Four Questions Interview with Matthew Capece

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America is rife with complex plots by businesses to illegally dodge workers-comp premiums. The flourishing underground economy that exists in many urban centers adds more kindling to the fraud fire, especially in construction. FraudWire reached out to Matthew Capece, senior executive with the United Brotherhood of Carpenters, for his thoughts. He’s been a specialist in employer payroll fraud in construction since 1989.

Workers compensation insurers have long dealt with premium-avoidance schemes. Among the ploys are lowballing workforce size and payroll, and misclassifying employees as independent contractors. How prevalent are premium scams in construction trades, and are any variations unique to construction?

Workers-compensation premium scams involving construction projects are alarmingly commonplace. They regularly occur on residential projects. We even find them on large commercial sites, schools, hospitals, high-rise condos and government jobs like military bases. Fraud has become standard operating procedure in a number of states, including Colorado, Florida, Georgia and Tennessee. But it is happening all across the country.

The schemes vary in sophistication, but the growing practice is using subcontract labor brokers. For instance, interior-systems specialty subcontractors install metal studs, sheetrock and ceilings. They also provide supervision and, maybe, some hands-on labor.

The bulk of their labor comes from brokers. Yet the specialty subcontractor supervises and treats the labor brokers’ workers like their own employees. Labor brokers aren’t staffing companies; they are individuals who can muster a handful to hundreds of construction workers. They may have a business office, but much of the time they operate out of a residence. They can either be incorporated or be dba’s.

Labor brokers will misclassify employees as 1099 subcontractors, but most pay employees under the table in cash or with a check. Some labor brokers are uninsured and use fake certificates of insurance, but many have policies. The problem is they pay premiums on a fraction of their true payrolls. There is a case in Florida where an insurance broker issued 450 insurance certificates to a labor broker, claiming $43,000 in payroll for four workers. Sophisticated schemes like those in Florida involve insurance brokers, accountants, upper-tier contractors, shell companies and check-cashing stores.

These schemes work well for specialty subcontractors. They use the lower labor costs from the brokers to underbid law-abiding competitors, while brandishing the subcontract relationship with brokers and insurance certificate to shield against liability. That is how they drive full-premium-paying contractors out of business and take control of markets.

I am not as familiar with other industries as I am with construction. I do know that the labor-broker system grew from the agricultural industry. In general, the practice of subcontracting labor has been growing. Still, the various studies of fraudulent employment practices universally list construction as a leading abuser.

We know it’s hard to measure workers compensation fraud nationally. Still, do you have any sense of how big premium scheming is (including lost revenues), and how it compares to bogus work injury claims in overall size?

I haven’t found a national study on the degree of workers-compensation premium fraud in the construction industry, but there are state studies. In Tennessee, carriers lost $91.6 million in 2006 and in California they lost $264 million in 2011. We think those estimates are low. Consider the 2008 West Palm Beach, Florida Grand Jury report on illicit use of check-cashing stores. The report described how just 10 contractors moved $1 billion in cash pay through check cashers in less than three years. You can find these studies and reports on our informational website.

Claimant fraud is less costly than employer premium fraud. A California report, though, shows premium fraud losses to carriers are much greater than claimant fraud. Total fraud losses from cases with the Department of Insurance amounted to $8 million in the first six months of 2013. Of that, $6.7 million came from premium fraud and $1.3 million from false claims. Those numbers were not broken down by industry. It’s noteworthy that claimant fraudsters were more likely to get jailed than employers.

Carriers are losing a shocking amount of premiums. Still, despite the significant dollars lost, premium fraud doesn’t get the attention it should. If we could double the premium-fraud losses caught by California it would mean a yearly number of $13.4 million. That’s just 5 percent of the $264 million lost in the construction industry alone.

How are key states identifying premium schemes and strengthening laws or other enforcement tools to combat them?

A number of states are taking innovative actions against premium fraud. The California insurance department gives grants to county district attorneys to fund insurance fraud prosecutions.

Washington is a monopolistic state. It uses fraud-detection software that compares information in various databases to identify likely abusers for premium-fraud audits. Tennessee is a private-market state. It has just installed a similar system. The legislature funded the system and additional compliance investigators. They also added a law creating civil penalties for premium avoidance.

Florida has dedicated workers-compensation compliance prosecutors in select counties. They also have a new database that gets real-time information about checks cashed at check-cashing stores that they compare to proof-of-coverage information. Both Florida and Connecticut also have demonstrated that they aren’t afraid to use their stop-work-order authority.

