[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
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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:]
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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:]
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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:]
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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:]
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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:]
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