Waging war on fraud.

The volume of workers' compensation insurance fraud in California has dropped dramatically - as much as 40 percent by some estimates - since the state passed two measures to reform the industry in the early 1990s.

The measures employ a two-pronged public-private-sector approach to combat workers' comp fraud.

On the public side, a law that became effective in 1992 established a state Fraud Assessment Commission, whose primary role is to fund district attorneys' offices for their work against workers' comp fraud.

In the private sector, a state law that became effective in 1993 requires each workers' comp carrier to establish its own in-house anti-fraud unit.

"Before the reform legislation was passed, workers' comp fraud wasn't even against the law. It was immoral, but it wasn't illegal," said Ron Christensen, assistant communications manager for the State Compensation Insurance Fund, California's state-mandated provider of workers' comp insurance.

Christensen said implementation of the state government's reform program in 1992 and 1993 has literally caused the bottom to drop out of workers' comp fraud.

"Claims have dropped industrywide 20 to 30 percent since the reforms went into effect," he said, attributing much of the drop to the crackdown on fraud. Prior to the reforms, aggregate annual premiums paid for workers' comp policies in the state of California were $9 billion, he said, compared with between $5.5 billion and $6 billion today.

Fraud-fighting budget

Since its founding in 1992, the Fraud Assessment Commission has collected approximately $25 million annually from California comp carriers, which are assessed a percentage of their annual premiums.

Half the funds go to the California Department of Insurance, while the other half is available to local district attorneys' offices for fighting fraud.

Of the $12.5 million available to California D.A.s, about $5 million - a full 40 percent - goes to the L.A. County District Attorney's Office [ILLUSTRATION FOR CHART OMITTED]. Within the Southland, Orange County is slated to receive $1.2 million in fiscal 1994-95, while Riverside County is to get $535,000, and Ventura County is to receive about $281,000.

"L.A. County is the biggest recipient (of Fraud Assessment Commission funds) by a long stretch. They've been very active in fighting workers' comp fraud," said Joe Markey, chairman of the Fraud Assessment Commission.

As an example of L.A. County's fraud-fighting efforts, the Los Angeles D.A.'s Office recently brought charges against 14 people, including a former L.A. city personnel supervisor, for embezzling $1.1 million in workers' comp funds between August 1992 and June 1994. The bust was billed by the D.A.'s Office as the largest prosecution for workers' comp fraud against a public entity in California history.

Aggressive on auto

The crackdown on workers' comp fraud may be taking much of the spotlight in L.A. County, but the District Attorney's Office has also stepped up its fight against auto insurance fraud in recent years.

Similar to its funding for workers' comp fraud cases, the D.A.'s Office receives funding directly from the state for its auto insurance anti-fraud activities. The funding comes to the D.A.'s Office via the Department of Insurance, which collects an annual $1 fee from auto insurance carriers for every car insured in the state. The collected funds are then divided up between the Department of Insurance, the California Highway Patrol and district attorneys' offices throughout the state.

David Guthman, head deputy district attorney at the L.A. District Attorney's Auto Insurance Fraud Division, said his division within the D.A.'s Office was established in 1993. Before that, all auto insurance anti-fraud work was handled from the Los Angeles D.A.'s major fraud unit, he said.

The L.A. County auto insurance fraud division receives between $3.2 million and $4 million annually from the state. The division employs a staff of 45.

In its first year of operation, Guthman's division posted some solid numbers on its somewhat limited budget.

"In our first full year, we sent a total of 38 people to prison, with an average jail sentence of two and a half years," said Guthman, adding that his division's work also resulted in $2 million of paid-in restitutions.

He said the two most serious kinds of auto insurance fraud in L.A. County are staged accidents and "paper" claims, whereby people submit claims for accidents or auto thefts that never occurred.

Because the L.A. anti-fraud divisions for workers' comp and auto insurance receive their funding from insurance companies, via allocations from the state, they are not being affected by any cuts in the county budget, Guthman explained.

"This is a part of the D.A.'s Office that doesn't cost L.A. County one cent in tax dollars," he said.