Hearing on Ending Cash for Convicts and Other Ways to Improve the Integrity of the UI Program
_______________________________
CONTENTS _____________________ WITNESSES Julia Hearthway Secretary of Labor and Industry, Pennsylvania Testimony Scott Sanders Commissioner, Department of Workforce Development, Indiana Testimony Doug Holmes President, UWC – Strategic Services on Unemployment & Workers’ Compensation Testimony Valerie Melvin Director, Information Management and Technology Resources Issues, Government Accountability Office (GAO) Testimony Sharon Dietrich Managing Attorney, Community Legal Services Testimony ______________________________________________
Hearing on Ending Cash for Convicts and Other Ways to Improve the Integrity of the UI Program Wednesday, September 11, 2013
U.S. House of Representatives, Committee on Ways and Means, Washington, D.C. ____________________
The subcommittee met, pursuant to notice, at 1:16 p.m. in Room 1100 Longworth House Office Building, Hon. Dave Reichert [chairman of the subcommittee] presiding. [The advisory of the hearing follows:] __________________________________________________________________ *Mr. Young. [Presiding] I call today's hearing to order. I am honored to stand in for Chairman Reichert in today's hearing. He has been called away to a briefing on Syria. And I expect he is going to join us shortly. But before I begin, I would ask that we take a moment to remember a long-time Ways and Means Committee colleague, and former chairman of this very subcommittee, Clay Shaw, who passed away last night. Clay's legacy as a husband and father lives on through his wife of 53 years, Emily, and his four children and 15 grandchildren. They are in our thoughts and prayers. Clay's legacy as a legislator is highlighted by the 1996 welfare reform law, which he authored and shepherded through this committee, the House, and ultimately, into law. This landmark law helped, literally, millions of his fellow citizens lead more fulfilling lives. Every time we work to improve that legislation, we are advancing Clay's vision for a better America for all of its citizens. We are privileged to carry on that legacy in this institution on this committee and on this subcommittee, all of which Clay loved and honored through his many years of dedicated service. I would like to yield to our ranking member, Mr. Doggett, for further remarks related to the passing. *Mr. Doggett. Well, thank you so much. I just want to , join in honoring Clay and his service, and extending our condolences to his family. I had the good fortune to have Clay as a Washington neighbor over here on D Street, a couple blocks away. A good neighbor, a strong member of this committee who cared deeply about the issues that we are discussing here, and served honorably. And whenever we disagreed, we could always agree in a spirit of congeniality and collegiality. And it is a loss, and we join you in asking for a brief moment of silence in his honor. *Mr. Young. Why don't we go ahead and, on his behalf, have that moment of silence. [A moment of silence is observed.] *Mr. Young. Thank you. Today, of course, we also mark the twelfth anniversary of 9/11. We remember the victims of that tragic day and their families. We also remember those who, in the years since, have sacrificed so much to protect our country and our people. Please join me for another moment of silence on this count, as well. [A moment of silence is observed.] *Mr. Young. Thank you. Today's hearing is on ending benefits for incarcerated individuals, and other ways to improve the integrity of the unemployment insurance program. I would like to begin by asking unanimous consent that Chairman Reichert's statement be submitted into the record. *Mr. Young. Chairman Reichert, as a former sheriff, wasshocked to read headlines about individuals in jails collecting unemployment benefits, what you might call Cash for Cons. In New Jersey, there were 20,000 inmates who collected over $24 million. In Illinois, another $2 million was misspent this very same way. Millions more were wasted in South Carolina, Tennessee, Texas, and Wisconsin. It is an injustice that the tax dollars of law-abiding citizens are paying for these benefit checks for people who have broken the law, and simply should not qualify for these benefits. That is why Chairman Reichert introduced H.R. 2826, the Permanently Ending Receipts for Prisoners Act, also known as the PERP Act. This bill does two things. First, it makes clear that inmates are not allowed to collect UI benefits, in case there is any doubt. Second, it instructs states to use currently available prison data to ensure they are not paying benefit checks to inmates. I am one of several Members who have already cosponsored this legislation, and I know Chairman Reichert would welcome the support of anyone who agrees we should address this issue. This is only one aspect, one small aspect, of UI improper payments, though. It reflects an obvious area where we can and should make progress. We look forward to receiving valuable feedback on this bill from our panel today. Today's hearing is about a lot more than ending Cash for Cons, though. We also want to identify other ways we can improve the integrity of the overall UI program, so it can be there for those who are deserving of help. That is a billion-dollar question. Or, actually, a $58 billion question. That is the total amount of the UI improper payments over the last five years. That $58 billion in improper payments is more than the total amount of state and federal taxes collected last year to support all the unemployment benefits paid across the country. That is a huge number, and one that deserves serious attention. Some of the problem involves fundamental mistakes, like paying UI checks to prison inmates, because UI places so much emphasis on getting checks out the door before verifying they are going to the right person. Data systems exist that can prevent these sorts of improper payments from being made in the first place. For example, involving prison inmates, deceased people, people who have already returned to work, and even people illegally applying from overseas. Another part of the problem involves states trying to recover improper UI payments after they occur. This pay-and-chase approach is costly, time consuming, wasteful, and there are other challenges associated with it since, according to a recent report, only about half of annual improper payments are expected to be recovered. So, the far-better approach is to prevent improper payments before they go out the door, and ensure we have systems in place to do just that. There are many reasons to prevent improper payments, starting with how they are paid for. State UI benefits are supported directly by payroll taxes on jobs, which already have risen over 60 percent in the last 5 years, due to the recent recession. In many states, UI payroll taxes are expected to continue to rise into the future. These rising taxes fall directly on jobs, further reducing new job creation and hiring. That makes it especially important to prevent improper payments wherever possible, and recover as much of those that are made. Joining us today to discuss all of these issues is a seasoned panel of experts representing the views of various states, including my home state of Indiana. Also businesses and program experts. I look forward to hearing from our witnesses today about how we can improve the integrity of the UI program so it is there to serve those who need it to get back on their feet. Mr. Doggett, would you care to make an opening statement? *Mr. Doggett. Thank you very much. Unemployment insurance provides critical assistance to workers who have lost their jobs through no fault of their own, and are actively looking for work. I don't know how someone who is involved in long-term incarceration can be actively looking for work. And to the extent that there are individuals