The results of the investigation by the South Carolina Workers' Compensation Commission were compiled in a roughly 200-page report, complete with 40 exhibits, including checks, letters and contracts, supporting regulators' suspicion of fraud. The investigation was turned over to the South Carolina attorney general's office on March 6, 2003. More than 18 months later, nothing has happened. The official line is that the case remains under investigation.

Industry insiders, however, say it is symbolic of the lack of prosecution and enforcement of insurance fraud laws already on the books by the state's top cops. The perceived lack of enforcement, many worry, is fostering a climate that will nurture an increase in insurance fraud that ultimately will cost all residents more money each year in the form of higher premiums.

"It seems like there are a lot of cases in the pipeline and nothing ever gets finalized," said state Rep. Harry Cato, a Travelers Rest Republican who is chairman of the House's Labor, Commerce and Industry Committee. "That has been the problem from Day 1."

Officials within the attorney general's office argue prosecutors are doing the best they can with dwindling resources. Years of budget cuts have forced the agency to shut satellite offices, have left dozens of vacancies and have reduced the insurance fraud division to one prosecutor. This comes on the heels of a year when the office fielded 844 complaints of insurance fraud, totaling about $3.7 million in estimated losses.

"The good guys are at a severe resource disadvantage, meaning there are just a handful of prosecutors and law enforcement agents handling hundreds and hundreds of cases that flow in every day," said agency spokesman Trey Walker. "There are not enough cops and prosecutors to keep up with the criminals. That is a never-ending story."

The growing dilemma last year led a group of nearly a dozen state lawmakers to introduce legislation that would have toughened penalties, created a civil enforcement unit under the state Department of Insurance and assessed insurance carriers to pay for more agents. The bill, which died in committee, is expected to be reintroduced when the Legislature reconvenes in January.

"We have to make it a higher priority," said state Rep. Daniel L. Tripp, R-Greenville. "As other states crack down on fraud rings and networks, the criminals are going to move into a state like South Carolina. We neglect this issue in our peril."

CASH STRAPPED

Insurance fraud can range from something as simple as under-reporting the number of miles you drive in your car to save a few bucks each year to more complex schemes such as businesses intentionally misclassifying the type of work employees do to avoid paying much higher premiums required for more dangerous jobs.

To combat fraud, South Carolina created a special division in 1994 under the direction of the attorney general's office. Under that system, complaints are referred each year from state agencies such as the workers' compensation commission as well as insurance carriers, whose own investigators track fraud. Reports then are given to agents with the State Law Enforcement Division for follow-up investigations before a prosecutor decides whether to take the case to court.

In the last five years, insurance fraud complaints have climbed 61 percent, from 524 reported in 1999 to 844 last year. Of those reported last year, the Lowcountry accounted for one-third. Charleston County ranked second out of 46 counties, behind only Aiken County, as having the highest dollar amount of fraud, with 45 reported complaints totaling $275,401 in estimated losses. Dorchester and Berkeley counties had a combined 58 complaints totaling $369,285. Colleton County trailed with 17 complaints, totaling about $64,969 in losses.

Of the 844 complaints sent to the attorney general's office, 268 were declined for lack of merit. Another 99 complaints were referred to other agencies, such as the Department of Consumer Affairs, and 127 indictments were handed down. All told, 354 criminal investigations were opened. Combined with cases held over from 2002, the total climbed to 627, too many, argue some in the industry, for the skeletal staff of prosecutors and investigators to realistically make meaningful cases.

"There is a dismal track record of prosecuting many of these cases at the state level in South Carolina," said Lynn Szymoniak, a lawyer who specializes in fighting fraud for the insurance industry in Florida and South Carolina. "The ones who have been successfully prosecuting these cases are the feds."

Officials within the attorney general's office argue prosecutors and law enforcement agents are doing everything possible with their evaporating resources. Five years ago, the agency operated on a budget just shy of $10 million that funded prosecutions ranging from sex crimes to securities fraud. In recent few years, that budget has been cut by about 33 percent, down to around $6 million.

With shrinking coffers, the agency cut all nonessential travel and closed its satellite offices in Charleston and Greenville, where most of the insurance fraud cases were handled. It also slashed its staff by about 23 percent, from 154 positions to 119. Of those, only about 50 are lawyers. The insurance fraud division wasn't immune to those cuts. An office that once enjoyed as many as 10 prosecutors, paralegals and support staff, coupled with as many as 10 SLED agents, was whittled down to one prosecutor, one assistant and two SLED agents.

"We are down to the bone," Walker said. "Unfortunately, criminals don't respect a 30-percent budget cut. Crime is a growth industry."

South Carolina is not the only state facing what some say is a mounting crisis. A roughly 70-page analysis put together by the Washington-based Coalition Against Insurance Fraud has tracked similar trends across the country. Two out of 3 insurance fraud bureaus nationwide report flattening or dropping budgets. Nine out of 10 state fraud directors reported the biggest hurdle was a lack of resources, including staff, cash and computers. This comes, the report says, as scams ranging from bogus health insurance to staged car wreck rings are becoming more complex and prevalent.

"These are lean times for many state fraud bureaus. Dollars are increasingly harder to come by," said organization spokesman James Quiggle. "In many cases, it is having a real effect on crime fighting capabilities. The bad guys are not going away, but the fraud bureaus still increasingly have fewer and fewer dollars to chase them with."

