1. What is the purpose of your audit Suggest corrective measures Identify potential cost savers Determine compliance with company policy/regulations Criminal investigation/prosecution: Forensic

2. Know the potential Crimes/violations Definition of fraud  Intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right b : an act of deceiving or misrepresenting :  a misrepresentation or concealment of some fact material to a transaction that is made with knowledge of its falsity and with the intent to deceive another “The lie is the fraud and the fraud is the lie.”

3. SAMPLE VIOLATION: Insurance Code Section 11880(a): Premium Fraud Elements of the crime  A person makes or causes to be made any false statement  Of a fact material to the determination of the premium, rate or cost of a workers’ compensation insurance policy administered by SCIF  Knowing it is false  For the purpose of reducing the premium, rate or cost of the insurance

4. Know your victim’s business Workers’ Comp Insurance  Background for IC 11880(a): knowing how rates/premiums are determined  Rate determined by percentage of payroll paid by employer Number of employees x hourly wage paid = payroll  For particular job classification Roofers are more expensive to insure than clerical due to higher risk of injury.  Multiplied by the employer’s experience modification “X- mod” Employer’s past claims history: how safe is this employer “Good driver discount or bad driver penalty”

5. Know your suspect’s business How could suspect cheat on his WC premium?  Under-report number of employees  Under-report their wages  Misclassify their jobs to lower risk classification (Catch 22: some job classifications are based on the hourly rate paid: higher pay goes to more experienced workers = cheaper insurance rate BUT higher taxes so tell EDD rate of pay is lower)  Conceal work related accidents/injuries

6. What should you expect to find for documentation?  What is employer legally required to file? Wage statements to SCIF Withholdings to EDD Accident reports to Cal OSHA Payroll records/time cards Work schedules Contracts with customers Permits from local government agencies

7. What’s not there?  The sins of omission Concealment may = fraud

8. Who is in the best position to know the truth?  The bookkeeper/accountant  Employees  Union reps  Ex-employees  Non-culpable partner/co-owner  Witness with inside knowledge

9. Where else could I find the evidence I’m looking for?  Bank records  Wage complaints filed with Dept Industrial Relations  Company advertisements  Social media  Clients/Customers  Permits issued/licenses granted

10. Do the case like it was going to Jury Trial  How can we PROVE what you believe to be the crime?  Who can testify to necessary information Auditor as expert witness: beware cross-examination Explain case to jury: graphics, charts, layman’s terms  Authentication of documents: Where did it come from How know it is accurate, who can authenticate How authenticate signatures Source documentation

11. Trial (cont.)  Write reports so layman can understand  Permissible assumptions for tax purposes v. proof beyond a reasonable doubt for convictio  Tax audit: burden on taxpayer to produce evidence of compliance  Criminal prosecution: Burden of proof on prosecution

12. Alternative charges  Perjury at depositions  Tax Fraud  Forgery  Grand Theft