who are incarcerated that are wrongfully receiving unemployment benefits, we do need to do something about it. Indeed, my question is why the Department of Labor has not already done something about it. So I certainly join with you. While we want to assure that ex-offenders don't become re-offenders, and there are major problems in our society about the way we treat ex-offenders and integrating them back in the labor force, I doubt that is the source of these problems. The additional issues concerning ensuring that this system works as it is intended is important, not only to the taxpayer, but it is important to the legitimate folks that are out there that are counting on an unemployment check. Just as with any other federal program in the employment or social service area, we want to be sure these programs are run efficiently and without fraud. Over the last five years, this congress has taken a number of steps to improve the integrity of our unemployment system. In 2008, legislation was passed to permit an individual's tax return to be seized if they owe unemployment compensation debt due to fraud. And this measure was strengthened in 2010. More recently, Congress has required employers to more accurately report new hires, and it made employers liable when they are at fault for overpayment. Finally, we have required the states to recover 100 percent of any erroneous unemployment benefits by reducing further unemployment payments. These are good steps. But, as you indicated, Mr. Young, to the extent that we can prevent these problems from occurring in the first place, we don't have to chase them down. The unemployment rolls are much higher because of the great recession. I believe that the studies that we will hear about indicate that, as to overpayments, while we need to get to them and prevent them, whatever the source, about a fourth are due to fraud, and most of the remainder are due to administrative errors by claimants and mistakes by employers or unemployment agencies. Second, a factor in this is that the Federal Government has not adequately funded the administrative costs of the unemployment system for many years, which has made it somewhat more susceptible to errors. On the whole, though, I agree fully with Mr. Young and Mr. Reichert in their commitment to ensuring that any fraudulent payment or even accidental waste of taxpayer dollars is avoided. And I look forward to working with them, with our whole committee, to help ensure that unemployment benefits are there for the many who count on them, and that we eliminate fraud and waste at every opportunity. Thank you. *Mr. Young. Well, thank you, Mr. Doggett. And, without objection, each Member will have the opportunity to submit a written statement and have it included in the record at this point. I want to remind our witnesses to limit their oral statements to five minutes. However, without objection, all the written testimony will be made a part of the permanent record. On our panel this afternoon we will be hearing from Julia Hearthway, Secretary of Labor and Industry, Pennsylvania; Scott Sanders, Commissioner, Department of Workforce Development, the great State of Indiana; Doug Holmes, president, UWC, Strategic Services on Unemployment and Workers' Compensation; Valerie Melvin, director, information management and technology resource issues, Government Accountability Office; and Sharon Dietrich, managing attorney, Community Legal Services. I understand that Mr. Kelly would like to introduce our first witness, who is from his home state of Pennsylvania. *Mr. Kelly. Thank you, Chairman. It is really a pleasure for me that the Secretary of Labor and Industry, Julie Hearthway, is with us today. And she has done a marvelous job in Pennsylvania. Let me just give you a little bit of her background. The secretary was unanimously confirmed by the Pennsylvania Senate in 2011. She was recently recognized by the National Federation of Unemployment Compensation and Workers' Compensation with its integrity award. Now, this award is given to an individual who has demonstrated a commitment to preserving the integrity of the unemployment system. She played a vital role in restructuring Pennsylvania's unemployment compensation system, restoring the fund to solvency, and ensuring that benefits will be available for years to come for those who need and deserve them. The secretary also created the first-ever office of integrity within the Pennsylvania Department of Labor and Industry to combat fraud, waste, and abuse of Government funds. Working with the Pennsylvania Unemployment and Insurance Integrity Task Force and other state agencies, this office has aggressively pursued its important mission. Now, prior to her nomination, Secretary Hearthway spent 18 years in the attorney general's insurance fraud section after working as an assistant district attorney in a private legal practice. Madam Secretary, thank you so much for being here today. And what you have done in Pennsylvania is absolutely phenomenal. And I think there are 49 other states that can learn from that. So thank you so much for being here. STATEMENT OF JULIA HEARTHWAY, SECRETARY OF LABOR AND INDUSTRY, PENNSYLVANIA *Ms. Hearthway. Thank you, Congressman Kelly, for that very kind introduction. Congressman Young, Ranking Member Doggett, Congressman Davis, and to the subcommittee, thank you very much for having me here today to talk about this extremely important issue. Governor Tom Corbett strongly believes that taxpayer dollars must be managed with the utmost integrity, and that appropriate safeguards must be in place so benefits go to the individuals who are eligible and in need. We all understand the value of providing a safety net to bridge the gap between losing a job and finding gainful employment. However, when cases arise where individuals fraudulently collect benefits they are not entitled to, the public's trust in that system is jeopardized. When the public constantly hears of misuse and mismanagement of tax dollars at all levels of government, they become disheartened, cynical, and ultimately, disengaged. To combat the loss of confidence in the integrity of Government programs, it is incumbent upon us, as stewards of the taxpayer dollars, to ensure that safeguards are in place. We cannot afford to leave the barn door wide open. All too often government programs are rushed without appropriate or effective checks and balances. This creates a system that is ripe for fraud, waste, and abuse. During my time as Secretary of Pennsylvania Department of Labor and Industry, I have had both the privilege as well as the challenge of working to combat fraud, waste, and abuse in the unemployment compensation system. To that end, one of my first acts when I took office was to establish the office of integrity within the department. The bureau director of that office, James Tillman, is here with us today. This office has spearheaded each of the programs dealing with fraud that I am going to elaborate on in my testimony today. To date, in just a little over two years, these efforts at addressing fraud has saved Pennsylvania citizens and taxpayers an estimated over $100 million. One of these programs was aimed at stopping the abuse of prisoners collecting unemployment benefits. Under existing technology, at minimal cost, we have been able to weed out fraud through a cross-match system aimed at identifying individuals incarcerated in the state and county prisons who were either collecting benefits when they entered the prison, or applied for benefits after they'd been incarcerated. The system, administered by JNET, operates in real time to stop payments whenever a claimant is identified as being incarcerated. JNET's integrated justice portal system provides a common online environment for authorized users to access public safety and criminal justice information. For the first quarter of 2013 incarceration stops were placed on more than 