It's time for a fall fraud roundup. Bad deeds swirl around like so many dry leaves, and I'd like to highlight a few of them this week.

• It can happen anywhere, even in sports, and no, I'm not picking on those shoplifting Dallas Cowboys here. An MLS referee was suspended for workers' compensation fraud for taking $14,000 from the New York State Workers Compensation Board while, you know, working.  That just happens to be one of the no-no's within a workers' comp system.  I think being televised regularly might make this case a bit of a slam dunk.
• However, we're still much better off than workers' compensation in Australia, where $273 million was paid out in Victoria State alone last year for mental/stress claims.  As if the fraud wasn't hard enough to root out already, I can just imagine every bad employee claiming they are "stressed" because the boss is actually on them to work.  There are serious issues with discrimination, bullying, racism and sexism within workplaces, and laws to prevent them as well as opportunities to sue for them.  The workers' comp systems were never built to contemplate those kinds of cases or caseloads.  With the stress injuries being filed by government workers at 5 times the rate of the private sector, and claims costing nearly $90,000 each (higher than physical injuries!), this is guaranteed to be a Pandora's box.

...In a first, I'm interrupting my own blog with breaking news.  In a "you can't make this stuff up" moment, I was just interrupted while writing this entry by a fake IRS collection call.  The automated voice, supposedly from agent "Linda" wanted me to know I owe thousands of dollars, and they are about ready to seize my assets, levy my wages and such unless I call right back.  While I appreciate the D.C. area code...nice touch...don't they know what I do for a living?  Analytics could have let them know mine wasn't the number to call.... Back to our regularly scheduled fraud roundup.

Employee misclassification and the underground economy

The issue of employee misclassification and the underground economy has been gaining traction again this year.  This involves businesses that falsely claim their employees are independent contractors, or pay some or all of them off the books to avoid compliance with the law.  Not just one or two here, but unemployment, social security, federal income tax withholding, and workers' compensation just for a start.  Often thrown in are violations of overtime or minimum wage laws, and failing to follow most or all safety laws.  At times, this is the desired state by the employee, who is also trying to defraud the government by not paying taxes, or, often avoiding child support or similar obligations.  Other times, they are the victims, unable or unwilling to speak up for fear of the loss of their job, or other retribution if they are an undocumented immigrant.

• The Little Hoover Commission in California has conducted a series of hearings on the underground economy this year, with coverage ranging from the employee misclassification I mentioned to counterfeit goods and theft of intellectual property.  Not surprisingly, with the movie industry largely based in California, and Silicon Valley being the primary technology hub in the United States, issues that impact their bottom line will be front and center.  I had the opportunity to present written and oral testimony to the commission earlier this year, and they recently followed up to gather additional information.  No timeline on the final report and recommendations that might impact legislation, but stay tuned. I will let you know what comes out of it.
• A great series from McClatchy and ProPublica really dove into the issue of employee misclassification recently as well.  Focused on the construction industry, which I know from my time fighting this issue is one of the worst, it is appropriately titled "Contract to Cheat" .  It just won the October Sidney award from the Sidney Hillman Foundation for the excellent journalism.  There are a series of related articles focusing on 7 specific states - California, Florida, Illinois, Missouri, New York, North Carolina, South Carolina and Texas, where in depth studies, boots on the ground investigative journalism and interviews helped dive deeper into certain aspects.

On the website that pulls all of this together, McClatchy has even included an interactive section with the commonly used questions utilized by government agencies to determine if someone is an employee, or potentially misclassified.  When I worked for the government in Washington State, we worked hard to put similar materials in the hands of the public, and I applaud them for their work.  One of the key reporters in this endeavor, Mandy Locke, who writes for the News & Observer in Raleigh, North Carolina, is someone I've had the opportunity to work with a couple of times previously for stories that became part of the background for this effort.  Her excellence appears to be shared amongst the other contributors.

Utilizing a combination of public data and interviews, the series attempted to quantify misclassification across 12 sub-categories of the construction industry for multiple states.  The numbers don't surprise me.  Texas topped the list at 37.7% of workers misclassified, nearly 317,000 people in total.  The home state of SAS, North Carolina, came in at 35.2%, and more than 102,000.  (I'm pleased that SAS is the opposite - even the groundskeepers on campus are employed directly by SAS!)  What does all of this add up to in terms of the tax dodge that falls on the rest of us from this fraud? About $500 million in North Carolina, and a staggering $1.2 billion in Texas!

Piecemeal analytics isn't enough

While I've seen some increased utilization of analytics to assist with this problem, it is small and piecemeal.  Unemployment insurance programs are often much more concerned around claims fraud, which is a real and significant problem, but except for cases when identity theft or false businesses are involved, is small dollars.  Workers' compensation enforcement is often staffed so minimally, they have little opportunity to enforce the law, and have few tools to do so, except in places like Washington State.  Wage enforcement is often in the same situation.  However, when looking at the issue more comprehensively, data sharing and cross-agency analytics utilizing a tool like the SAS Fraud Framework cam make a huge difference.  North Carolina is taking a leadership role in that approach, and hopefully that will begin to pay off in reversing the alarming stats above.  Looking at the comprehensive losses to the state ensures that is isn't a program by program decision.

So, with all that aired out, I'll be moving on to other subjects soon.  In the meantime, follow me on Twitter @CarlHammersburg