SACRAMENTO, Calif. — A roofing contractor has been arrested on six felony counts of workers’ compensation fraud that resulted in a loss to his insurer of $50,000.

According to the California Department of Insurance, Herbert Allen Kelly III, 65, owner of Kelly Roofing Company, was arrested on Oct. 18 after allegedly underreporting his business’ payroll and number of employees.

"When business owners operate in the underground economy, they are cheating the system and create an unfair advantage that puts legitimate businesses at risk,” said Insurance Commissioner Ricardo Lara in a written statement. “We all pay the price for insurance fraud through increased costs for services and higher premiums.”

Officials state a worker employed with Kelly Roofing Company slipped and fell off a roof about 25 feet high on Jan. 12, 2015. A workers’ compensation claim was opened with Kelly’s insurer, State Compensation Insurance Fund (SCIF). Insurance officials said SCIF paid approximately $730,175 in medical and disability payments.

SCIF subsequently conducted audits of Kelly Roofing Company on a yearly basis to verify premium and payroll. During the SCIF audit for policy period 2015, when the accident occurred, Kelly reported he had no employees and $0 in payroll for the remainder of the policy period between 2014 and 2018.

Department of Insurance detectives served search warrants on both Kelly and Kelly Roofing Company’s bank accounts. Investigators said detectives uncovered approximately $89,781 in total audited payroll with up to 15 possible employees.

The department confirmed Kelly Roofing Company had employees during the period when Kelly claimed he had no employees and no payroll. The audited payroll was forwarded to SCIF, which determined Kelly Roofing Company owed approximately $50,000 in unpaid past premiums.

The case is being prosecuted by the Sacramento County District Attorney’s Office.