    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

                       ENDING CASH FOR CONVICTS AND OTHER
                        WAYS TO IMPROVE THE INTEGRITY OF
                                 THE UI PROGRAM

    =======================================================================

                                    HEARING

                                   before the

                        SUBCOMMITTEE ON HUMAN RESOURCES

                                     of the

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                   __________

                                 FIRST SESSION

                                   __________

                               SEPTEMBER 11, 2013

                                   __________

                              Serial No. 113-HR08

                                   __________

             Printed for the use of the Committee on Ways and Means

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                             U.S. GOVERNMENT PUBLISHING OFFICE

    89-553                          WASHINGTON : 2016
    -----------------------------------------------------------------------
      For sale by the Superintendent of Documents, U.S. Government Publishing
      Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
             DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
                              Washington, DC 20402-0001

                          COMMITTEE ON WAYS AND MEANS

                          DAVE CAMP, Michigan,Chairman

    SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
    KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
    PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    DAVID G. REICHERT, Washington        XAVIER BECERRA, California
    CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
    PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
    JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
    TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
    VERN BUCHANAN, Florida               RON KIND, Wisconsin
    ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
    AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
    LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
    ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
    KENNY MARCHANT, Texas                LINDA SANCHEZ, California
    DIANE BLACK, Tennessee
    TOM REED, New York
    TODD YOUNG, Indiana
    MIKE KELLY, Pennsylvania
    TIM GRIFFIN, Arkansas
    JIM RENACCI, Ohio

            Jennifer M. Safavian, Staff Director and General Counsel
                      Janice Mays, Minority Chief Counsel

                                     ______

                        SUBCOMMITTEE ON HUMAN RESOURCES

                    DAVID G. REICHERT, Washington, Chairman

    TODD YOUNG, Indiana                  LLOYD DOGGETT, Texas
    MIKE KELLY, Pennsylvania             JOHN LEWIS, Georgia
    TIM GRIFFIN, Arkansas                JOSEPH CROWLEY, New York
    JIM RENACCI, Ohio                    DANNY DAVIS, Illinois
    TOM REED, New York
    CHARLES W. BOUSTANY, JR., Louisiana

                               C O N T E N T S

                                   __________
                                                                       Page

    Advisory of September 11, 2013 announcing the hearing............     2

                                   WITNESSES

    Julia Hearthway, Secretary of Labor and Industry, Pennsylvania...     7
    Scott Sanders, Commissioner, Department of Workforce Development,
      Indiana........................................................    14
    Doug Holmes, President, UWC--Strategic Services on Unemployment &
      Workers' Compensation..........................................    23
    Valerie Melvin, Director, Information Management and Technology
      Resources Issues, Government Accountability Office (GAO).......    38
    Sharon Dietrich, Managing Attorney, Community Legal Services.....    52

                           SUBMISSIONS FOR THE RECORD

    Appriss, statement...............................................    71

                      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,
                               Subcommittee on Human Resources,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 1:16 p.m. in
    Room 1100 Longworth House Office Building, the Honorable Dave
    Reichert [chairman of the subcommittee] presiding.
        [The advisory of the hearing follows:]

    HEARING ADVISORY

    FROM THE
    COMMITTEE
     ON WAYS
    AND
    MEANS

      Chairman Reichert Announces Hearing on Ending Cash for Convicts and
             Other Ways to Improve the Integrity of the UI Program

    Washington, Sep 2013

        Congressman Dave Reichert (R-WA), Chairman of the Subcommittee on
    Human Resources of the Committee on Ways and Means, today announced
    that the Subcommittee will hold a hearing on preventing the payment of
    unemployment benefits to incarcerated individuals and other ways to
    improve the integrity of the Unemployment Insurance program. The
    hearing will take place at 1:15 pm on Wednesday, September 11, 2013, in
    Room 1100 of the Longworth House Office Building.

        In view of the limited time available to hear from witnesses, oral
    testimony at this hearing will be from invited witnesses only.
    Witnesses will include public and private sector unemployment insurance
    experts. However, any individual or organization not scheduled for an
    oral appearance may submit a written statement for consideration by the
    Committee and for inclusion in the printed record of the hearing.

    BACKGROUND:

        The Federal-State Unemployment Insurance (UI) program, created by
    the Social Security Act of 1935, assists unemployed individuals by
    offering weekly unemployment benefit checks while they search for work.
    According to the Department of Labor (DOL), in order to be eligible for
    benefits, jobless workers must have a history of attachment to the
    workforce and must be able and available for work.

        As a result of a series of laws enacted since June 2008 to provide
    additional Federal extended benefits, the maximum number of weeks of
    total unemployment benefits payable per person grew to a record 99
    weeks, including up to 73 weeks of Federally-funded benefits. More
    recently, the maximum number of Federally-funded unemployment benefits
    paid in any state has declined to 47 weeks. Since mid-2008, $275
    billion in Federal extended and other unemployment benefit payments
    have been authorized, with most supported by Federal general revenues.