4,000 claims. Using that number, the average claim amount in duration, we have made an estimate of over $100 million in just that time period. JNET is just one of the successful integrity programs underway. We have also blocked all foreign Internet provider addresses from being able to be automatically used to apply for benefits when one is out of the country. We have, to date, annually saved 9.2 million with that step. Additionally, we are working in partnership with the United States Treasury to implement the TOP program. The TOP program has been implemented starting in January of 2012 to August of 2013. That stops the refund of any tax dollars where we can intercept those funds for existing overpayments that have been made. To date we have been able to collect $26 million from that program. We also implemented a three-month unemployment compensation amnesty program, which we believe to be first of its kind in the nation. The program goals were much like any other tax amnesty programs. Over the course of 40-plus years, labor and industry accumulated an exceptionally large number of cases involving fraud overpayments due to individuals and the non-payment of taxes due from employers. More than 130,000 individual claimants and nearly 50,000 employers owed money to the state. The office of integrity was looking for ways to recoup those lost dollars, and we implemented the amnesty program for that purpose. It began on June 1st and ended on August 31st. We have implemented a number of other amnesty integrity programs which we think will reap benefit to Pennsylvania taxpayers in the future, but those are the highlights of what we have done. And by far, the incarceration program has been our most successful. [The statement of Ms. Hearthway follows:] *Mr. Young. Thank you very much, Secretary Hearthway. At this point I would like to take a point of personal privilege here and introduce my state's own commissioner, Commissioner Sanders. Today I have a distinct privilege of introducing, specifically, the commissioner of the Indiana Department of Workforce Development, or, as we call it, DWD, in Indiana, Scott Sanders. Commissioner Sanders was first appointed by Governor Mitch Daniels in May 2012 and is currently a member of the cabinet of Governor Mike Pence. He manages and implements training and employment programs for Hoosiers, collaborates on regional economic growth initiatives for Indiana, and oversees the unemployment insurance system. Commissioner Sanders brings many years of workforce development and financial management skills to his role at DWD. And prior to his appointment as commissioner, Scott served as the deputy commissioner of systems information and analysis, and was the agency's CFO. In his role as commissioner, Mr. Sanders' zeal for leading the agency and creating better outcomes for Hoosiers has helped pave the way for not only better, but more efficient service outputs, and also better quality and integrity in Indiana's overall workforce development system. He has been a tremendous asset for the State of Indiana. And I am honored to have him here today to testify in front of this Human Resources Subcommittee to present his reforms and accomplishments within the unemployment insurance system. I yield back. STATEMENT OF SCOTT SANDERS, COMMISSIONER, DEPARTMENT OF WORKFORCE DEVELOPMENT, INDIANA *Mr. Sanders. Thank you, Chairman Young, Ranking Member Doggett, members of the subcommittee. Thank you for the opportunity and honor to share with you some of the efforts we have been making in Indiana regarding the issue of unemployment insurance integrity, and specifically, actions we have taken to increase our ability to detect and prosecute UI fraud cases while helping unemployed Hoosiers return to work. My name is Scott Sanders, and I serve as the commissioner of the Indiana Department of Workforce Development. Indiana's economy is beginning to recover from the recent recession. However, our unemployment rate remains too high, at 8.4 percent. Last week we had 60,000 individuals collecting some form of UI benefits. As long as Hoosiers rely on these benefits as a safety net against involuntary unemployment, protecting that system from misuse and corruption is a top priority of our department. In 2012, roughly a third of Indiana's estimated payments made in error went to individuals who had returned to work but continued to claim benefits to which they were not entitled. Obviously, working harder on the front end of the problem is a very important strategy, but also having plans on the back end to detect, investigate, and prosecute the fraud that has already occurred is needed, as well. Our agency has targeted UI fraud as a priority over the past two years. However, we had to overcome several challenges to combat UI fraud. First, the low number of actual fraud prosecutions. Last year only 24 percent of the UI fraud cases that were referred to county prosecutors had charges filed. This is due to the complexities of the UI system and the limited resources of prosecutors' offices. UI fraud cases can be very time-consuming and resource-intensive. Another challenge we faced was the issue of venue. By statute, generally all criminal actions are tried in the county where the offense was committed. This creates a challenge in determining which county the claim was actually filed, since claimants file for benefits using Internet-based online filing system. We determined that a partnership with the Marion County prosecutor's office was a solid solution. The department issued a grant to the prosecutor's office to help fund a dedicated deputy prosecutor to specifically work with our investigators on pursuing UI fraud cases. This solved the problem of resources in the prosecutor's office in handling complex UI fraud cases. Additionally, it solved the question of venue, since their office is located in Indianapolis, where all UI claims are processed. We have also launched a public awareness campaign by publishing all UI fraud prosecutions on our website, including the names and photos and specifics of those that were convicted. We hope this creates an environment that conveys a heightened certainty and severity of punishment for fraudulent conduct. Since the beginning of this year, when the partnership started, the number of fraud cases filed by prosecutors has increased by over 330 percent over the same period last year. So far, nearly $450,000 in fraudulent benefits and penalties have been ordered to be repaid, versus expenses totaling $64,000 for the grant. This partnership is still in its infancy, but already the returns are beyond original expectations. And we believe it will reduce the amount of UI fraud. In addition, we have put some focus on the front end of our cases. Earlier this year, we were able to pass a bill through our state legislature that we refer to as Jobs for Hoosiers. This provision allows the department to direct recipients of UI benefits to receive re-employment and eligibility assessment activities after they draw their fourth week of benefit, similar to the federal program required by Congress last year. The primary goal of this program is to educate unemployed individuals on the services, training, and assistance offered by our one-stop work-one centers. But, most importantly, it gets Hoosiers back to work as quickly as possible. One valuable feature of this new law is that claimants appearing at the work-one centers may need to provide proof of identification. Fraudulent claimants typically have not shown up to receive these services. And, subsequently, their claim was placed on hold. This potential stopping of benefits for individuals who are fraudulently claiming them will have a critical reduction on the amount of fraud that occurs. In summary, protecting our UI system from misuse and corruption is a top priority of our department. By establishing this partnership with the Marion County prosecutor's office, we