POOR TRACK RECORD

Still, some state lawmakers and industry officials say even when the agency was fully staffed, insurance fraud was not a high enough priority.

Numbers produced by the attorney general's office show that out of $50 million in reported fraud since the unit was formed nearly a decade ago, only about $4 million, or about 8 percent, has been returned through penalties and fines. Last year, the 91 cases that resulted in criminal convictions and civil fines resulted in $328,069, which is little more than the division's $301,247 budget.

Another complaint for some: At the last two quarterly meetings of the statewide insurance fraud task force, which discusses legislation and major cases, no representative from the attorney general's office has been present.

Legislators such as Cato said the goal was for penalties and fines collected to go back into fighting insurance fraud and enable the division to grow. After a decade, Cato said, he envisioned a fraud unit made up of double-digit staff members, similar to more aggressive states such as New Jersey, Florida and California.

"The big money that the attorney general's office could generate for themselves by investigating fraud, they are not doing. It has been stagnant over there," Cato said. "Our thinking when we created the fraud division was that once you have a few high-profile cases, the public will think twice before committing crimes. Most people are probably not aware we have a fraud unit. It has been a frustration of mine since I got involved."

One high-profile case that many have hoped would send a strong message to criminals is that of Pawleys Island insurance veteran Gregory D. McClelland, who ran about a half-dozen employee leasing businesses as part of The Orion Group Inc. Records and interviews indicate that McClelland, who took in thousands of dollars each week to cover as many as 5,000 employees, placed his clients with unlicensed insurance companies headquartered overseas, which is illegal in South Carolina. As a result, investigators across the Southeast suspect there could be as many as 200 injured workers facing unpaid medical bills. On top of hurt workers, scores of businesses are demanding to know what happened to the premiums, in some cases amounting to as much as $100,000 a year, that the businesses paid for what they believed was valid insurance.

"I just want to see something done," said Pawleys Island roofer Jimmy Summers, who paid McClelland $56,000 for workers' compensation insurance for roughly one dozen employees. "That's all I care about."

McClelland, who has denied all the allegations, was the focus of an intensive investigation by the S.C. Workers' Compensation Commission. The results of that investigation were compiled in a detailed report, complete with more than three dozen exhibits and a 23-page memo about the case, before being turned over to the attorney general's office in March 2003.

Alicia Clawson, the commission's executive director, said she wrote a letter to the attorney general's office on Aug. 11, 2003, asking for an update on the case. Nine days later, she got a response saying the case still was under investigation. That was the last official word on a case she described as one of the largest her office has worked in her five years as director.

"We have no police powers, no law enforcement powers, no nothing," said Clawson, who said that during her tenure, the attorney general's office has yet to prosecute any referrals for workers' compensation fraud. "All we can do under the state fraud act is submit a case to the attorney general's office."

These types of cases have led Tripp, the Greenville lawmaker, and insurance officials to say they'll try again in January to reintroduce legislation to assess the industry and create a civil enforcement unit under the Department of Insurance that will share the work load and help crack down on insurance fraud. It is a measure that officials within the attorney general's office support.

"A lot of it comes down to being able to fund those who track down and prosecute the bad guys," Tripp said. "It is hard to blame the attorney general's office when they have a low level of staff support and resources, but at the same time we have to come up with some vehicle to fund it. With only one prosecutor, I don't know how you can expect better results."

TOUGH CASES

Limited resources aren't the only challenges in fighting insurance fraud. Insurance companies, most agree, aren't very sympathetic victims and don't play well to juries because odds are someone or a family member has had a battle getting prescriptions filled or a doctor's bill paid.

On top of that challenge, most people agree insurance fraud isn't an exciting crime, like bank robbery, even though it often involves vastly larger sums of money. Most suspects in fraud cases are more likely armed with a calculator than a handgun.

Still, the costs ultimately are passed onto consumers to the tune of about $80 billion a year nationally. Industry estimates are that that translates into an extra $1,030 more per family in higher health, auto and life insurance premiums each year.

"It is not sexy crime," Clawson said. "It is not blood and guts stuff that made-for-TV movies are about. It is just costly."

Not only does insurance fraud lack the dangerous spice of violent crime, but the cases can be more difficult to prosecute. They can involve thousands of pages of financial records and teams of accountants and private investigators to track down and interview employees and victims. The investigations of complex cases can be costly, and proving criminal intent is more challenging than with other crimes.

Brady Hair, a former assistant U.S. attorney who specializes in white-collar criminal defense, said that if a prosecutor already is swamped, the time and resources needed to find witnesses and hunt down vital documents gets passed over for simpler fraud cases, such as fake auto accidents, that can be investigated and prosecuted more quickly and with a higher success rate.

"You don't necessarily need an army, but you do need someone who is dedicated to that one cause," Hair said. "If you have 100 cases that you are working on, then those complex cases are suddenly harder and harder to get to."

To aid prosecutors, some insurance companies have started offering their services. Neil Johnson, assistant vice president and manager of an 11-member special investigation unit for premium fraud at Boston-based Liberty Mutual, said his company will do the required background research, such as calculating losses, to help prosecutors more easily make cases. That way, he said, prosecutors can conserve time and focus on the trial.

"You can steal more money with a ballpoint pen than you can with a gun," Johnson said. "Once people think it is a white-collar crime, they think it is going to be more complicated than it needs to be. It is very simple: Somebody stole money. If you can break it down to that simplest element, it is easy to prosecute."

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