Shift of Funds From Garcetti’s Budget Urged : Insurance: Firms seek transfer of $5 million after prosecutor moves personnel out of unit that handles workers’ compensation fraud cases. But action would require a change in state law.

Some insurers are calling for Dist. Atty. Gil Garcetti’s office to lose millions of dollars a year for the prosecution of workers’ compensation fraud cases because of Garcetti’s budget-induced reduction of deputies in his compensation fraud unit.

Those advocating the action have suggested that Garcetti’s budget from the state-operated Fraud Assessment Fund, which totals $5 million this fiscal year, be given to the state attorney general’s office so it can prosecute workers’ compensation cases.

Such fraud is seen as a serious threat to California’s economic health, causing the state to lose an estimated billions of dollars.

Calls for the money to be taken out of Garcetti’s hands were made at a three-day meeting of insurers in San Diego that ended Friday, industry officials said.

The Fraud Assessment Commission--the state agency that administers a $25-million anti-fraud fund financed by insurance companies and self-insured employers--has scheduled an emergency meeting next Friday in San Francisco to discuss Garcetti’s actions.

A change in the law would be required to shift the money from the district attorney’s office, but that could be accomplished through emergency legislation, industry officials said.

Garcetti has transferred five prosecutors--a quarter of the compensation fraud unit--to other jobs, and he has said he may shut down the unit this summer because of budget problems.

By law, Garcetti is required to return any unused portion of the money allocated annually from the Fraud Assessment Fund.

Because Los Angeles County is the state’s hotbed of workers’ compensation fraud, there will be a ripple effect across California if Garcetti seriously weakens or closes the unit in his office, insurance and government officials said.

In addition, ongoing cases would be disrupted if Garcetti’s files are transferred to the attorney general’s office, said Marjorie Berte, insurance adviser to Gov. Pete Wilson.

Concerns about the unit were raised earlier this week after Garcetti announced that he will cut back or close special state and federally financed operations in his office because his staff has been devastated by attrition. There is a strict hiring freeze in his office and more prosecutors are needed to handle cases involving violent crime, he said.

The Board of Supervisors imposed the hiring freeze, and Chief County Administrator Sally Reed has recommended it not be lifted.

“I hope the board knows we are putting at risk the money that the state gives us,” Garcetti said Friday after one of his aides confirmed that the insurance industry is up in arms over his action.

Garcetti expressed hope that insurers would put pressure on supervisors to lift the hiring freeze.

“I very much want to continue to prosecute workers’ compensation cases,” Garcetti said, “but my first priority is violent crime.”

District attorneys around the state are concerned about the loss of any money from the Fraud Assessment Fund because a formula is used to determine how much each agency gets, and their budgets could also be adversely affected if the pot is shrunk, said John Massucco, chief of the insurance fraud unit of the San Diego County district attorney’s office.

Massucco said the commission, as early as next week, could vote to begin shifting the money or to eliminate Garcetti’s portion of the fund. But, he said, “It would be silly and totally counterproductive” to take either course of action.

Clifford D. Sweet III, a San Diego-based lawyer who represents insurers in workers’ compensation fraud cases, said many insurers, insurance reform advocates and industry lobbyists are incensed by Garcetti’s reduction of compensation fraud prosecutors.

“This is having a political reaction far greater than Garcetti ever dreamed of when he played his card,” said Sweet, who helped create the Fraud Assessment Fund. “He thought the employers and self-insurers would rise to his aid and go to the Board of Supervisors to get more money for him.”

But, Sweet said, insurers are not interested in getting involved in Garcetti’s budget fight with supervisors: “They’re not angry at the board. They couldn’t care less.”