have realized the benefits that go beyond the simple filing of more cases. We have fostered a greater awareness, expertise, and prosecution of UI fraud, increased the amount of fraudulent funds recovered, and have created an environment to deter fraud. Additionally, by adopting the Jobs for Hoosiers program, we will be able to get unemployed individuals back to work more quickly, while ensuring only those that are truly unemployed receive UI benefits. All of these efforts are important steps in improving UI program integrity. Thank you for the opportunity to be with you today, and for your interest in our UI integrity initiatives. [The statement of Mr. Sanders follows:] *Chairman Reichert. [Presiding] Mr. Sanders, thank you so much for being here today, and thank you for your testimony. Mr. Holmes, you are recognized -- *Mr. Holmes. Thank you. *Chairman Reichert. -- for five minutes. STATEMENT OF DOUG HOLMES, PRESIDENT, UWC, STRATEGIC SERVICES ON UNEMPLOYMENT AND WORKERS' COMPENSATION *Mr. Holmes. Chairman Reichert, Ranking Member Doggett, and members of the Subcommittee on Human Resources, thank you for the opportunity to testify on the integrity of the federal and state unemployment insurance system. I am Doug Holmes, president of UWC Strategic Services on Unemployment and Workers' Compensation, UWC. We very much appreciate the work of this subcommittee in the enactment of the integrity measures in the Middle Class Tax Relief and Job Creation Act of 2012, and the attention that you have given to the integrity issues this year. We support H.R. 2826, the Permanently Ending Receipt by Prisoner's Act. We favor legislation and policy that addresses a number of key points, including; methods of administration should seek to reduce employer administrative burden while improving the efficiently and effectiveness in the exchange of information needed for proper administration. Two, employers and their representatives should be actively engaged by USDOL and states in the design and implementation of new systems. Public and private databases should be more actively used to avoid erroneous payments, and to identify fraud and overpayment issues. States should implement regular statements of charges to employer accounts and use the full social security number in the exchange of information. New performance measures for UI integrity should be developed based on return on investment to the unemployment trust funds. Additional targeted resources should be provided with incentive funding to states with the best performance. Clear direction should be provided to the states in defining the federal requirement that states must not pay unemployment compensation to individuals who have not been determined to be able to work, available to work, and actively seeking work. The need for improved integrity became evident during the great recession, and the lack of integrity in the system led to dramatic increases in benefit payments, significantly higher benefit payment errors, and doubling of employer taxes. The speed of payment, as measured by the time lapse standards developed by the U.S. Department of Labor, has been emphasized for many years over the quality of decisions in integrity of UI trust funds. Four years after the end of the recession, state and federal unemployment taxes in many states continue to increase, and 18 states have outstanding unpaid Title XII loans, totaling over $20 billion. Seven states have had to resort to bonds and borrowing in the private market to repay federal loans and interest, with employers paying the debt service for the next seven years. Some individuals who are claiming unemployment compensation unduly limit their availability as long as they continue to receive unemployment compensation. Individuals must be registered for work. A mere statement by the claimant that he or she is actively seeking work should not be sufficient to meet the actively-seeking-work requirement. Work search should be documented and independently verified. If not, individuals should not be paid. States should consider a variety of techniques to identify fraud. Is the application or claim being filed through a foreign IP address? Is the same IP address, phone number, and/or address used to initiate multiple UI claims? Are there multiple deposits of unemployment compensation into the same or related bank account? Is there prior verification of a legitimate employer account or accounts against which benefits are to be charged? The process that is used in most states in requesting employers to verify wages continue to be, believe it or not, paper requests. A solution is needed to this earnings verification reporting that minimizes the general reporting requirements while preserving the ability to exchange information for effective prosecution of fraud. In closing, permit me to emphasize that employers recognize the important role of the unemployment insurance safety net system. Employers are willing to provide funding for the system. However, employers also have an expectation of good stewardship of the funding they provide, and in the integrity of the federal/state UI system. Thank you for the opportunity to testify. [The statement of Mr. Holmes follows:] *Chairman Reichert. Mr. Holmes, thank you for your testimony. And, Ms. Melvin, you are recognized for five minutes. STATEMENT OF VALERIE MELVIN, DIRECTOR, INFORMATION MANAGEMENT AND TECHNOLOGY RESOURCES ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE *Ms. Melvin. Good afternoon, Chairman Reichert, Ranking Member Doggett, and members of the subcommittee. Thank you for inviting me to today's hearing. My testimony discusses information technology systems supporting the unemployment insurance program. With oversight by the Department of Labor, state workforce agencies rely heavily on information technology systems to collect and process the taxes that fund the program and to determine eligibility and administer benefits. However, the majority of the states' existing systems for unemployment insurance operations were developed in the 1970s and 1980s. And, although some agencies have performed upgrades throughout the years, many systems are reported to be outdated, costly, and difficult to support, and incapable of efficiently handling workload demands. In September 2012, we reported on 9 selected states' efforts to modernize their unemployment insurance systems, and the challenges that they faced in doing so. At your request, my testimony today summarizes our findings regarding those modernization efforts and the related challenges. Our report noted that the selected states had made varying progress in modernizing their systems supporting the unemployment insurance programs. Specifically, each of three states that were part of a multi-state consortium established to pool resources for developing joint systems were in the initial phases of planning that included defining benefits -- I am sorry, business -- needs and requirements. Two individual states were in the development phase. That is, building the system based on requirements. Two were in a mixed phase, where part of the system was in development and part was in operations and maintenance. And two states’ systems had been completed and were in operations and maintenance. The states reported that modernization efforts already undertaken had, among other things, helped enhance their unemployment insurance technology to support web-based services with more modern databases, and replaced outdated programming languages. Nevertheless, the states cited numerous challenges to achieving their modernized capabilities. For example, all nine states said limited funding and/or the increasing cost of unemployment insurance systems had impacted their planning and execution of modernization projects. Seven states cited a lack of staff in their unemployment insurance offices with the expertise necessary to manage IT modernization efforts. And six states