States need robust tools for both civil and criminal enforcement. But they can’t just be used against labor brokers. Enforcement must reach all parties involved, including the specialty subcontractors and other upper-tier contractors involved in schemes. Labor brokers are abundant and easily replaced.

How can the anti-fraud community partner with your union to combat workers-comp premium scams?

Because we are a construction union, we know how the industry operates, and specific job-site conditions and cheating employers. We can share that information with carriers and enforcement agencies willing to act. We also welcome others to work with us to strengthen state and federal law- enforcement capabilities. They include union and non-union employers, carriers and community organizations.

But it can’t stop there. We each must examine our own practices that encourage, enable or fail to detect fraud. The construction industry must change course and stop awarding work to scofflaws. Insurance certificates need to be modified so insurers can track the number being issued, and insurance certificates should indicate the amount of payroll and work classifications. Also, insurers should re-evaluate their auditing procedures, and whether premiums truly capture the risk posed by contractors and subcontractors using the labor-broker system.

Also, educating stakeholders is a large part of what we do. For more information, follow us on Twitter @nixpayrollfraud and visit payrollfraud.net.

We are prepared to engage with fellow stakeholders. Action is needed. Contractors who pay their full premiums are being marginalized in significant markets. They face increasing pressure to join in illegal schemes or go out of business. Moreover, insurance carriers are losing millions in premiums daily.

Source: Fraud Wire
Photo: Fraud Wire

Allying with carpenters against workers-comp premium cheaters

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Workers-comp premium scams by employers may steal more money than bogus work injury claims. At least that’s what many experts say. And the problem could be growing. This is especially true in urban centers with deep underground economies.

Firms in the dangerous construction trades are among the largest offenders. The Coalition met recently with a new and unexpected anti-fraud ally: the United Brotherhood of Carpenters. It’s the voice of organized labor in the building trades. Premium-avoidance schemes leave workers exposed without state-required benefits. Federal, state and local governments also lose untold millions in unpaid taxes.

Shady businesses lowball their workforce and payroll size — two important factors in setting comp premiums. The firms misclassify workers as subcontractors, then pay them in cash under the table. A dishonest employer illegally can duck hundreds of thousands of dollars in workers-comp premiums and taxes in a year.

Workers also are cheated out of workers-comp benefits, wages, overtime, unemployment benefits and Social Security. Honest employers lose business because cheaters use the illicit savings to underbid them for contracts. And, workers comp insurers lose premiums.

The Coalition’s recent meeting with the carpenters union revealed disturbing examples of premium-avoidance schemes: A building at the University of Connecticut … Florida hospital … construction at the Atlanta airport … and a building at the Walter Reed military hospital complex in suburban Washington, D.C.

The carpenters’ proposals for comp insurers show how partnerships can help move anti-fraud efforts forward more decisively:

  • Work together on best practices for conducting audits and investigations into premium-avoidance schemes;
  • Adopt procedures to red-flag suspected premium fraud; and
  • Cooperate with stakeholders on investigations.

Workers-comp insurers already do much of this, yet premium cons remain virulent. What’s needed is stepped-up alertness and action by all parties. This becomes a force-multiplier that identifies more schemes, and boosts the entire anti-fraud effort.

Fraud fighters and their allies must team up to educate state policymakers about stopping costly comp scams — premium avoidance and false injury claims. Fraud fighters can speed up progress by enlisting non-traditional allies such as the carpenters union. The more influential allies that join anti-fraud efforts, the stronger our efforts against comp scams will become.

Source: Fraud Wire
Graphic: Fraud Wire
Image: Bernard Pollack

Louisville Open House Competition Winners

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Congratuations to our 2017 Louisville winners! Millwright: Casey Adams (Local 1076), General Carpentry: Henry Schultz-Eggenspiller (Local 175), Interior Systems: Jonathan “Kyle” Watkins (Local 1650).

Newburgh Open House Competition Winners

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Congratuations on our 2017 Newburgh open house apprenticeship competition winners! Millwright: Mario Leachman (Local 1076), General Carpentry: Matt Hoogsteen (Local 224), Interior Systems: Adam Kinney (Local 224).

IKORCC “Pinpoints” what it means to have dedication with annual pin banquet

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As an annual tradition, members of the Carpenters Local #1485 of LaPorte, Indiana gathered at Blue Chip Casino to recognize years of service, leadership, and economic accomplishments.

“I like this event because it is a chance for us to come together to honor our members and their service to our union and to our brotherhood. It shows what this union means to our members and it gives them a chance to come and share with each other one night a year,” said President John Carr.

Following dinner and music, guests were treated to a presentation given by Carr on payroll fraud as well as apprenticeship.

