The recent recession and an underground economy have made times tough for the construction industry.  Contractors are desperate for work and some companies compete for jobs with unfair advantages.  Today’s Fraud of the Day from The Daily Journal examines how one company was able to stay in business by committing workers’ compensation fraud and tax evasion.

The article reports that a divorced couple, who owns a Belmont-based roofing company, failed to accurately report employee wages to their workers’ compensation insurance company.  This resulted in the avoidance of more than $600,000 in insurance premiums between 2007 and 2011.  The roofing company also deducted payroll taxes from employee wages, but neglected to pay the taxes as required by law in 2010 and 2011.

Reputable companies that pay their workers’ compensation insurance premiums and payroll taxes have to bid higher on projects to cover costs.  Underground companies avoid paying hundreds of thousands of dollars in insurance premiums and payroll taxes which enables them to submit lower bids.  (Honest companies can’t compete with the lower bids and the crooks get away with the money, almost.)

The duo pleaded no contest to eight counts of workers’ compensation premium fraud and two counts of tax evasion. The partners in crime were fortunate that their sentence was reduced after they gave the District Attorney’s office two $100,000 checks.  They are required to pay back the remainder owed.  The fraudsters’ sentences begin in January.  They will remain under house arrest while each serving an eight month sentence in a sheriff’s work program followed by five years of probation.  (Number one on their New Year’s Resolutions list:  “Must pay taxes to avoid prison.”)  The California Department of Insurance Commissioner commended the investigators in this case in the ongoing effort to bring fairness to the bidding process and vowed that business owners who operated unfairly in the underground economy will be brought to justice.

The old saying goes, “You get what you paid for.”  The folks left without a roof over their heads now understand that the lowest bid isn’t always the best bid and fraud doesn’t pay.

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