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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.

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

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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.

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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."

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

Just an Accident – or a Chance for Fraud?

It was just a small auto accident. A fender
bender. A wrong turn at an inappropriate time. The damage wasn’t
too severe, but "not too severe" can mean thousands
of dollars. The injuries were minor, tempers flared, emotions
were high. Maybe there was a little discomfort, a few sore spots.
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But all in all, it wasn’t as bad as it could
have been. Or is it?

From an owner’s viewpoint: It’s damage to
my pride and joy. I still have 38 payments to go. I’m frustrated
at the very least. It’s going to take some time going to the insurance
company and going to the shop. It’s just one more aggravation
in my already hectic world. But isn’t that how the neighbor got
the new paint job on his car and the guy at work found the money
to take a vacation? And didn’t my brother-in-law not have to pay
his deductible that time when he backed out and hit my mailbox?
Surely I can get something out of this. And didn’t old Fred Sanford
say, "Ah-h-h whiplash – it rhymes with get cash"?

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From a repair facility’s viewpoint: Here comes
another customer, and the profit on this job may help us buy that
new piece of equipment the technicians say we need. It’s a good
job, something else to keep the guys in the back busy. After all,
there just doesn’t seem like there are as many wrecks as there
used to be. I have to make it up on this one. If we get lucky
and everything goes right, I may even be able to pay my suppliers
this month. It may even be one of those jobs that I can bill for
a lot of parts, but straighten and replace the old ones. Those
phantom-parts jobs are really profitable. I may even be able to
make some money back on that last job.

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From an appraiser’s viewpoint: Here’s another
assignment. With the way things are, I need to get this one turned
around in a hurry. If I can turn it quickly, maybe the fee will
cover the time I spend. Demands on us are increasing from all
sides. I’ve got to make the insurer happy, the car owner happy
and, at the same time, not upset the shop. Maybe I can put a feather
in my cap by getting by without paying for some of those little
items. If the shop says anything, I’ll just hide it somewhere
else in the repair. With a little creative writing, I can make
everyone happy. Maybe the shop will already have the estimate
written and all I’ll have to do is copy it. No one will know the
difference. This could turn into a big day if I get several of
these. Maybe I can even get the shop to fix my headlight if I
don’t hassle him too much and put a little extra on the estimate.

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From an insurance company’s viewpoint: It’s
a loss, but if we manage the claim correctly, we’ll be able to
control the cost and keep our customers satisfied. The claims
staff and the independent appraisers we hire are good. I know
they’ll protect us. The insurance department regulators are coming
down on us because they think our rates are too high. We must
keep our rates low. Claims cost our company money.

While not all individuals attempt a fraudulent
act, a growing number of individuals view it as the American way.
People have been trying to squeeze the maximum dollars out of
an insurance settlement for years – sometimes in legal ways and
sometimes by using more creative methods than the law allows.
But in reality, even small amounts of insurance fraud can add
up to billions of dollars. Everyone who purchases insurance pays
the tab.

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Reprinted from the Collision Industry Conference
Guide To Fraud Awareness (Revised November 1997).

Dos & Don’ts Concerning Fraud

Do:

  • Write as complete and accurate a damage report as possible.
  • Be knowledgeable in the repair process.
  • Make only factual statements.
  • Be absolutely sure you have the authority before making agreements.
  • Document all actions.
  • Be sure everyone involved is aware of exactly what is to transpire
    in the repair process (customer, appraiser, repairer, insurance
    company).
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  • Invoice for exactly what’s repaired and how it’s repaired.
  • Clearly spell out what’s expected from all parties. Write
    instructions or conditions and file them when practical.

  • Approach all endeavors with the highest degree of professionalism.
  • Respect opposing points of view, but be steadfast in your
    own if other positions conflict with what is right.

  • Understand that things change and that, when they do, new
    agreements must be made; all must be aware of and in agreement
    with any alterations to an original agreement.

  • Write only what’s needed and necessary to complete repairs.
  • Follow manufacturer and industry established procedures for
    repairs.

  • Document, document, document … Verify, verify, verify.
  • Use common sense.
  • Advise customers when they ask you to take an action that
    might be perceived as fraud, that might be considered fraud or,
    at the very least, poor business. Your business cannot afford
    to be involved.

Don’t:

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  • Lie!
  • Write something you know won’t be done to cover something
    else.

  • Overwrite repair allowances.
  • Write unneeded repairs (i.e. R/I and/or R/R when they’re not
    needed).

  • Ask for special deals on personal work.
  • Write unneeded parts.
  • Make misleading statements concerning any repairs.
  • Accept gratuities of any type (there is no free lunch).
  • Agree to something while knowing it’s in direct conflict with
    company policy.

  • Cover up for vehicle owners (i.e. fail to disclose prior damage
    or pertinent facts when they’re known).

Reprinted from the Collision Industry Conference Guide To Fraud
Awareness (Revised November 1997).

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