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

September 11, 2013 — Transcripts   



Hearing on 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 113-HR08
__________________

Printed for the use of the Committee on Ways and Means

 

COMMITTEE ON WAYS AND MEANS
DAVE CAMP, Michigan,Chairman

SAM JOHNSON, Texas
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
DEVIN NUNES, California
PATRICK J. TIBERI, Ohio
DAVID G. REICHERT, Washington
CHARLES W. BOUSTANY, JR., Louisiana
PETER J. ROSKAM, Illinois
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida
ADRIAN SMITH, Nebraska
AARON SCHOCK, Illinois
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio

SANDER M. LEVIN, Michigan
CHARLES B. RANGEL, New York
JIM MCDERMOTT, Washington
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
MIKE THOMPSON, California
JOHN B. LARSON, Connecticut
EARL BLUMENAUER, Oregon
RON KIND, Wisconsin
BILL PASCRELL, JR., New Jersey
JOSEPH CROWLEY, New York
ALLYSON SCHWARTZ, Pennsylvania
DANNY DAVIS, Illinois
LINDA SÁNCHEZ, California

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
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio
TOM REED, New York
CHARLES W. BOUSTANY, JR., Louisiana

LLOYD DOGGETT, Texas
JOHN LEWIS, Georgia
JOSEPH CROWLEY, New York
DANNY DAVIS, Illinois

 

_______________________________

CONTENTS

_____________________

Advisory of September 11, 2013 announcing the hearing


WITNESSES

Julia Hearthway
Secretary of Labor and Industry, Pennsylvania
Testimony

Scott Sanders
Commissioner, Department of Workforce Development, Indiana
Testimony

Doug Holmes
President, UWC – Strategic Services on Unemployment & Workers’ Compensation
Testimony

Valerie Melvin
Director, Information Management and Technology Resources Issues, Government Accountability Office (GAO)
Testimony

Sharon Dietrich
Managing Attorney, Community Legal Services
Testimony

 

______________________________________________

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

Wednesday, September 11, 2013
U.S. House of Representatives, 
Committee on Ways and Means, 
Washington, D.C. 

____________________

  The subcommittee met, pursuant to notice, at 1:16 p.m.

                 in Room 1100 Longworth House Office Building, Hon. Dave

                 Reichert [chairman of the subcommittee] presiding.

[The advisory of the hearing follows:]

__________________________________________________________________

                     *Mr. Young. [Presiding] I call today’s hearing to order.

                 I am honored to stand in for Chairman Reichert in today’s

                 hearing.  He has been called away to a briefing on Syria.

                 And I expect he is going to join us shortly.

                      But before I begin, I would ask that we take a moment to

                 remember a long-time Ways and Means Committee colleague, and

                 former chairman of this very subcommittee, Clay Shaw, who

                 passed away last night.

                      Clay’s legacy as a husband and father lives on through

                 his wife of 53 years, Emily, and his four children and 15

                 grandchildren.  They are in our thoughts and prayers.  Clay’s

                 legacy as a legislator is highlighted by the 1996 welfare

                 reform law, which he authored and shepherded through this

                 committee, the House, and ultimately, into law.  This

                 landmark law helped, literally, millions of his fellow

                 citizens lead more fulfilling lives.  Every time we work to

                 improve that legislation, we are advancing Clay’s vision for

                 a better America for all of its citizens.

                      We are privileged to carry on that legacy in this

                 institution on this committee and on this subcommittee, all

                 of which Clay loved and honored through his many years of

                 dedicated service.

                      I would like to yield to our ranking member,

                 Mr. Doggett, for further remarks related to the passing.

                    *Mr. Doggett.  Well, thank you so much.  I just want to ,

                 join in honoring Clay and his service, and extending our

                 condolences to his family.  I had the good fortune to have

                 Clay as a Washington neighbor over here on D Street, a couple

                 blocks away.  A good neighbor, a strong member of this

                 committee who cared deeply about the issues that we are

                 discussing here, and served honorably.  And whenever we

                 disagreed, we could always agree in a spirit of congeniality

                 and collegiality.  And it is a loss, and we join you in

                 asking for a brief moment of silence in his honor.

                   *Mr. Young.  Why don’t we go ahead and, on his behalf,

                 have that moment of silence.

                      [A moment of silence is observed.]

                      *Mr. Young.  Thank you.  Today, of course, we also mark

                 the twelfth anniversary of 9/11.  We remember the victims of

                 that tragic day and their families.  We also remember those

                 who, in the years since, have sacrificed so much to protect

                 our country and our people.  Please join me for another

                 moment of silence on this count, as well.

