Mr. Herbert

Security & Safety

Workers Compensation and FMLA Fraud

By Brian Herbert, Director, Phenix Investigations

In the current economy, employers are dealing with more fraudulent activities among their employees. While traditional forms of theft are on the rise, employers are increasingly seeing more and more employees exploiting benefits such as the fraudulent use of Worker's Compensation and Family and Medical Leave Act (FMLA) programs.

Since it's implementation in 1993, the FMLA program has been fraudulently exploited by a small percentage of employees at participating companies.

Hotels who employ 50 or more workers for at least 20 weeks a year are required to afford their employees with FMLA protections. Recently, FMLA fraud has been on the rise.

What can employers do when they suspect that their employees are cheating the system? Plenty.

All too often, employers are afraid to investigate employees they think may be abusing the system for fear that the employee will attempt to take retaliatory action. The reality is that the employer has a duty to ensure that all employees are treated equally and that no one is allowed to take advantage of the system. The best strategy for employers is to start by asking employees caring questions about their situation and do the best to cleave open the situation requiring the FMLA absence without stepping beyond the bounds. Don't prod or make the employee uncomfortable, but you will be surprised how much you may learn by asking one question and then letting the employee talk. Let the employee provide a story.

Recently, a large Midwestern company with over 50 employees had an issue with one particular employee who regularly used the FMLA program to leave work early or call off work entirely due to having issues with 'migraines'. Managers of the employee noted that she often called off or left work early consistently on the same days of the week.

Initially, the managers had suspicions that the subject wasn't really suffering from migraines, but they were hesitant to investigate the matter.

As the costs mounted to pay other employees overtime to complete the subject's work, they determined it was time to investigate their suspicions.

In consultation with their legal counsel and an experienced private investigations firm, the company authorized the private investigators to perform discreet surveillance on the employee. Through surveillance, the investigators were able to determine that the employee was using the FMLA provisions to get out of work and work a second job. Using undercover cameras, the investigators obtained evidence to show the employee working their second job, tanning, eating lunch with friends, and doing a host of other activities all while supposedly resting at home due to her migraines.

With this evidence in hand, the company was able to terminate the employee for cause.

Surveillance is an excellent resource for employers to have at their disposal when dealing with dishonest employees. The key is for the company to do their homework when contracting with a surveillance vendor. Companies need to check references and work to ensure that the surveillance investigators are licensed, bonded, insured and most importantly experienced.

Experienced surveillance investigators are invaluable for their ability to obtain quality video evidence, while working very discreetly to ensure that the subject is unaware of the surveillance. Companies need to ensure that they work with a reputable firm and a little due diligence on the front end will go a long way to building a cooperative working arrangement over time.

After completing surveillance another excellent way to confirm the information and to complete a resolution to the issue, is to have a competent investigations firm interview the subject's co-workers. Not only will this reveal information about the subject and her fraudulent activities, but it will also likely reveal other employees that may be cheating the system or other issues below the surface.

Too many times, employers try to handle this phase of the investigation themselves only to find that they lack the skills to get the necessary statements from co-workers or a confession from the subject. Using outside investigators ensures that you get quality results from the interviews.

The other major benefit with bringing in an outside consultant to handle the situation is so that the employer can maintain a level of insulation. This allows the consultants to do the heavy lifting and let the employer still seem like the good guy.

The reality is that fraud in any form costs companies millions of dollars in lost productivity and lost revenue. The other important truth is to realize that every company experiences fraud in some form, no matter how vigilant the company is to prevent fraud.

Regardless of the company size, every organization's leadership team needs to ensure they have a plan in place to combat fraud and theft. The skills and experience of outside consultants can help craft a basic plan for the company, but over time the management team will need to implement and adapt the plan.

Facilities with restaurants, bars, or banquet areas will fall prey to employees skimming money from the register. Bartenders may be watering down drinks or failing to ring drinks into the register and pocketing the money.

Servers and cook staff may be stealing alcohol or food products. The old way of viewing theft and fraud as a problem with employees stealing tangible things like food and towels isn't sufficient anymore.

As previously detailed in this article, workers compensation and FMLA fraud costs companies billions of dollars a year in the United States alone. That doesn't even include other forms of theft like the theft of services, products, and time.

Time theft alone can cost companies millions. Companies that use a time clock for hourly employees will find that many employees will eat lunch and then clock out for their break, will clock each other in and out, and will 'forget' to clock themselves out in order to extend their workday. One warehousing company in the southeast United States, recently discovered they had a million dollar a year problem with time theft. After bringing in an outside investigations firm to assist them with a product theft problem they had, they learned that the biggest problem was time theft. Employees were regularly clocking each other in for work on days or during shifts where there was limited or no supervision. Often times, employees were clocked in to work but were never at work that day. The company was routinely paying overtime to employees that never even worked. Other employees would leave work early and 'forget' to clock out. When supervisors caught the mistake, the employees would tell them they left on time, effectively earning them a full day's pay for working less than a full day.

Effectively controlling fraud in the workplace requires a financial commitment and the dedicated efforts of the management team. Companies need to include funds in their annual budget to have an outside firm review their HR policies, physical security plan, and to perform regular spot checks of the property. It is also good to have investigators drop in a few times a year and conduct random interviews with employees. This will gauge the current fraud landscape and will help management determine current weaknesses in the loss prevention program on a regular basis.

While many managers feel that some fraud or theft represents the cost of doing business, the reality in this current economy is that every penny counts. With a quality fraud detection and prevention system in place, managers won't need to spend a large amount of time dealing with the issues.

Failing to consider fraud as a potential problem at all, however will result in the creation of a fraud problem which will eventually cost the company time and money. Managers will spend a large amount of time and resources dealing with an acute fraud problem only to have the weeds grow back over time if a prevention plan isn't put in place.

The most important things a management team can do is:

1) Realize that some percentage of employees will always attempt to defraud the company.

2) Include an annual budget for planning, training, regular fraud health checkups.

3) Commit the management team to be vigilant to monitor fraud activities to ensure the company is doing everything possible to avoid fraud.

4) Conduct thorough pre-employment screenings of all prospective employees. This should not only include background and criminal history checks, but it should also include fraud-awareness questions during employee interviews.

Brian Herbert is the Director of Corporate Investigations for Phenix Investigations, Inc. Phenix is the recognized leader is corporate investigations as they work to assist companies large and small deal with a wide range of issues. Within his role at the company, Mr. Herbert works to manage the corporate investigations division of the company. Typical investigations he coordinates include fraud, theft, non-compete agreements, FMLA, Worker's Compensation, substance abuse, accidents in the workplace and other employee-related issues. Mr. Herbert can be contacted at 800-980-9056 or bherbert@phenixinvestigations.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.