Prevent Repair Fraud

Oct. 1, 2007
The bad news: Committing fraud is easier than you might think. The good news: So is preventing it

You might not have meant to do it. you might not have even known you were doing it. Regardless, a fraudulent repair claim can have drastic effects on your shop’s bottom line and reputation.

U.S Legal Definitions online defines fraud generally as “an intentional misrepresentation of material existing fact … with knowledge of its falsity … upon which the other person relies with resulting injury or damage.”

But, as is the case with all things legal, the devil is in the details—U.S. Legal Definitions also notes, for example, that fraud can result from “negligent disregard of … truth and falsity.” And, here, says industry consultant Mark Olson, many shop owners are underinformed, particularly about the importance of proper documentation and proper repair processes.

“There is a disturbing pattern in many collision repairs,” Olson explains. “Some shops think they know what they’re doing, but they don’t really know what they don’t know.” As a result, he said, “people may be committing fraud without knowing it.”

Olson is president of Future Forensics, which specializes in collision-damage investigations, expert witnesses and seminars; and he’s also chief operating officer of VeriFacts, which offers seminars, hands-on coaching and quality assessments to repair and claims professionals. Through his work, Olson sees the repair industry from many sides and understands all too well how easily a standard repair can unintentionally turn into an improper repair.

Welding, for example, is one of the areas with the most potential for inadvertent improper repair, Olson notes, sketching a scenario to illustrate. Let’s say a technician is welding a number of points, and one of them has a small flaw. But when the vehicle moves to the next step in the repair process, the unnoticed flaw is then painted over, and the vehicle proceeds to be delivered to the customer.

Because of the flaw, the affected area of the vehicle might be weaker than manufacturer specifications; and if there is another collision, it could be catastrophic.

“Is that fraud?” Olson asks. He then frames his answer by comparing the welding scenario to a repair that requires bolts instead: No matter what the industry standard for a certain repair has become, if you take 20 bolts out of a customer’s vehicle, the customer expects you to put 20 back in. Similarly, if a customer’s bill says the repair took 150 welds, the customer expects that you made 150 welds as well.

So, from a legal standpoint, even if another collision doesn’t occur, the customer has still paid for a vehicle to be returned to manufacturer specifications, and with even one tiny flaw—a missing bolt or an incomplete weld—that simply is not the case.

“It’s not blatant. It’s not malicious. But is it fraud?” Olson asks. “How do you avoid it? You have processes. … The process people are using is flawed. They need to change the way they do business.”

Among other general fraud danger zones listed by Olson: any work that was paid for but not done, charges that are not  “reasonable” for the industry, improper documentation of procedures and deviations from industry repair standards. Olson also highlights the following steps for avoiding fraud through an accurate, high-quality and “transparent” repair process:


Every technician should be double-checking his or her own work throughout each job, but since it is very difficult to objectively check one’s own work, adding a second set of eyes at each stage is key. And the second set of eyes should be a peer’s, not a manager’s, Olson cautions. Managers don’t generally have time to look at the work in the detail that is needed, but peers do similar work every day, so they’re in a better position to know exactly what to look for.

One of VeriFacts’s clients, Shawn Hezar, owner of Platinum Coachworks, in Covina, Calif., and Apex Auto Body in Huntington Beach, took Olson’s peer-review advice to heart, and it dramatically improved repair quality at the shop.

“The second technician is not attached to the work and doesn’t have tunnel vision,” Hezar notes, adding that peer review can boost the first technician’s pride and motivation when it verifies that the work’s been done well. Even more importantly from a business and customer-satisfaction standpoint, double-checking each step also keeps repair flaws from being revealed at the end of the repair process when the vehicle is set to go out the door.

“That’s the last place you want to find something,” Hezar says, noting the inefficiency, cost and sheer hassle of having to redo an entire job.


One of verifacts’ primary offerings is the coaching of technicians, both in their own work and in peer review.  “We coach, mentor and measure them to a higher quality of repair,” Olson says.

As you might expect, Hezar found considerable value in VeriFacts’ services —some of which, such as seminars and inspection, are offered by other companies as well—as a foundation for his shop’s in-house peer review. Afterwards, Platinum Coachworks and Apex Auto Body began using information gained during the coaching sessions to set new standards for their technicians.