said that continuing to operate their legacy systems while simultaneously implementing new systems had required them to balance scarce staff resources between the two major efforts. In addition, we noted separate and unique challenges for states participating in the consortiums. These included differences in state laws and business processes that impacted efforts to design and develop a common system, difficulty among states in reaching consensus on the best approach for developing and modernizing systems, and decision-making by consortium leadership that raised concerns about the liability for outcomes that could negatively affect member states. At the time of our study, the nine states had begun to address some of these challenges. They had also established certain IT management controls that are essential to carrying out successful modernization initiatives, such as incorporating industry-accepted program management processes and tools in their modernization efforts. We noted in our report that a comprehensive assessment of lessons learned from the modernization work could further assist states' efforts, and that the Department of Labor could play a vital role in supporting and advising states. Accordingly, we recommended that Labor perform a comprehensive analysis of lessons learned, and distribute this analysis to each state through an information-sharing In its response to our recommendations, Labor stated that it was committed to sharing the lessons learned, and we are continuing to follow up on the Department's actions in this regard. Mr. Chairman, this concludes my oral statement. I would be pleased to answer any questions that you or other members of the subcommittee may have. [The statement of Ms. Melvin follows:] *Chairman Reichert. Thank you, Ms. Melvin. Ms. Dietrich, you are recognized. STATEMENT OF SHARON DIETRICH, MANAGING ATTORNEY, COMMUNITY LEGAL SERVICES *Ms. Dietrich. Thank you, Chairman Reichert, Ranking Member Doggett, and members of the committee. My name is Sharon Dietrich. I am a managing attorney with Community Legal Services in Philadelphia. I have been a legal aid lawyer for 26 years. During most of that time I have handled unemployment compensation cases on behalf of claimants. And during most of that time I have been the lead policy advocate for the legal aid community in Pennsylvania on issues involving unemployment insurance. Let me start by saying that, although I am here to represent the perspective of claimants, I, of course, agree that fraud must not be tolerated. We can all agree on that. And I certainly have no objection with the content of House Bill 2826, that there be use of databases in order to make sure that people who are incarcerated and are not available for benefits are not getting them. I would add, from my work in the area of helping people with criminal records, that not all criminal databases are necessarily infallible. I have seen issues around accuracy, matching, updating. And I do hope that, as one of the implementation goals here, making sure that the data is verified is part of how the statute would be implemented. When discussing program integrity, I think that some context is important. And as Ranking Member Doggett mentioned earlier, fewer than one in four overpayments is a fault overpayment. Most overpayments in the unemployment system are for reasons of non-fault, either because there was agency error, employer error, or claimant error. Secondly, I want to point out that dollars are lost from the system on both sides. I understand from the amnesty program that Pennsylvania ran earlier this summer that a good deal of money was sought back from employers, as well as from employees, that 356 million was sought from employees for both fraud and non-fraud overpayments. $274 million was sought from employees who committed fraud, as opposed to $257 million being sought from employers for unpaid taxes. So, clearly, money is leaking out of the system from the employer side, as well. And third, I would note that many workers are underpaid unemployment benefits, or unpaid unemployment benefits. Indeed, more are underpaid than are getting fault overpayments. And I certainly agree with the idea that correct payments must be made. But I would urge that we consider making sure that people who are entitled to unemployment get paid, as well as those who are not and who are committing fraud. Now, to meet this goal of making correct payments, I urge Congress to look at the issue of adequate funding of the state administrative programs, which is a topic that I think that Secretary Hearthway and I can agree on. Certainly we have a federal source of funding for these programs, the FUTA funding source. But funding has been stagnant for a long time, and the states are starting to hurt in their administration of the UI programs, as a result of that. The Pennsylvania experience over the last year has been quite difficult, where there has been inadequate staff to answer phones and perform other work, as a result of which the Pennsylvania state legislature had to enact a measure to supplement our federal funding so that we would have adequate money to run our program effectively. You may ask, "Why is adequate federal funding an issue of program integrity?" Well, first of all, it allows the states to do a better job in administering the program, so that erroneous decisions can be avoided, and overpayments, therefore, avoided. But I would also urge that, with more staff, claimants have a better opportunity to make sure that they understand what the system wants them to do. In many cases, the difficult criteria of the program are simply not understood by claimants. And if they are not able to speak to staff, agency employees, because they are not available, then, unfortunately, they may get into an overpayment situation that they did not intend. Finally, a couple of preventative measures I urge consideration of. First of all, is better communications with claimants. I think if the states were to look at their notices, their technological interfaces, to make sure that clear communications are happening with claimants, there would be fewer overpayments. And secondly, we should incentivize employers to engage on claims as soon as possible. In summary, I urge a holistic approach to program integrity, and I thank you for your attention, and am happy to answer questions. Thank you. [The statement of Ms. Dietrich follows:] *Chairman Reichert. Well, thank you all for your testimony. And if you have testified before Congress, you know that the next phase of our hearing today is the question-and-answer phase. So we would like to get into that for a moment. But I would like to comment, first of all. I apologize, Ms. Hearthway, for not being here for your testimony. I appreciate the testimony of all the witnesses, and I just want to make a quick comment on Ms. Dietrich's remarks regarding inaccurate law enforcement or criminal records. I don't know if the panel is aware of it, but I was in law enforcement 33 years, starting from the deputy through the end of my career as the sheriff in King County in Seattle, Washington. I am very familiar with the fact that criminal records are not accurate. I think it is very poignant point to make here. And the other point you that made, the whole effort here is to make sure that those people who deserve the assistance are paid the assistance. And I think that is really what this panel has come together and just some quick figures. In New Jersey, 20,000 inmates collected over $24 million. And I could give you a list of some other states here, but the total cost of abuse, in this system, loss of dollars that could go to those folks that really need it, is $58 billion. That is the total amount of UI improper payments over the last five years. So, we do have a lot of work and ground to cover. And I am very pleased to hear that Mr. Doggett is supporting the legislation, as are