Fla. Calls for More Oversight in Check Cashing Industry Role in Workers’ Comp

By Michael Adams | November 10, 2011

Check cashing companies in Florida may be saddled with new regulations for their role in facilitating workers’ compensation fraud in the construction industry.

Among other things, check cashing companies may have to submit any transactions above $1,000 to a statewide real-time data base. They may also be required to submit the workers’ compensation policy numbers of companies they cash checks for, and allow regulators to conduct unannounced on-site inspections.

Ashley Mayer, director of the Office of Policy Research and Legislative Affairs for the state’s Insurance Consumer Advocate, told lawmakers that the use of check cashing companies to facilitate fraud in the construction industry has become a statewide problem that is costing the state millions in the untold loss of premiums.

Citing the fact that workers’ compensation rates have gone up twice in two years, Mayer said there is a need for lawmakers to take action.

“This has become a big problem that we can no longer ignore,” she said.

Major Geoffrey Branch, who heads up the state’s Bureau of Workers’ Compensation Fraud, said the typical scheme calls for an individual to set up a shell company that obtains a certificate of insurance from an agent by purchasing a minimal workers’ compensation policy.

The individual then allows subcontractors to in effect “rent” the certificate to show general contractors in order to be hired. Once the work is complete, the general contractor cuts a check to the shell company. The individual running the shell company then goes to a check cashing company, which cashes the check for a fee of up to 2 percent. The shell company usually collects 3 percent to 8 percent for use of the certificate and the subcontractors’ workers are paid in cash.

When an insurer goes to audit the shell company or investigate the claim, the individuals involved disappear only to reemerge as a different company.

“This has become a cottage industry around the state,” said Branch.

The state does require check cashing companies to maintain records on transactions of about $1,000, which is designed to be available for audits. Branch noted, however, that due to the high volume of checks, companies cannot keep up with the paperwork. However, this information is not readily available to the state.

One recommendation by the working group calls for the creation of a statewide real-time data base for check cashing transactions above $1,000. That would allow regulators greater access to data so that it could be checked against payroll information.

Another suggestion would allow regulators to conduct unannounced on-site inspections of check cashing companies. Under current state law, regulators have to give check cashing companies 15 days advanced notice prior to conducting an inspection.

The working group also called for check cashing companies to provide the workers’ compensation policy number of the corporations they cash checks for and provided through the state. That would allow regulators to compare the payroll amounts to the amount of coverage the corporation has secured.

Mayer said getting this information is crucial to combating fraud.

“We need to get the information sooner so that we can investigate possible fraud before the shell company is burned or dissolved,” she said.

One recommendation of the working group has already been implemented.

Mayer said that as of this week, the state’s Division of Workers’ Compensation proof-of-coverage Web site has been modified so that it now includes payroll information.

As a result, she said, contractors will have the ability to check whether a subcontractors’ reported payroll reflected the number of workers they actually have on a job. The process is also designed to help contractors self-police against fraud by allowing them to see if their competitors are paying their share of premiums.

“If a company gets outbid, they can look and see if a policy equals crew members,” Mayer said.

One lawmaker, however, was less than impressed with the working group’s recommendations.

Representative John Wood (R-Haines City), who is a general contractor, said more pressure should be placed on general contractors to investigate just who they are doing business with.

“If those general contractors didn’t write the check, we wouldn’t have this problem,” he said.

Wood later added he was “disappointed with the recommendations,” and urged regulators to “come back with stronger ones.”

Other lawmakers, however, stepped forward in favor of the working group’s report.

Representative Daniel Davis (R-Jacksonville) praised the working group for its report and vowed to support legislation on the issue when the legislature meets next year.

“There will be a positive impact on our state when we collect these premiums,” he said.

The work group did submit a number of other recommendations for which it could not find a consensus position.

One recommendation called for placing a monetary limit on business-to-business checks that could be cashed by a company. Law enforcement officials said it would force more people to use banks that have stricter oversight on transactions. Checking companies opposed the idea, saying it would penalize the ability of legitimate companies from doing business with them.

Another recommendation called for certificates of insurance to be issued by insurance companies as opposed to insurance agents, as is currently the practice in the state. The insurance industry opposed the move because it said the cost of doing so would be prohibited.

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