Payroll fraud is prevalent in the wood framing and drywall industry, creating upwards of a 30% disadvantage to law abiding contractors. According to Carr, Indiana is losing more than $150 million annually in state tax revenues.

“Worker misclassification is an epidemic in our communities that must be addressed with strict enforcement. We have to do something at the local level to protect all law abiding local contractors who employ local skilled tradesman,” Carr said.

The United Brotherhood of Carpenters has also taken notice to the rise of apprenticeships. With over 7,000 registered apprentices, Indiana is one of the top states in the country in terms of apprenticeship opportunity.

Carr said, “We are the only organization that is effectively training and preparing carpenters for the future. We are building job site leaders and investing in our greatest resource, our members, who are also our contractor’s greatest resource.”

Following Carr’s presentation, his wife Angie took the podium to discuss United for Carpenters (U4C), a group of carpenters’ spouses that spend their time teaching children and grandchildren of the 1485 group. They focus on core values that children will be able to use throughout their life, whether they are following in the footsteps of their family and becoming carpenters or pursuing a different career path. The group also educates children on the union and what their parent’s careers entail.

“We are here to make an impact and to make an impact you need a lot of supporters. What you need to remember is your biggest supporter is your family,” said Angie Carr.

The group has recently been recognized by the UBC office in Greenwood and they will be used as a pilot to expand the group for the whole Brotherhood.

Awards followed next, with Bert Cook of the Greater La Porte Economic Development Corporation being the first recipient. Cook was recognized for his “unwavering commitment to the city of La Porte.”

“It’s always a great honor to be acknowledged for any professional work you have done, but especially by this group,” said Cook. “We work together so often on so many important projects that have such a great impact on our community that for them to acknowledge me in that way is especially humbling. I think it is a testament to what can be accomplished when we work in partnership with one another and how we can move our communities forward.”

The next award was given to a member who has left their legacy for others to strive for. Dave Tharp, Midwest District Vice-President of the UBC, was given the Legacy Award.

After being thanked for his commitment to the union, Tharp said, “I started my apprenticeship back in 1978 and the training the council gave me was skills that I’ve been living a lifetime with. I’ve had the pleasure of serving many different jobs, not only as a carpenter but as a representative through the years and it has just been very good for me. I have a son that is also in the trade and he certainly wouldn’t have followed in my footsteps if it hadn’t been good for me.”

Other awards of the evening included the Peter J. McGuire Award given to John Dudek for his dedication to service as a mentor, teacher, leader, and brother. For 64 years of service to Carpenters Local 1485, James L. Principe was recognized. Tom Dermody, state representative, was given a leadership award as well.

The evening concluded with recognition for milestone years of service, with members receiving pins.

Check out the photos!

Source: La Porte County Life

IKORCC Training Ensures Excellence From All Members

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The right people doing the right thing are directly correlated with the amount of training they receive. For the hardworking men and women of the carpentry brotherhood, training never ends.

Training is required on a yearly basis due to the constantly changing environment that carpentry represents. Every year new rules, equipment and technology enter the field requiring everyone to be up to date on the latest trends.

“It’s not just us who go to training but everyone,” says IKORCC Senior Manager Thomas Dorsey. “There is always something new to learn or something that is updated that we all have to be aware and knowledgeable of.”

Every year carpenters from across the country make a visit to Las Vegas to visit the Carpenter’s International Center. This million square foot, over 300 room facility is considered the hub of all things IKORCC and provides state-of-the-art training facilities and classrooms to ensure that both new and current generations of carpenters are properly prepared to face all challenges in the field.

“The IKORCC pays to have us fly down to the center for training,” says IKORCC Dorsey. “Just as they pay to create yearly up-to-date textbooks for students, they are always ensuring that those wanting to follow the carpentry path are knowledgeable, have plenty of learning materials in front of them and above all, are always prepared to enter the workforce to the best of their ability.”

Along with carpentry and construction skills, the ITC is also equipped to teach classes for specialty areas. While courses for interior systems and commercial work are offered, plenty of certified courses such as gas- and steam turbine installation are also offered.

“There are plenty of speciality courses offered for those learning and refining their craft but there’s even more offered on top of that,” says Dorsey. “There are courses designed to teach project management, productivity and communication, all of which essential skills for carpenters and leaders to remain successful in their field.

The ITC is not only an investment for the IKORCC but for every carpenter who works within the field of carpentry. In this ever changing field it’s more important to stay up to date and knowledgeable in order to provide only the best when it comes to building the places we live, work and enjoy.