you, Ms. Dietrich, and I think other members of the panel have been invited to also sign on to this legislation. It is common sense. Common sense brings me to the first question. Ms. Hearthway, the steps that you have taken in Pennsylvania with your office of integrity, the word "remarkable" has been used. And "remarkable," I think it is just sort of a definition of what common sense is, I guess, now, in today's world. Because you have taken some valuable and available information, and you are actually putting it to use. So, what lessons, from what you have done in Pennsylvania, can we learn and apply to this piece of legislation that we are considering? *Ms. Hearthway. I think perhaps the most obvious is that there are some simple solutions to some large problems. You have to look for them, you have to be open to those ideas. We knew Pennsylvania has a JNET system that housed all individuals who have been incarcerated. Obviously, we had a database for everyone applying for unemployment. It was really, in all honesty, a simple step, then, to marry those two concepts. In doing so, we knew fraud existed. We knew the scam of sitting in prison and collecting an unemployment check existed. The sheer numbers were a little surprising to us. It is the kind of information -- and Representative Kelly and I spoke about this briefly -- that spreads pretty quickly through the prison system. So, a few individuals receive a check, a whole lot more know about it. Marrying two systems, technology allowed us to stop that process fairly quickly. Now, the technology was there for us to do it, and it was not complicated. So I think the first lesson is look at the fraud that is being committed and look at your existing systems. There could be a program to implement quickly to stop the bleeding. *Chairman Reichert. So the bill points to the Social Security Administration's prisoner database, but there might be other databases that could help states with this task, too. What criteria should we use to evaluate various prisoner databases, in ensuring that the UI benefits are not paid to prisoners? *Ms. Hearthway. When someone is entering prison, if you marry up two identifiers, social security and date of birth -- it is not a massive database, it is a prisoner database -- that will pretty much ensure you have the accurate person. We then match that with the social security number and date of birth of any claimant applying for unemployment. There is the opportunity, should a mistake happen, for that individual to say, "No, I wasn't incarcerated," and then further checks can occur. We have not had that situation. We have been able to verify each one of the stops has been because someone was in prison at the time. *Chairman Reichert. Thank you for your answers. And we are going to go to three minutes a piece, because we have, I have been told, some votes that may be called to interrupt our day. So, Mr. Doggett is recognized. *Mr. Doggett. Thanks to each of you for your testimony. Secretary Hearthway, I was particularly interested in your comment just now, that we can act fast and stop the bleeding, and that states can act fast on this, as well. Do you know if your counterparts in some of our other states have followed your example on this? *Ms. Hearthway. I know we have talked to a number of other states, told them about our program. Not all states have a similar or the same JNET-type system that we do. So each state could run into slightly different problems. But once you institute this, it is something that comes to a stop pretty quickly. I mentioned a moment ago the sort of word of mouth that goes through a prison when there is a benefit like this. The same word of mouth will go through the prison when it can't happen, because it would affect someone's parole, perhaps probation. This is a type of fix that can go a long way. *Mr. Doggett. And, Ms. Dietrich, thank you for your comments. I gather that, while there may be some policy differences with the Secretary in Pennsylvania on some other issues, this particular program that she is testifying about today has not led to any negative consequences in your state. *Ms. Dietrich. I have not personally seen any. I would point out that this program has not been in effect for all that long. So I feel it is a little premature to say that from our perspective it has worked perfectly. I think the issue that has most concerned me as I have studied it is the question of whether people who are incarcerated pending the posting of bail are running into any difficulties after they are able to post bail and have made themselves able and available for work again. But, no, personally I have not seen any issues with that -- *Mr. Doggett. And the accuracy of the systems, as you discussed with the chair. While we want to prevent even one dollar of fraud, overall I think your testimony is that this problem of prisoners getting payments to which they are not entitled is a pretty small part of this. *Ms. Dietrich. Oh, absolutely. *Mr. Doggett. And as far as the integrity of the system generally, maybe you might just expand on your testimony as to where you think our focus needs to be. *Ms. Dietrich. Well, I do think that preventative measures are a great idea. And one thing that worries me about the increased technological way that claims-handling is being done these days in order to save money is that we have lost the opportunity for unemployed people to talk to live staff sometimes. And the result of that is that the sort of isolated unemployed person is in a position where he or she doesn't necessarily know what the rules are. My brother, for instance, was unemployed last year. He was a laid-off school teacher. He has a master's degree in reading comprehension. And he was often confused to what the rules are, and said to me that if he was confused, certainly somebody with a much lesser level of education might be confused. So, I do think that, from the perspective of the claimants, getting out better information, making available good ways of getting answers to questions, looking at interfaces to the computer systems, I commend Secretary Hearthway for having taken very seriously feedback that we gave the Department about ways that we thought the computer -- the online application was confusing, so that people aren't answering incorrectly because they don't see the world quite the same way that unemployment insurance administrators do. *Mr. Doggett. Thank you. Thank you, Mr. Chairman. *Chairman Reichert. Thank you, Mr. Doggett. Mr. Young, you are recognized for three minutes. *Mr. Young. Thank you, Mr. Chairman. The General Accountability Office's report on this very topic, where you studied IT modernization challenges for the states with respect to their UI programs, one of the things I find quite interesting is towards the end of your oral and written testimony. You indicate that, number one, you recommended to Labor to perform a comprehensive analysis of lessons learned, and they agreed with that recommendation. Secondarily, you recommended they distribute the analysis to each state through an information-sharing platform or repository. Say, a website. And they were silent, for some reason, on that recommendation. Do you have any thoughts about the manner, if you wish, do they intend to share best practices, unsuccessful practices, or so forth, absent a website? *Ms. Melvin. It is my understanding that they are in the process of compiling lessons learned. They have not communicated back with us about how they would do that, other than that they were putting that information together to disseminate -- *Mr. Young. Okay. *Ms. Melvin. -- to the state officials. *Mr. Young. I just think it is essential that we get better in all areas of public policy at the state level through talking more, and sharing best and worst practices. I understand there are differences across populations and cultures and sub-cultures and economies. But, nonetheless, we