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Fighting Fraud

Bring up the subject of fraud and most people within hearing distance will turn tail and run the other direction.

By Paul Elkins
6/1/1998

"Hush," they say. "You shouldn't talk about that," they say. "It's not really an issue," they say.

Do they think that if they don't talk about it, don't learn about it and don't watch out for it, it won't exist? Hear no evil, see no evil, speak no evil - right?

The problem is, whether you talk about it or not, fraud does exist. And it will continue to exist until the industry as a whole - that includes you - learns what constitutes fraud and how to fight it. You can't just cover your ears, shut your eyes and bite your tongue. You have to take a stand and speak out.

What is Fraud?
In defense, most people are probably unaware of just what constitutes fraud. Ignorance, however, is no longer a defense.

Fraud comes in many forms and is perpetuated by many sources - shop owners, insurance companies, vendors, workers and customers. Fraud exists in the actions we take when confronted with a situation of deception.

Webster's dictionary describes fraud as "deceit, trickery; specifically, intentional perversion of truth to induce another to part with something of value or to surrender a legal right; an act of deceiving or misrepresenting."

A legal definition of fraud reads: "Deceitful conduct designed to manipulate another person to give something of value by (1) lying, (2) repeating something that is or ought to have been known by the fraudulent party as false or suspect or (3) concealing a fact from the other party that may have saved that party from being cheated. The existence of fraud will cause a court to void a contract and can give rise to criminal liability.

Fraud can be found in every facet of business; for example, when a shop owner pays technicians based on an amount of time charged for a repair while charging customers for a different amount of time, it's considered double sheeting the workers to make more profits. And that's considered fraud.

How to Recognize It
When you look at how you conduct business on a daily basis, do you pay attention to practices that may fall under these descriptions? For the most part, no one does. Instead, we all tend to reserve the term "fraud" for those blatant activities so often exploited on the evening news.

But fraud isn't always so obvious. Consider this scenario: Recently, I was visiting a shop that had a customer's car in for repairs. All the parts needed for the repair were on site - including an inner wheel housing listed on the estimate.

But no one was working on the car.

Instead, the shop manager and an insurance appraiser were discussing whether the inner wheel housing really needed to be replaced. The shop manager wanted to remove the part and the labor required listed on a supplement; the appraiser wanted to offer him a deal.

The manager, the appraiser said, could just throw the new part in the trash and then use the money he would receive for installing the part to pay for some additional procedures that weren't on the estimate.

After a little more discussion, an agreement was struck. Does this constitute fraud?

Yes! By all means. The shop manager, however, thought since the appraiser struck the deal, it was OK. He was wrong.

This is a blatant act of fraud toward the insurance company, the shop owner, the technician and the vehicle owner. Not only did the shop manager and the appraiser commit fraud, they forced the insurance company, the shop owner and the technician to unknowingly be party to their actions.

When making business transactions with customers and their insurance carriers, be on the lookout for agreements that may be construed as deceptive or fraudulent. Like they told you in driving class, act defensively. Always expect the unexpected and know how to react.

You should also be aware that this attitude may, at times, cost the shop business - including DRP work. A while ago, I was in an I-CAR Gold Class shop that held several DRP contracts. The owner took great pride in being an I-CAR Gold Class shop and geared his marketing toward that fact. His DRP contracts, in fact, required the shop to be I-CAR certified.

After a little investigating, I found the shop had at one time received I-CAR Gold Class status, but the shop owner had since replaced most of his technicians - and their I-CAR certifications were expired. I found only one technician with valid certification for refinishing - and he was a body tech. The shop owner hadn't realized or checked the technicians certifications for expiration or designation.

Does this constitute fraud?

Yes. The shop's customers and the insurance companies it held DRPs with were under the impression the shop employed certified technicians. Even the shop manager thought he had certified technicians.

Still, It's Fraud
The way we conduct business today vs. a generation ago has changed dramatically - it's had to. There are now more players and even more rules. What was once an accepted way of transacting business is now suspect to fraud.

I remember hearing about a particular shop caught by an insurance company for committing fraud when the shop owner signed up for his first DRP. Business as usual at this shop included the following practice:

If a customer wanted additional repairs performed - beyond those written on the estimate - the shop technicians would put used or repair damaged parts in place of new and then use the difference in cost to offset the cost of the additional repairs. But the shop still charged the insurance company for the cost of the new parts and required labor.

The shop had conducted business this way for years and never had a problem. The owner never considered it fraud. He reasoned the money the insurance company was paying for the repair was rightly the vehicle owner's money and could be spent as he or she wanted.

Is this right? No. The shop owner deceived the insurance company by arbitrarily changing a repair contract and charging for unrelated repairs. Who committed this fraud? Both the shop and the vehicle owner.

Why Commit Fraud?
Many shop owners feel the only way they can make money is to walk the fine line between honesty and fraud. Often, however, they willingly cross the line.

A few years ago, I was in a shop that was repairing a very expensive European car. The vehicle needed a new wire loom that cost about $2,000. The shop manager couldn't get the new part right away because it had to be backordered from Europe. So he located a partial wire loom at a salvage yard and, using the used part, repaired the damaged loom rather than replace it.

I can't tell you how many times he and his technicians laughed about how they bought the used part for $200 and charged the insurance company $2,000. The shop manager said that's why they specialize in expensive foreign cars - because it's easy to make great profits. Shops like this perpetuate the image that the collision industry is dishonest.

Another reason fraud is so prevalent in this industry is because what's considered fraud in one area of the country is an acceptable practice in another. The repair industry is a fragmented one. And without some kind of unity, some kind of consensus on repair methods and business practices, fraud will continue to breed.

Put a Stop to It
Because fraud is so rampant in the insurance claims arena, most states, insurance companies and collision industry organizations are attempting to level the playing field by writing more laws and by pursuing those who commit fraudulent transactions. At this time, there are several class action lawsuits against insurance companies for fraudulent practices and deception. There are also shops that are being pursued for fraud.

What can you do to put a stop to fraud? If you question the way someone - including you and your employees - conducts business, charges for repairs or performs work, speak up and do something to put a stop to it.

There's no reason to follow through with any questionable practices. Remember, ignorance isn't a defense. Neither is, "We've always done it that way."

Business has changed and so must you. Closing your eyes and keeping your mouth shut won't make fraud disappear. What it will do is make you an accomplice.

Writer Paul M. Elkins is the senior consultant for Elkins & Elkins Consulting, a value-added, hands-on consulting company that provides solutions to an owner's areas of concern.