Source: ValpoLife.com

Guilty plea by contractor, nearly $800K in restitution to cheated workers

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NEW  YORK – Attorney General Eric T. Schneiderman and New York City Department of Investigation Commissioner Mark G. Peters announced on Friday, March 18, 2016, the guilty pleas of Sergio Raymundo, 28, and his New Paltz-based construction company Lalo Drywall, Inc. 

Both defendants pleaded guilty in Manhattan Supreme Court and must pay $793,509.60 in restitution and $83,143.76 in unpaid unemployment contributions due to the New York State Department of Labor, Unemployment Insurance Division. 

Raymundo and Lalo Drywall, Inc. cheated eight workers at a Harlem housing project out of approximately $800,000.00 in wages during a 17-month period, and attempted to conceal the underpayments by signing false checks drawn on the company’s account indicating that employees on the job were paid properly under the law. However, those checks were never actually given to the workers.

“No matter how creative they become in their illegal schemes, dishonest contractors will be held accountable. This guilty plea demonstrates that my office will continue to take aggressive action against public works contractors who cheat their employees out of proper wages and who abuse taxpayer money” said Attorney General Schneiderman. “Workers must be paid for their labor, and my office is committed to ensuring that workers who are cheated out of wages are rightfully compensated.”

NYC Department of Investigation Commissioner Mark G. Peters said, “The pleas by these defendants, and the restitution being awarded to workers who were cheated out of nearly $800,000 in rightful pay, demonstrates that wage theft at public works projects is a serious crime with consequences. DOI will continue to pursue and expose employers who attempt to steal workers hard-earned wages. I thank the Attorney General and our partner agencies for their efforts in uncovering and prosecuting these crimes.”

Sergio Raymundo pleaded guilty to one count of Falsifying Business Records in the First Degree under New York State’s Penal Law, a class E felony, as well as to one count of Failure to Pay Wages under New York State’s Labor Law, an unclassified misdemeanor.

With his plea, Raymundo paid $350,000.00 to the Office of the Attorney General (OAG). representing restitution and unpaid unemployment contributions by Lalo Drywall, Inc. At sentencing, under the plea agreement, Raymundo must pay another $210,000.00 representing an additional amount of restitution and unpaid unemployment contributions.  The remaining $318,150.56 in restitution and unpaid unemployment contributions will be paid during Raymundo’ post-conviction sentence.

Lalo Drywall, Inc. pleaded guilty to one count of Falsifying Business Records in the First Degree, a class E felony, and will be sentenced to a conditional discharge.  Under the plea agreements, both Raymundo and Lalo Drywall, Inc. are also barred from bidding on or being awarded any public works contracts in New York State for the next 5 years.

This plea stemmed from the April 2015 arrests of five subcontractors as part of an ongoing focus by Attorney General Eric T. Schneiderman and New York City Department of Investigation Commissioner Mark G. Peters on widespread allegations of wage theft at public works projects in New York City. One of the subcontractors was Lalo Drywall, Inc., which was investigated for underpayment schemes that took place between April 10, 2013 and August 27, 2014 at the New York City Department of Housing Preservation and Development’s (HPD) Sugar Hill Houses, a mixed-use, commercial and low-income residential project in Harlem, which was subject to prevailing wage requirements.  Federal and state prevailing wage laws seek to ensure that government contractors pay wages and benefits that are comparable to the local norms for a given trade, typically well above the state and federal minimum wage.

The case was investigated by Deputy Inspector General David Jordan and Assistant Inspector General Ondie Frederick under the supervision of Inspector General Jessica Heegan. The Department of Investigation’s effort to combat prevailing wage violations was overseen by Senior Associate Commissioner Michael Carroll and Associate Commissioner William Jorgenson.

Source: Hudson Valley News Network

Bill would make state investigations into wage theft a public record

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COLORADO – A Rocky Mountain PBS News investigation has prompted proposed state legislation to improve transparency of information concerning employers’ wage violations.

House Bill 16-1347 would turn previously secret records on whether an employer had violated wage laws into public records. That means that the public would have access to such information as cases of employers who were found to have illegally withheld pay or underpaid their employees.

Rocky Mountain PBS News showed how some employers have made cheating workers a way of business and how state labor authorities and outdated laws have shielded the actions of bad actors from public view.

The existing 100-year-old law has been interpreted as requiring the investigative process to be kept secret, even when issues are resolved. Federal labor investigations, meanwhile, have an easily accessible mobile app.

House Bill 16-1347 makes one caveat: the state Department of Labor and Employment is prohibited from releasing trade secrets, which are deemed confidential. When someone requests information on wage violations, the bill mandates that the department must notify the employer, who then has ten days to respond with further information to show if a trade secret is at issue.

You can read the full text of the proposed legislation here.