have to formalize these things, as I see it. And hopefully, Labor will be a willing and engaged partner in that regard on this topic. Commissioner Sanders, we have a great story to tell in the State of Indiana. I am going to give you an opportunity to expound upon it a little bit. But perhaps you could start just by indicating what motivated you and DWD and the administration more broadly to take up this initiative of targeting UI fraud, and then maybe speak to where you go from here. *Mr. Sanders. Well, thank you, Congressman. I think it gets back to really having unemployment insurance truly be a safety net for those that are unemployed. And I think too often we see the amount of waste, fraud, and abuse that goes on in the system. And one of the challenges we had in Indiana was getting local prosecutors to take up the drum and march with it. And obviously, as the secretary mentioned, word of mouth in unemployment insurance moves very quickly, whether it is those that are incarcerated, or those that are actually unemployed and that are gaming the system. So now that we have been able to pick up the prosecution front in Prosecutor Curry's office, we have been able to really move the ball forward. I really think the piece, though, with Jobs for Hoosiers, that will attack UI fraud, as well. It is similar to the program that the Feds started in -- last year, but they brought individuals in at the 27th week. By that point, it is too far out. We are going to bring those individuals in the fourth week to verify that they are who they are, and then also help them get re-employed. *Mr. Young. Well, thank you so much for your good work. To the extent -- for all of you -- we can help remove obstacles for further reform and further improvement in these programs and how they operate, please let us know. I yield back. *Chairman Reichert. Thank you, Mr. Young. Mr. Kelly, you are recognized. *Mr. Kelly. Thank you, Chairman. Just so we understand -- and, Secretary Hearthway, maybe you could help us -- the revenue that goes into unemployment insurance, where does it come from? *Ms. Hearthway. Employers, primarily. Now, Pennsylvania -- *Mr. Kelly. Thank you. Employers. *Ms. Hearthway. Yes. *Mr. Kelly. All right. I happen to own a company. We pay eight percent of everybody that works for us. And I think they put in about 7 percent on their own. So I want to make sure we understand this isn't some benevolent monarch showering these folks with some kind of a benefit. It comes out of employers. It drives the cost of operation higher. And you have to be very careful of that. Pennsylvania, though -- it may be early -- you are estimating savings of $100 million. *Ms. Hearthway. Yes. *Mr. Kelly. Well, in a time where 100 million means absolutely nothing. That was, last minute, what we spent in interest. I think it is incredibly important that everybody understands everybody who deserves this funding should get it. Those who don't should not. And why do I say that? Because it ruins the safety net for those who are deserving. So I am all on board with you. Let me ask you, though, to share the information -- because there are 49 other states that could benefit from what you have done -- is there a best business practices exchange? How do we share that information? How *Ms. Hearthway. It is an excellent question, and it is something I wish that USDOL would work a little bit more on, in pushing out this information. We have contacts of -- we reach out to our counterparts. But we do need a more easy, systematic system where we can exchange more detailed information. All of those using JNET, we can walk them through almost a 10-step process of how to utilize this or a system like JNET. That is something that I think would help tremendously. Perhaps a little bit more focus on that and a little bit less, perhaps, on the ban of imports. *Mr. Kelly. Okay. Mr. Sanders, you want to weigh in? *Mr. Sanders. Yes, if I could. There is an agency, the National Association of State Workforce Agencies, that our agency belongs to. I believe the Secretary may, as well. In the last year, they have actually set up a best practices group for information technology. And it is something that is picking up steam. So I think it is an area where we could really get the word out fairly quickly on how we could take this approach. *Mr. Kelly. Well, thanks for what you are all doing. I think the key to this, like in every program, it starts off with one mission in mind, it grows, and it gets really -- it morphs into something different. We get the economy back on track, we get people going back to work and making higher wages, that automatically grows, it solves your insolvency problem in Pennsylvania. So, it is really not that difficult to figure out. Maybe it is hard to talk about, but we know the goose that lays the golden egg. It is the employer. It is the ability for us to raise our economy, get it back on its feet, that is going to help all these safety net programs that we have. So, thank you all for what you do. You are incredibly important to society. Thank you. *Chairman Reichert. Thank you, Mr. Kelly. Mr. Davis, you are recognized. *Mr. Davis. Thank you very much, Mr. Chairman. Secretary Hearthway, does one have to be in active pursuit of work or a job to qualify for unemployment insurance? *Ms. Hearthway. You have to be ready and available to work in order to qualify for unemployment insurance. *Mr. Davis. And individuals who are incarcerated, they -- on the applications they indicate that they are available and ready to work? *Ms. Hearthway. Yes. Pennsylvania actually has a separate law that simply states if you are incarcerated you are not eligible for unemployment. There is also the broader law, that you must be able and available to work in order to collect unemployment. So there are actually two provisions in our state that would apply to that situation and legally prevent someone from collecting. *Mr. Davis. Ms. Melvin, you indicated that fraud occurs because some of the agencies are using outdated computer equipment and don't have the accuracy of their data systems. What would you think some of the barriers are as to why they don't have this equipment that they need? *Ms. Melvin. We found that the states, first of all, were in very mixed states of implementing modernized capabilities, but they were facing a number of challenges, and those challenges ranged from inconsistencies in the funding that they received that they were relying on to actually implement some of the capabilities. Often times with information technology, modernization efforts, it can take a long time for some programs to be designed and actually executed. So the time frame for getting money across the time that they would actually be doing that could be problematic. We also saw a lot of problems with the skills, the staff skills that were involved. In many cases, the states reported to us that they did not have the appropriate skills, in terms of IT staff, who could actually carry out these particular projects for them. So there were a number of complicating factors that impacted whether they, in fact, could get modernization efforts in place. *Mr. Davis. So in some instances inadequate funding and inadequate skill is actually costing money, rather than saving money. *Ms. Melvin. Unfortunately, if you were trying to tie it to the improper payments, that potentially could be a factor. *Mr. Davis. And finally, Ms. Dietrich, you mentioned that some employers defraud the unemployment insurance system by falsely claiming that individuals are independent contractors. *Ms. Dietrich. Yes. *Mr. Davis. What difference does that make? *Ms. Dietrich. Well, the difference is that if you are an independent contractor, the employer is not going to pay those taxes that have been discussed previously. And that also leads to the underfunding of the system, resulting in other employers having to pick up the