                      [A moment of silence is observed.]

                      *Mr. Young.  Thank you.  Today’s hearing is on ending

                 benefits for incarcerated individuals, and other ways to

                 improve the integrity of the unemployment insurance program.

                      I would like to begin by asking unanimous consent that

                 Chairman Reichert’s statement be submitted into the record.

                      *Mr. Young.  Chairman Reichert, as a former sheriff, 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 mismanagement of tax dollars at all levels of government,

              they become disheartened, cynical, and ultimately,

              disengaged.

                   To combat the loss of confidence in the integrity of

              Government programs, it is incumbent upon us, as stewards of

              the taxpayer dollars, to ensure that safeguards are in place.

              We cannot afford to leave the barn door wide open.  All too

              often government programs are rushed without appropriate or

              effective checks and balances.  This creates a system that is

              ripe for fraud, waste, and abuse.

                   During my time as Secretary of Pennsylvania Department

              of Labor and Industry, I have had both the privilege as well

              as the challenge of working to combat fraud, waste, and abuse

              in the unemployment compensation system.  To that end, one of

              my first acts when I took office was to establish the office

              of integrity within the department.  The bureau director of

              that office, James Tillman, is here with us today.

                   This office has spearheaded each of the programs dealing

              with fraud that I am going to elaborate on in my testimony

              today.  To date, in just a little over two years, these

              efforts at addressing fraud has saved Pennsylvania citizens

              and taxpayers an estimated over $100 million.

                   One of these programs was aimed at stopping the abuse of

              prisoners collecting unemployment benefits.  Under existing

              technology, at minimal cost, we have been able to weed out

              fraud through a cross-match system aimed at identifying

              individuals incarcerated in the state and county prisons who

              were either collecting benefits when they entered the prison,

              or applied for benefits after they’d been incarcerated.

                   The system, administered by JNET, operates in real time

              to stop payments whenever a claimant is identified as being

              incarcerated.  JNET’s integrated justice portal system

              provides a common online environment for authorized users to

              access public safety and criminal justice information.  For

              the first quarter of 2013 incarceration stops were placed on

              more than 4,000 claims.  Using that number, the average claim

              amount in duration, we have made an estimate of over $100

              million in just that time period.

                   JNET is just one of the successful integrity programs

              underway.  We have also blocked all foreign Internet provider

              addresses from being able to be automatically used to apply

              for benefits when one is out of the country.  We have, to

              date, annually saved 9.2 million with that step.

                   Additionally, we are working in partnership with the

              United States Treasury to implement the TOP program.  The TOP

              program has been implemented starting in January of 2012 to

              August of 2013.  That stops the refund of any tax dollars

              where we can intercept those funds for existing overpayments

              that have been made.  To date we have been able to collect

              $26 million from that program.

                   We also implemented a three-month unemployment

              compensation amnesty program, which we believe to be first of

              its kind in the nation.  The program goals were much like any

              other tax amnesty programs.  Over the course of 40-plus

              years, labor and industry accumulated an exceptionally large

              number of cases involving fraud overpayments due to

              individuals and the non-payment of taxes due from employers.

              More than 130,000 individual claimants and nearly 50,000

              employers owed money to the state.

                   The office of integrity was looking for ways to recoup

              those lost dollars, and we implemented the amnesty program

              for that purpose.  It began on June 1st and ended on August

              31st.

                   We have implemented a number of other amnesty integrity

              programs which we think will reap benefit to Pennsylvania

              taxpayers in the future, but those are the highlights of what

              we have done.  And by far, the incarceration program has been

              our most successful.

                   [The statement of Ms. Hearthway follows:]

                   *Mr. Young.  Thank you very much, Secretary Hearthway.

              At this point I would like to take a point of personal

              privilege here and introduce my state’s own commissioner,

              Commissioner Sanders.

                   Today I have a distinct privilege of introducing,

              specifically, the commissioner of the Indiana Department of

              Workforce Development, or, as we call it, DWD, in Indiana,

              Scott Sanders.  Commissioner Sanders was first appointed by

              Governor Mitch Daniels in May 2012 and is currently a member

              of the cabinet of Governor Mike Pence.  He manages and

              implements training and employment programs for Hoosiers,

              collaborates on regional economic growth initiatives for

              Indiana, and oversees the unemployment insurance system.

                   Commissioner Sanders brings many years of workforce

              development and financial management skills to his role at

              DWD.  And prior to his appointment as commissioner, Scott

              served as the deputy commissioner of systems information and

              analysis, and was the agency’s CFO.