Source: Rocky Mountain PBS News

Senator Brown proposes anti-wage theft legislation

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CINCINNATI, OH – In the wake of Cincinnati becoming the first Ohio city to pass a wage theft ordinance, one of Ohio’s senators is trying to bring the momentum nationwide.

U.S. Sen. Sherrod Brown introduced the Wage Theft Prevention and Wage Recovery Act Wednesday. The legislation would give workers the right to receive full compensation for all of the work they perform, as well as the right to receive regular paystubs and final paychecks in a timely manner.

It would also provide workers with tools to recover stolen wages and make assistance available to enhance the enforcement of and compliance with wage and hour laws.

The bill was co-sponsored by U.S. Sen. Patty Murray, D-Wash.; U.S. Rep. Rosa DeLauro, D-Conn., introduced companion legislation in the House of Representatives.

Wage theft occurs when employers refuse to pay workers money that they are owed by withholding pay, tips or overtime.

“When bosses don’t pay their workers what they’re owed, it robs them of money they earned for their hard work and hurts businesses that play by the rules,” Brown said in a news release.

“We must create a system where employers who steal wages are held accountable and workers have the tools they need to recover their wages when they’ve been cheated.”

A 2009 study by the National Employment Law Project (NELP) of nearly 4,500 low-wage workers found that more than 60 percent had been shorted by their employer each week, equivalent to $2,634 per year in unpaid wages. Analysts applying this study to Cincinnati estimate that low-wage workers here lose $52 million per year to wage theft.

Low-wage and immigrant workers are victims of wage theft when they are paid less than the minimum wage, are shorted hours, forced to work off the clock, are not paid overtime or not paid at all. These are pervasive practices across many industries.

Despite complaints about wage theft, Ohio has cut the number of state wage investigators from 15 to five since 2008.  The closest investigator to Hamilton County is located in Dayton, Ohio.

In early February, Cincinnati became the first city in Ohio to pass an ordinance to improve enforcement of existing wage laws.

City Council voted 7-2 for the ordinance. Under the measure, if the city or another agency determines a company has committed wage theft, city officials would be able to have the money returned and the company would be barred from doing business with the city.

During a news conference call Wednesday, Brown was joined by Brennan Grayson, director of the Interfaith Workers Center in Cincinnati, who helped organize support for Cincinnati’s recently-passed wage theft ordinance.

“Sen. Brown’s bill is the type of change we need to begin making things right, to begin restoring dignity to wage earners,” Grayson said.

Under the Ohio Democrat’s proposal, workers would recoup the full compensation that employers have taken from them, create a civil penalty of $2,000 when employers violate minimum wage and overtime protections and  increase the time that employees have to bring a claim for owed wages.

The bill also would make it easier for employees to take collective action to recover their stolen wages and remove the current requirement that employees affirmatively “opt-in” to engage in a collective action under the Fair Labor Standards Act.

Last November, Brown introduced legislation to take action against employers that misclassify their workers to cheat them out of wages, benefits, and important workplace protections – one of the practices that contributes to wage theft. He has also introduced bills to raise the minimum wage, expand paid sick leave to all workers and support workers’ right to bargain with employers.

Source: Cincinnati.com

ICRA in the news!

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The Infection Control Risk Assessment (ICRA) program was recently featured on PortageLife.com for its efforts to keep hospitals safe and infection-free during construction and renovation.

Workers Endeavor to Keep Hospital Safe with ICRA Training
Written by Kyle Hovanec 

For those involved in construction or the upkeep of a hospital, taking the necessary steps to maintain a clean and safe environment during construction and maintenance projects is an essential precaution needed to keep people safe. Following these steps goes beyond simple exercises such as washing hands, it requires the knowledge and training taught by professionals to make sure each project is safe. ICRA involves methods and strategies taught by the Indiana/Kentucky/Ohio Regional Council of Carpenters (IKORCC) to teach and prepare workers for working safely and efficiently in healthcare environments by teaching them methods designed to understand infection and contamination risks, specialized procedures, proper job site conduct and dress as well as proper communication.

Read the full article!

Do you want to ensure infection control best practices are used by construction workers in upcoming renovation or construction projects at your healthcare facility? Contact Brad Murphy at 317.605.1386 or bmurphy@ikorcc.com for a list of contractors in your area that use ICRA-trained staff.

Construction ICRA Best Practices is an innovative program that provides patient-focused training for Carpenters and other trades working in hospitals, medical facilities or other occupied spaces. This set of best practices helps prevent the spread of disease and infection during construction at healthcare facilities. ICRA instructors also offer training opportunities to healthcare facility staff.