORNIA
CAL. WORKERS’
COMPENSATION FRAUD
Est. $4 Billion per Year
OUTLINE
I.
San Diego’s IF Division
II. Deterrence Program
III. Premium Fraud and Tax Evasion
II.
San Diego Insurance Fraud Division
Grant Funded Units
Workers’ Compensation Fraud
Auto Theft
Auto Insurance Fraud
Disability, Healthcare Fraud
Life Insurance Fraud
Staff
16 Attorneys
15 Investigators
8 Paralegals
10 Support Staff
2012 - 2013 Workers’ Comp
San Diego
Prosecutions: 115
Convictions: 121
Investigations: 516
II.
San Diego’s
Deterrence Program
Billboards
Movie Ads
Posters
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, 2011-2013
Spanish
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
Word Syndicated Radio
KLNV 106.5 FM
III. PREMIUM FRAUD
• False statement
• Intent to reduce
proper rate
or cost of workers’
comp insurance
Insurance Companies & State
Losing
Billions
$
Premium Fraud & Tax Evasion
San Diego Premium Fraud
Task Force
Summer 1996
Task Force Members
San Diego DA
CDI
Franchise Tax Board
Labor Commissioner
Contractors’ Licensing Board
Employment Development Department
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
Conclusion: NASCAR saying
“If you ain’t cheatin, you ain’t tryin.”
2007 New York Study
Fraud 15% to 20%
$500 million to $1
billion in lost premium.
Boston Big Dig
Tunnel Workers
Reported to Carrier
as Clerical.
Loss: $11 million
• Workers’ Compensation Required of
Employers
• Coverage SCIF or
Private Carrier
Workers’ Comp Premium
Payroll
x
Class Rate
x
Experience Modification
PAYROLL x CLASS RATE x EXP. MOD
$300,000 x 10% ($10 per $100) x 1 = $30,000
Landscaper
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
PAYROLL x CLASS RATE x EXP. MOD
$300,000 x 40% ($40 per $100) x 1 =
$120,000
Tree trimmer
$300,000 x 10% ($10 per $100) x 1 =
$30,000
Landscaper
PAYROLL x CLASS RATE x EXP. MOD
$300,000 x 10% ($10 per $100) x 2 = $60,000
Landscaper
$300,000 x 10% ($10 per $100) x 1 = $30,000
Three Types of Premium Fraud
1. Underreport Payroll
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Cash Pay
Independent
Contractors
Labor paid in Rent,
Vehicle, Supplies
Three Types of Premium Fraud
2. Misclassification
a. Type of Work
landscaper v. tree trimmer
janitor v. roofer
clerical 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 Change
Same 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?
Competitors
Employees
Tax auditors
Insurance company auditors
Payroll Tax Evasion
Crime often committed
with premium fraud
Payroll Taxes
• Employer - 1 Employee and Payroll Over $100 in
Calendar Quarter
• Employer - Files Quarterly Payroll Tax Returns (DE9)
CALIFORNIA
Payroll Taxes
Out of Employer’s Pocket
1. Unemployment Tax
2. Training Tax
Withheld From Employee’s Wages
3. Personal Tax Income
4. Disability Insurance Tax
CALIFORNIA
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