SAN FRANCISCO–(BUSINESS WIRE)–The California Staffing Agency Reform Association (Cal-SARA), acting on a report from a member, issued a fraud referral to the California Department of Insurance and Los Angeles County District Attorney’s office and filed complaints with WCIRB and the California Department of Labor.
The report identified a split risk scheme in which a staffing agency owner had two separate businesses with almost identical names, each with a different insurance policy. This practice is common in a “claims dumping scheme” where the payroll is split between the two businesses, but all of the claims are reported to one insurer.
“Many of the illegal schemes are designed to be complex, involving violations of insurance and labor code, making it difficult for regulators and insurers to follow the bouncing ball,” said Michael LoBue, Cal-SARA executive director. “We unravel the schemes, properly report them, then educate the stakeholders in the industry.”
Many in the staffing industry have been frustrated by the lack of enforcement from regulators as illegal operations continue to proliferate, creating chaos for staffing agencies, workers and worksites who contract them. There are several staffing agencies reportedly still using MEWA programs (Multiple Employer Welfare Arrangement) instead of mandated workers’ compensation insurance, despite the feds and DOI issuing warnings and pursuing criminal charges against those who use them.
Regulators in the past have responded to criticism of lack of enforcement because the reports are not in the proper form or lack objective facts that they can act on. As an example, labor code violations are sometimes reported to the Department of Insurance and vice versa. Further complicating reporting and enforcement, regulators often have separate departments that handle criminal activity and civil violations, which means some issues go unresolved.
“With hundreds of fraudulent certificates canceled as a result of this investigation, including as many as 70 staffing agencies, we consider this a big win for the industry,” said LoBue.
The California Staffing Agency Reform Association (Cal-SARA) is a nonprofit membership-based association promoting legal and regulatory compliance with regards to workers’ compensation insurance practices in the staffing industry to create a safe and fair competitive environment.