        As the number of weeks of unemployment benefits and total spending
    grew, so did total payments made in error. According to DOL, over the
    last five years, the UI program has made $58 billion in improper
    payments with an error rate consistently above 10% for both State and
    Federal UI payments. During the same period, employer taxes have also
    increased significantly, nearly doubling since the recession began, and
    18 States are still repaying Federal loans. Progress toward improving
    UI trust fund solvency and preventing further payroll tax hikes should
    be made by ensuring correct payments are made to the correct
    individuals, reducing improper payments. Recent news articles in a
    number of states suggest millions of dollars in UI benefit payments
    have been wrongly paid to individuals who are not able and available to
    work because they are behind bars.

        Congress included several efforts to improve UI program integrity
    through Public Law 112-40, which increases penalties on individuals who
    commit fraud in collecting UI benefits, and Public Law 112-96, The
    Middle Class Tax Relief and Job Creation Act, which requires States to
    recover prior overpayments from current UI benefits. Additionally, the
    Claims Resolution Act of 2010 (Public Law 111-291) expanded the
    authority to collect UI overpayments from federal tax refunds. As the
    UI benefit rolls return to their pre-recession levels, the 113th
    Congress looks to continue this important progress. On July 25, 2013,
    Chairman Reichert took the first step by introducing H.R. 2826, the
    Permanently Ending Receipt by Prisoners Act, also known as the PERP
    Act, to formally prevent incarcerated individuals from receiving UI
    benefits.

        In announcing the hearing, Chairman Reichert stated, ``Unemployment
    benefits are meant to provide needed assistance to individuals who have
    fallen on hard times, but who are able and trying to find work so they
    can provide for themselves and their families. In the case of
    incarcerated individuals, it is an injustice that the tax dollars of
    law-abiding citizens are being used to provide assistance to people who
    have broken the law and simply should not qualify for these benefits.
    We must make it very clear that unemployment benefits should go only to
    those who are eligible.''

    FOCUS OF THE HEARING:

        The hearing will review possible measures to improve the program
    integrity of the UI program, including H.R. 2826, the Permanently
    Ending Receipt by Prisoners (PERP) Act.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
    for the hearing record must follow the appropriate link on the hearing
    page of the Committee website and complete the informational forms.
    From the Committee homepage, http://waysandmeans.house.gov, select
    ``Hearings.'' Select the hearing for which you would like to submit,
    and click on the link entitled, ``Please click here to submit a
    statement or letter for the record.'' Once you have followed the online
    instructions, submit all requested information. Attach your submission
    as a Word document, in compliance with the formatting requirements
    listed below, by September 25, 2013. Finally, please note that due to
    the change in House mail policy, the U.S. Capitol Police will refuse
    sealed-package deliveries to all House Office Buildings. For questions,
    or if you encounter technical problems, please call (202) 225-1721 or
    (202) 225-3625.

    FORMATTING REQUIREMENTS:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
    record according to the discretion of the Committee. The Committee will
    not alter the content of your submission, but we reserve the right to
    format it according to our guidelines. Any submission provided to the
    Committee by a witness, any supplementary materials submitted for the
    printed record, and any written comments in response to a request for
    written comments must conform to the guidelines listed below. Any
    submission or supplementary item not in compliance with these
    guidelines will not be printed, but will be maintained in the Committee
    files for review and use by the Committee.

        1. All submissions and supplementary materials must be provided in
    Word format and MUST NOT exceed a total of 10 pages, including
    attachments. Witnesses and submitters are advised that the Committee
    relies on electronic submissions for printing the official hearing
    record.

        2. Copies of whole documents submitted as exhibit material will not
    be accepted for printing. Instead, exhibit material should be
    referenced and quoted or paraphrased. All exhibit material not meeting
    these specifications will be maintained in the Committee files for
    review and use by the Committee.

        3. All submissions must include a list of all clients, persons,
    and/or organizations on whose behalf the witness appears. A
    supplemental sheet must accompany each submission listing the name,
    company, address, telephone, and fax numbers of each witness.

        The Committee seeks to make its facilities accessible to persons
    with disabilities. If you are in need of special accommodations, please
    call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
    business days notice is requested). Questions with regard to special
    accommodation needs in general (including availability of Committee
    materials in alternative formats) may be directed to the Committee as
    noted above.
        Note: All Committee advisories and news releases are available
    online at
    http://www.waysandmeans.house.gov/.

        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, was
    shocked 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
    management 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 prepared statement of Ms. Hearthway follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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 prepared statement of Mr. Sanders follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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 [continuing]. 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 prepared statement of Mr. Holmes follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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 platform or
    repository.
        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 prepared statement of Ms. Melvin follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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 prepared statement of Ms. Dietrich follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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 a
    very poignant point to make here.
        And the other point that you 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 [continuing]. 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 do we get it out to other people?
        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.]
        [Submissions for the record follow:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                     [all]