Officials and medics among parent's pay frauds

Photo: SCANPIX

If earlier attempts to con the state for the maximum amount of the parent's pay instrument were made mainly by people out of work or owners of companies, the middle class has also turned to this particular type of fraud today. People often put in place detailed agreements with employers not to appear on the radar of the tax board.

The reward is ample: the maximum amount of parent's pay is 2,724 euros a month this year, and the ceiling grows by roughly 200 euros a year. The fact that the monthly payment of the 435-day instrument is calculated based on average monthly income of the person for the past year makes it an attractive target for swindlers.

Division head of the Tax and Customs Board's (MTA) control unit Airi Lepassar said that even though cases of fraud peaked in 2013, the board has brought 37 proceedings on suspicions of benefits fraud and suspended payment of 223,000 euros of support this year alone. «It remains a tempting type of fraud,» she said.

Increasingly detailed agreements

It is noteworthy that even though the number of parent's pay recipients is falling, more and more parents are awarded the maximum amount. One reason is general salary advance; however, it is not the only reason.

Lepassar said that the most widespread scheme is still one where a company with no actual business activity declares in hindsight that it hired a woman for a short period of time towards the end of the year and paid her a salary of 8,000-28,000 euros.

Employees then go on maternity leave at the start of the new year and receive the maximum amount of parent's pay from the social insurance board, even though they have never actually received the salary nor have taxes been paid on it.

Hundreds of millions of euros

This path is attractive not only to unemployed people. «This year we've had cases of people who work in state agencies, as teachers, in the health care sector drawing up additional income for themselves. For example when a person who receives a salary of 700-800 euros a month has declared major additional income to secure 2,500 euro parent's pay in the future,» the division chief described.

To make things look as believable as possible, people have explained income through market research, real estate research, and translation work, as well as claimed that they were paid in cash. One of the more conspicuous recent examples was a case where a company paid a woman 9,000 euros for securing a Swedish business contact's phone number, even though no corresponding business activity followed.

Lepassar said that people make increasingly detailed agreements with employers. «It is often the case that the sides agree very precisely on how and what kind of «work» was done, move sums around, and even hire attorneys. Proving fraud has become more difficult for the tax board,» she noted.

The first agency to come into contact with fraud attempts is the social insurance board (SKA) that is in charge of the 178 million euros the state is making available in parent's pay this year.

Chief specialist at SKA Anneli Salumäe said the board demands the return of support in two cases: when the recipient earns additional income that exceeds the benefit amount, or when it discovers irregularities in tax discipline. Return of support can be demanded over a very long time after it was awarded – up to three years from discovery of fraud, and up to ten years after the fact.

Salumäe said that most cases of parent's pay fraud are orchestrated using small companies. «One widespread scheme is often employed by family firms. For example the father employs the mother in his company for a few months. An employment contract is signed and fictitious high salary paid towards the end of the year,» she described.

There are three primary signs the two agencies monitor. First when major payments lacking basis are made immediately prior to the support period. Secondly cases where taxes are in order but employees have not been entered into the employees register, or thirdly when companies lack actual business activity and owe tax arrears.

One of the more blatant recent benefits fraud cases reached a first instance ruling this summer. Pärnu County Court handed Erik Valtmäe a partly conditional three-year sentence.

According to charges, the man used four of his companies to fictitiously hire pregnant women. Valtmäe and his accomplices managed to defraud the state for pregnancy, childbirth, and parent's pay benefits in the amount of 33,500 euros by presenting the MTA with declarations that included false information.

One of the participants of the scheme was inactive company Levirent OÜ that allegedly paid one of the women who participated in the scheme a salary of 4,746 euros between July and December of 2012 for making leaflets.

«The scheme itself was simple: you claim that the salary is more than 4,000 euros a month for which 10,000 leaflets a month are distributed,» Lepassar said. More so, as Valtmäe's companies had very little or no turnover at all.

Lepassar said that the MTA has taken parent's pay swindlers under closer scrutiny again. The agency has developed an automatic process that will land suspicious declarations on investigators' desks, making it possible to contact people who file them.

The law gives the chance

«This year we decided to forward all cases where the sums were big – maximum amount of parent's pay – to the police. And indeed as many proceedings have been brought,» Lepassar said.

The police are currently working on two criminal cases of parent's pay fraud from last year where income of women was made to look bigger than it was or where such attempts were made. One such case brought damages of 8,000 euros for the state, while in the other the crime was not carried through.

In most cases the authorities investigate fraudulent conduct, in some cases also falsification of documents, seals and forms. The former offense merits a punishment of a fine or three years imprisonment, while the latter will bring about a fine.

However, not all schemes are illegal. If a person can increase their income without breaking the law, the tax board will not intervene. If in 2011 the maximum parent's pay amount was awarded to 212 men, that figure had jumped to 316 by last year. Looking behind the numbers, the agency learned that a lot of these men were owners of companies.

«There are a lot of men who hike their own salary a year before going on parental leave in order to secure favorable parent's pay. And if they've paid their taxes and done the work, there is nothing for us to say,» the division director at MTA said.

Hiring wives to work in the family business is a practice that is difficult to stop. «While it constitutes tax expense for the company, the benefit the family will receive lasts for a long time. It is a convenient opportunity the law currently permits,» Lepassar admitted.