LEWISTON – An anti-fraud unit made up of four retired police officers has been saving Maine’s largest Workers’ Compensation insurer an estimated $1.5 million to $3 million a year.

The investigators work for Maine Employers’ Mutual Insurance Co., which writes Workers’ Compensation policies for more than half the businesses in Maine. The company estimates that between 3 percent and 5 percent of the 20,000 cases handled annually involve some sort of fraud.

MEMIC’s investigators conduct surveillance on beneficiaries whose injuries are suspect and use camcorders to gather evidence that either confirms the injury or casts doubt on it.

In one case, investigator Arthur Shaughnessy tailed a man to Wal-Mart and then raced to the man’s home to videotape him unloading merchandise from his car. The man had been collecting benefits for three months and wasn’t supposed to be lifting heavy bags because of carpal tunnel syndrome in both wrists.

Shaughnessy placed a jack under his axle as part of a flat-tire ruse that allowed him to get close to the man’s house without attracting too much attention. When the man finally returned home, Shaughnessy pretended to fiddle with his tire and fired up his digital camcorder.

The man made three trips into the house, arms laden with bags, each time eyeing the broken-down motorist a little longer. “Finally, he just stayed in the house and let his wife do it. He was just a little too nervous,” Shaughnessy says.

It was enough evidence to question the scope of the man’s injuries. Shaughnessy turned the videotape over to MEMIC for further review. After the company mailed the man a copy of the tape, he returned to work almost immediately.

Shaughnessy and MEMIC say there is $12 million to $20 million in Workers’ Compensation fraud in Maine each year and everyone pays the price.

An injured worker out on compensation benefits can ruin a business’s safety record, effectively raising insurance rates. And for workers at home with legitimate injuries, there’s a stigma.

“Most of the employees that are out there want to get better and go back to work,” said John Marr, vice president of claims at MEMIC. “When you have someone that takes advantage of the system, it gives them a black eye.”

The most common fraud in Maine involves workers exaggerating injuries, said Tim Collier, assistant general counsel to the Workers’ Compensation Board. He sees a smaller number of fraud complaints against medical practices and insurers.

Nationally, workers’ compensation fraud costs $6 billion a year, said Dennis Jay, executive director of the Washington-based Coalition Against Insurance Fraud, who sees more fraud in tough economic times.

“Frankly, right now we’re really holding our breath with the downturn of the economy,” he said. “If you feel like you’re going to get laid off in the next month, dishonest people will take that time to file a claim.”

MEMIC, which established its fraud investigating unit in 1993, flagged 429 cases to review last year. Some element of fraud was found in 153 of them.

The targeted cases looked suspicious for any number of reasons – the speed of the injury, the fact that no one else saw the accident take place, or that several members of the same family were out on Workers’ Compensation.

To catch Workers’ Compensation cheats, MEMIC also cross-references moose-hunting permits, clam and lobster licenses to spot those who claim they are too injured to work but are OK to fish and hunt. This spring, the company’s investigators will begin reviewing the 9,000 turkey permits issued annually to hunters.

With suspected fraud evidence in hand, MEMIC may pursue a case by informing a worker directly that benefits will be shut off – a move the worker can contest. The company also may forward the case to the compensation board’s abuse investigation unit.