Third-party coaching is particularly beneficial because there is so much variety among vehicles, collisions and even individuals performing repairs. “No hit is the same,” Hezar says. “This is an artisan business. There are a lot of human beings touching the vehicle.”

Technicians at the Seattle area’s multiple-shop ARA CARSTAR group, meanwhile, were initially resistant to the idea of a third party coming in to monitor their work, according to owner Kevin Parsons. But once they realized that the coaches were there to help—to teach and mentor, and to commend the good as well as help correct deficiencies—the technicians became more open to outside coaching. Now the technicians gather around a coach to hear what he has to say. “It’s not about what they’re doing wrong, but about how to do it right,” Parson says. “If they are good technicians, they want to make the changes and do it right.  … It comes down to training. It’s not just a guy coming in and talking; it’s the people listening.”

Trying to stay current on all new collision repair technologies and all manufacturer recommendations can be very difficult for a shop, Hezar notes. So when a complicated issue arises or the shop gets a vehicle with a new technology, Hezar’s repair crew—as well as the vehicle owner—benefit greatly from access to coaches who “drill down a few notches a lot more than the typical manager could do” and provide a direct line to the latest manufacturer information.

“We’ll run into vehicles where we just don’t have knowledge of how the manufacturer wants the vehicle to be repaired,” Hezar explains. “A technician can’t be a master at everything. There are too many cars on the road. There is too much technology.”


“The real problem in the industry from a process standpoint is an incomplete estimate up front,” Olson says, characterizing estimates as essentially blueprints for all of the work that needs to be done. That means that if an estimate is incorrect or inaccurate in any way, it can result in an improper repair.

One thing shops need to understand is that electronic estimating systems are not perfect, Parsons emphasizes. Although such systems can be extremely helpful, care needs to be taken to review the final product to ensure that the work needed matches the work indicated by the estimate. Every estimate should be reviewed for accuracy, and, in cases where a system default creates an inaccuracy, the estimate needs to be reworked manually. Parsons notes, for example, that while a job might call for lubricating and refurbishing, entering related specifics into an estimating system can cause it to read the job as overhaul.

“You only did two things, but it automatically defaulted to say you did an overhaul,” Parsons says. “Check your wording and do manual entries to protect yourself.” Otherwise, you are not giving the customer what he or she is being billed for, and “it is fraud,” Parsons says. “Accurate estimates are really the only way to protect yourself down the road.”

Shops also should stay flexible throughout the process to ensure the greatest accuracy and best repair. In other words, an estimate needs to be just that: a ballpark figure based on available information with the ability to change courses if unexpected variations are called for once the work begins. Olson compared the situation to a homeowner getting a new roof: If the roofer tears off the shingles and finds dry rot underneath, the homeowner will be told about the damage and the additional repair that’s needed. True, the homeowner might be upset at the additional expense, but the dry rot was a condition the roofer could not have known about until the shingles were torn off. “Collision repair is no different,” Olson says.

And, even if you believe that it’s a standard industry practice to accept estimating-system results without checking details against actual work needed, this will not relieve you of liability if a fraud claim is made against you, Olson adds. “I didn’t know …” rarely worked with Mom, after all, so it’s even less likely to work in a court of law.


Thorough communication with all of your employees, with your customers and with the insurance companies you work with are all critical to ensure that a job is completed correctly, Olson says. And, to guarantee that the customer has accurate repair expectations, an estimator needs to communicate well with the technician, and the technician needs to communicate well with the front office. “Pencil whipping the QC form doesn’t work,” Olson notes. “The only way to get communication is to put a solid process in place.”

These steps will not only help reduce your fraud liability and increase the overall quality of your shop’s work, they can also provide another significant return by attracting good repair employees. “Good equipment and good repair attracts the best technician,” Parsons says. “If you have a commitment to quality, the quality technicians who want to do it right will find a way to your door.”

Providing high-quality repair can increase costs in both products and labor, Parsons admits, but, at the same, what comes around goes around: If your customers like your product, they will return and make referrals. “If you do it right, you will see more business,” says Parsons, who, like Hezar, reports significant business growth in recent years, at least in part due to peer review, technician coaching, effective communication and solid, fraud-busting processes.

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