Audit: Industrial Commission lacks ability to track workers' compensation cheats

A report out today from the State Auditor's Office blasts the North Carolina Industrial Commission, which is supposed to ensure companies pay workers' compensation premiums. Among the reports findings:

The commission does not have the complete, accurate and reliable data necessary to proactively identify non-compliant businesses.

The Industrial Commission could potentially match data from two sources, the Division of Employment Security and the North Carolina Rate Bureau to identify non-compliant businesses.

Employment Security has information on the businesses that operate within North Carolina, and the Rate Bureau has data on which businesses have workers’ compensation coverage. A match between the two sources could help identify businesses within North Carolina that do not have workers’ compensation coverage. However, significant differences in the data files prevent reliable data matching and identification of non-compliant businesses.

The commission does not use available data to investigate potential noncompliance with the Workers’ Compensation Act.

Specifically, the commission does not follow up on workers’ compensation insurance cancellations and lapses that the Rate Bureau reports to the commission. For the 2012 fiscal year, the Rate Bureau reported that 11,323 businesses either canceled their coverage or let it lapse. Although some businesses may have obtained other coverage or had a change in circumstances so that workers’ compensation coverage was no longer required, some of the cancellations may have resulted in businesses becoming non-compliant with the Workers’ Compensation Act. Consequently, the lack of follow-up could leave North Carolina citizens at risk unnecessarily.

The commission has not strictly enforced penalty assessments and collections on businesses that fail to comply with the Workers’ Compensation Act.

The commission has not only failed to punish non-compliant businesses, but North Carolina schools may have been deprived of millions of dollars of needed funds. In fiscal year 2011, the commission assessed $79,025 in penalties, of which it collected $59,925. In May 2012, the commission changed its procedures and began assessing penalties as soon as a potential uninsured case was identified by its Claims Department.

However, nothing prevented the commission from operating that way in the past. As a result of the operational change, assessed penalties increased to $6.5 million, an 8,125 percent increase, in state fiscal year 2012, of which $106,334, or 2 percent, has been collected.

Because state law requires the “clear proceeds” of penalties assessed and collected by the commission to be remitted to the Civil Penalty and Forfeiture Fund and “faithfully used exclusively for maintaining free public schools,” lax penalty enforcement by the commission deprives schools of needed funds.

In an official response included with the audit, the commission acknowledged all three problems and said it was working to correct them. The report expands on many of the same findings as a News & Observer series on the topic.