Unfair Advantage


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When employers underreport the number of their employees, their workers’ compensation insurance premiums cost less. As a consequence, numerous people are put at risk because they are not covered in the event of an accident and the workers’ compensation insurance company passes on their losses to other policyholders and businesses in turn pass their increased costs on to their consumers. (Everyone gets victimized in some way, shape or form by this type of fraud.) An article published by The Sacramento Bee tells about a brother and sister who put their employees at risk by stealing more than $255,000 in workers’ compensation funds through their landscaping business.

The story states that for three years, the two defendants submitted false statements in their workers’ compensation insurance applications and policies by significantly underreporting the number of employees the company had, plus the payroll amount. (This means they pay less payroll taxes – assuming they pay them – and they also gain an unfair advantage over other companies in the process because it costs them less to operate their business.)

That was not all they did. The brother and sister also failed to take the necessary deductions from their employee’s pay and did not make required contributions to the unemployment insurance fund. After all was said and done, the duo stole $144,672 from their workers’ compensation insurance carriers via premiums and $110,462 from the Employment Development Department. (That was money that should have been allocated to legitimate claims.)

The 37-year-old brother pleaded no contest to felony workers’ compensation insurance fraud and felony tax evasion. He was sentenced to 30 days in the county lockup and five years of probation. His 38-year-old sister pleaded no contest to misdemeanor tax evasion. (I wonder if she told the judge, ”My brother made me do it.”) She was sentenced to three years of probation and ordered to perform 50 hours of community service. Together they will both pay full restitution to the insurance carriers and the Employment Development Department.

This case demonstrates that the government is good at restoring justice by taking away the unfair advantage these fraudsters held for three years. Congratulations are due for the joint effort between the California Department of Insurance’s Fraud Division, the Employment Development Department and the Department of Industrial Relations. The successful investigation and prosecution of these two fraudsters proves to others who are considering the same type of crime that if you cheat, you will be held accountable.

Source: Today’s ”Fraud of the Day” is based on an article entitled ”Brother, Sister Sentenced in Workers’ Comp Fraud Case” published by The Sacramento Bee on September 10, 2015.

A brother and sister have been sentenced after pleading no contest to charges involving workers’ compensation fraud and tax evasion.

The Sacramento County District Attorney’s Office announced Thursday that Michael George Mello Jr., 37, pleaded no contest to felony workers’ compensation insurance fraud and felony tax evasion. His sister, Mary Catherine Rodriguez, 38, pleaded no contest to misdemeanor tax evasion.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.