Once upon a time, an honest Seattle flooring contractor grew frustrated at losing bid after bid to his competitors. How could they undercut his prices so drastically when his prices already were cut to the bone?

The answer is, his competitors cheat the system by dodging the state workers' compensation insurance premiums.

While our hero played by the rules, he lost jobs to those who didn't. Welcome to the so-called "underground economy," where there isn't a fairy-tale ending.

This true story of Craig Munson's business trials captured my attention when he brought me a list of all his competitors that failed to pay workers' comp insurance. It was staggering so many of his competitors failed to open workers' comp accounts with the Department of Labor & Industries.

This kind of fraud costs taxpayers and honest businesses millions of dollars each year and L&I is cracking down.

Of the 168,000 employers and contractors L&I provides workers' compensation coverage for, only a small portion commit fraud. Identifying the bad actors in the system can be like searching for a needle in a haystack.

L&I has invested in better technology and advanced analytics to find businesses and individuals breaking the law. Better fraud detection means more time spent going after the bad guys and less time with those who play by the rules.

We are using IRS data and outside expertise to detect those who report more into the employment security system than they are reporting to L&I.

And our efforts are paying off.

In fiscal year 2010, the amount collected by our fraud-fighting efforts was $137 million - a 46-percent increase since 2004, the year before L&I's fraud prevention and compliance program was established. L&I is averaging a return of $8 for each dollar invested in these efforts and we expect these numbers to increase as we implement new fraud-detection technology next spring.

For those frustrated employers around Washington, know your complaints are met with action. We know how tough it is in today's economy and we are doing all we can to level the playing field for honest businesses.

And if you suspect fraud in the workplace, whether by businesses, workers or providers, contact L&I at 888-811-5974 or visit www.fraud.lni.wa.gov. All leads are investigated.

For the latest in what's going on with fraud at L&I, visit my fraud blog at nailed.lni.wa.gov.



Carl Hammersburg is fraud prevention and compliance manager for the Washington State Department of Labor & Industries.