Office of Financial Regulation’s MSB Facilitated Workers’ Compensation Fraud Work Group Issues Report and Recommendation to Florida House; Draws Criticism from Legislators.

Nov 04, 2011   

On November 2, 2011, Floridas Office of Financial Regulations “MSB Facilitated Workers Compensation Fraud Workgroup” presented its much anticipated report and recommendations to the Florida House of Representatives Insurance and Banking Subcommittee. The report focused on recommendations for combating workers compensation fraud facilitated by Florida check-cashers. A copy of the report and recommendations can be read here.

As we previously reported, on August 2, 2011, the Financial Services Commission of the Florida Office of Financial Regulation (“OFR”) issued a report to Governor Rick Scott and his Cabinet regarding workers compensation fraud in the State of Florida. The cabinet report revealed that money services businesses have played an active, critical, and sometimes unknowing part in defrauding the workers compensation insurance market. A complete overview of the fraud scheme can be read here.

At that time, Florida C.F.O. Jeff Atwater announced the creation of a workgroup to study the issue of MSB facilitated workers compensation fraud and to make recommendations to combat the issue. Over the next several months, the workgroup met four times to analyze ways to combat the fraud scheme and develop comprehensive reforms. The November 2, 2011 presentation of the workgroups report and recommendations was the product of these meetings.

The workgroup provided several consensus recommendations to combat MSB facilitated workers compensation fraud. First, the workgroup called for the creation of a real-time database for check cashing transactions above $1,000. The workgroup reasoned that because shell corporations which drive workers compensation fraud incorporate and dissolve quickly, time is of the essence in detecting a fraud scheme. A real-time database would provide the OFR with the amount of the cashed check, the cashing entitys workers compensation policy number and other information currently required to be within a check cashers electronic logs. OFR would then compare this information with the amount of payroll reported to the insurer, thus indicating potential fraud schemes when reported payroll and total amounts of checks cashed differed.

The workgroup also recommended that that OFR be given the authority to make unannounced visits to inspect MSBs. Currently, Florida law prohibits unannounced visits and requires that OFR provide at least 15 days notice prior to inspection. See § 560.109, Fla. Stat. As explained by the workgroup, “the announcement of an exam or investigation allows unscrupulous licensees to hide, destroy, or otherwise tamper with the evidence that the [OFR] may collect in the course of the visit.”

The workgroup also recommended that the Legislature require licensed check cashers to provide the workers compensation policy number, under which a corporate payment instrument is cashed, to the OFR. This requirement would allow the OFR to compare estimated payroll reported on the policy with the amount and number of checks that are cashed for a policyholder and will enable regulators to more readily identify premium avoidance schemes.

Other consensus workgroup recommendations included: 1) requiring the Division of Workers Compensation to include payroll information of policy holders on its proof of coverage website; 2) modifying the check cashing statute, found at § 560.303, Fla. Stat. et seq., to require licensees to maintain a depository bank account for the purpose of negotiating all cashed checks in order to simplify audit trails; and 3) eliminating the mandatory six-month examination of new licensees, but still require examination “as soon as practicable” to allow OFR to focus regulatory resources on high priority cases.

The workgroup also provided several other recommendations which were not fully supported by the workgroup. The non-consensus recommendations included: 1) eliminating the ability to cash checks when the payee is a corporate entity or a third-party or set a threshold limit for the dollar amount allowable for such checks to be eligible for cashing; and 2) changing how certificates of insurance are issued by requiring that certificates be issued by the OFR.

Although the workgroup presented a host of recommendations, its inability to reach consensus on all recommendations drew criticism from subcommittee members. Additionally, the workgroups report drew criticism from some subcommittee members because the representatives did not feel the recommendations went far enough.

Fuerst Ittleman will continue to monitor this situation with a keen eye as implementation of the workgroups recommendations could result in changes to regulatory compliance for the Florida MSB industry. If you have questions pertaining to Floridas Office of Financial Regulations, the BSA, anti-money laundering compliance, or how to ensure that your business maintains regulatory compliance at both the state and federal levels, please contact us at