slack. *Mr. Davis. Thank you very much. Thank you, Mr. Chairman. *Chairman Reichert. Thank you, Mr. Davis. Mr. Renacci, you are recognized for three minutes. *Mr. Renacci. Thank you, Mr. Chairman, and I want to thank Chairman Reichert for his introduction of H.R. 2826 and for holding this hearing today, so we can better understand the issues states are facing us when it comes to preventing UI fraud. And I want to thank the witnesses for being here. In my home state of Ohio, the UI administrators serve approximately 225,000 active Ohio employers, and process 1 billion of tax revenues per year. Those tax revenues, as we heard earlier, are coming from businesses. The UI program has made 58 billion in improper payments over the last 5 years. And as a small business owner, I understand the impact these errors can have on businesses. But I also understand the importance of the safety net for individuals, who through no fault of their own, have lost their job. And I think that is important. But we must ensure, as Mr. Kelly said, that taxpayer dollars are spent wisely, and not on individuals that do not qualify. In the last 12 months I know the Ohio benefit payment control division identified more than 34 billion in fraudulent overpaid benefits. Mr. Sanders, you mentioned in your testimony that the benefit payment control division in your state encountered some challenges when investigating fraud and improper payments. Can you expand a little on those challenges? *Mr. Sanders. Sure, absolutely. When our investigators first believe there is somebody that is committing fraud, it takes some time and process to then go out and investigate those. In addition, we weren't getting a lot of cooperation from law enforcement agencies. Through our partnership now with Marion County, it has the ability to pull in, whether it is state police, the county sheriff, or even local individuals to actually have that subpoena power and do those investigations and pull that information in. That was, I think, one of the biggest barriers that has now been opened up for us to be able to investigate these fraud cases. *Mr. Renacci. And overall for the panel, the status of UI error rates, do you think they are getting worse, better, or generally unchanged? *Mr. Sanders. I can speak for our state. I haven't studied the other states, but our state continues to improve. Probably over the last year we have cut that number in half. But we are still too high, personally. And I think we really need to continue to improve that and drive that number down, probably into the three to five percent range. *Mr. Renacci. Any others? *Ms. Hearthway. If I could just add, I mean, Pennsylvania is improving slightly. But if I could make one point here. The benefits error, BAM, program would not have taken into account the prison cross-match that we just instituted. They look at your processes and procedures and see if you are following them, and they extrapolate your error rate based on that. We have a fairly solid estimate of $100 million, and that would not show up, either as an error previously or as a benefit now unless you happened upon a case that you knew someone was incarcerated. It wouldn't show those kinds of numbers. And so, I think there is a portion of this that we may be emphasizing form over some substance. *Mr. Renacci. I am running out of time, and I yield back. *Chairman Reichert. Thank you. Mr. Griffin, you are recognized for three minutes. *Mr. Griffin. Thank you, Mr. Chairman. In my home state of Arkansas I have got some of the most recent figures. In 2012 it looks like we had about $46 million in improper payments. And for a state with only three million people, that is a lot of money. I want to ask you, Mr. Sanders if you would tell me, first of all, how are the prosecutors organized in Indiana? In Arkansas, they are not under the attorney general, for example. They are independently elected. And so, there is a prosecutor coordinator that can help get those elected officials on the same page with regard to the push to prosecute fraud. But could you tell me a little bit about how you got things moving in Indiana? And have you gotten things moving on a statewide scale, or is it very targeted? *Mr. Sanders. That is the specific issue we had in Indiana, as well, where each of our county prosecutors is independently elected into the position. First of all, I don't think they have the staff or the resources to go after unemployment insurance fraud, nor do they have the expertise. It is such a unique field. And the fact that we utilized where our computer server -- where all the claims are processed is based in Marion County -- that actually created the venue issue, which then gave the Marion County prosecutor the ability to prosecute in every county in the state. It is no different than, I think, under federal law. We could charge those individuals with wire fraud because we use the Internet to actually then make payments, as well. So that is really what was the lynch pin that then opened up the gates. Now we also see our county prosecutors wanting to jump in and help out. Obviously, it helps them, as well. So I think that was really the key -- *Mr. Griffin. So that is Indianapolis, is that right? *Mr. Sanders. And Marion County, yes. *Mr. Griffin. Right. And so I represent all of Pulaski County, which is Little Rock. And so you would be sort of an analogous situation there, potentially. Real quickly I want to ask you. You may be familiar that in the federal system there is something called qui tam actions, where people can report fraud and get it -- basically get a cut of it. Are there incentives in Indiana to -- for people to report fraud? And is there a way for some of these prosecutors to get a cut of some of these cases? Are there mechanisms like that that could help sustain? Because you mentioned the lack of resources. If you get a system where people are getting a cut to report it, and prosecutors are getting a cut to prosecute it, then you can incentivize that behavior that is otherwise hard to incentivize without money and resources and what have you. Do you have any comment on that? *Mr. Sanders. Yes, I would. In Indiana there, obviously, is not an incentive to get a cut of what is collected back. We do have an anonymous website. But the piece that is unique, I believe -- in most states there is what is called the penalty and interest fund, which means if you find someone that has committed fraud, you can not only charge them with the return of the benefits that go back into the trust fund, but you can also hit them with a penalty and interest on top of that amount, so those funds can then be turned back in to help prosecutors for whatever else you may have going on. *Mr. Griffin. Any -- well, it looks like I am out of time. So thank you. *Chairman Reichert. Yes, sir, Mr. Griffin, you are out of time. I want to thank all of the panel for being here, and all of our witnesses for being here today. We all recognize the need to make corrections within the system. And I think that we are all in agreement this is at least one small step, this is a small piece of the pie, as was mentioned by Ms. Dietrich and others. But it is an obvious area where we can make progress. And you have shared some information with us today, some of the areas that we need to focus on, where we need help in technology, information sharing, and lack of resources. Those are things we can make progress on and we can maybe have an impact on making sure that the money our taxpayers put forward go to the people who really need it. So thank you all for your time. One last comment. If Members have additional questions for the witnesses, they will submit them to you in writing. And we would appreciate receiving your responses for the record within two weeks. This committee stands adjourned. [Whereupon, at 2:21 p.m., the subcommittee was adjourned.] Public Submissions For The Record Appriss
|
|||||||||||||||||||