                   In his role as commissioner, Mr. Sanders’ zeal for

              leading the agency and creating better outcomes for Hoosiers

              has helped pave the way for not only better, but more

              efficient service outputs, and also better quality and

              integrity in Indiana’s overall workforce development system.

              He has been a tremendous asset for the State of Indiana.  And

              I am honored to have him here today to testify in front of

              this Human Resources Subcommittee to present his reforms and

              accomplishments within the unemployment insurance system.

                   I yield back.

              STATEMENT OF SCOTT SANDERS, COMMISSIONER, DEPARTMENT OF

              WORKFORCE DEVELOPMENT, INDIANA

                   *Mr. Sanders.  Thank you, Chairman Young, Ranking Member

              Doggett, members of the subcommittee.  Thank you for the

              opportunity and honor to share with you some of the efforts

              we have been making in Indiana regarding the issue of

              unemployment insurance integrity, and specifically, actions

              we have taken to increase our ability to detect and prosecute

              UI fraud cases while helping unemployed Hoosiers return to

              work.  My name is Scott Sanders, and I serve as the

              commissioner of the Indiana Department of Workforce

              Development.

                   Indiana’s economy is beginning to recover from the

              recent recession.  However, our unemployment rate remains too

              high, at 8.4 percent.  Last week we had 60,000 individuals

              collecting some form of UI benefits.  As long as Hoosiers

              rely on these benefits as a safety net against involuntary

              unemployment, protecting that system from misuse and

              corruption is a top priority of our department.

                   In 2012, roughly a third of Indiana’s estimated payments

              made in error went to individuals who had returned to work

              but continued to claim benefits to which they were not

              entitled.  Obviously, working harder on the front end of the

              problem is a very important strategy, but also having plans

              on the back end to detect, investigate, and prosecute the

              fraud that has already occurred is needed, as well.  Our

              agency has targeted UI fraud as a priority over the past two

              years.  However, we had to overcome several challenges to

              combat UI fraud.

                   First, the low number of actual fraud prosecutions.

              Last year only 24 percent of the UI fraud cases that were

              referred to county prosecutors had charges filed.  This is

              due to the complexities of the UI system and the limited

              resources of prosecutors’ offices.  UI fraud cases can be

              very time-consuming and resource-intensive.

                   Another challenge we faced was the issue of venue.  By

              statute, generally all criminal actions are tried in the

              county where the offense was committed.  This creates a

              challenge in determining which county the claim was actually

              filed, since claimants file for benefits using Internet-based

              online filing system.  We determined that a partnership with

              the Marion County prosecutor’s office was a solid solution.

              The department issued a grant to the prosecutor’s office to

              help fund a dedicated deputy prosecutor to specifically work

              with our investigators on pursuing UI fraud cases.  This

              solved the problem of resources in the prosecutor’s office in

              handling complex UI fraud cases.  Additionally, it solved the

              question of venue, since their office is located in

              Indianapolis, where all UI claims are processed.

                   We have also launched a public awareness campaign by

              publishing all UI fraud prosecutions on our website,

              including the names and photos and specifics of those that

              were convicted.  We hope this creates an environment that

              conveys a heightened certainty and severity of punishment for

              fraudulent conduct.

                   Since the beginning of this year, when the partnership

              started, the number of fraud cases filed by prosecutors has

              increased by over 330 percent over the same period last year.

              So far, nearly $450,000 in fraudulent benefits and penalties

              have been ordered to be repaid, versus expenses totaling

              $64,000 for the grant.  This partnership is still in its

              infancy, but already the returns are beyond original

              expectations.  And we believe it will reduce the amount of UI

              fraud.

                   In addition, we have put some focus on the front end of

              our cases.  Earlier this year, we were able to pass a bill

              through our state legislature that we refer to as Jobs for

              Hoosiers.  This provision allows the department to direct

              recipients of UI benefits to receive re-employment and

              eligibility assessment activities after they draw their

              fourth week of benefit, similar to the federal program

              required by Congress last year.  The primary goal of this

              program is to educate unemployed individuals on the services,

              training, and assistance offered by our one-stop work-one

              centers.  But, most importantly, it gets Hoosiers back to

              work as quickly as possible.

                   One valuable feature of this new law is that claimants

              appearing at the work-one centers may need to provide proof

              of identification.  Fraudulent claimants typically have not

              shown up to receive these services.  And, subsequently, their

              claim was placed on hold.  This potential stopping of

              benefits for individuals who are fraudulently claiming them

              will have a critical reduction on the amount of fraud that

              occurs.

                   In summary, protecting our UI system from misuse and

              corruption is a top priority of our department.  By

              establishing this partnership with the Marion County

              prosecutor’s office, we have realized the benefits that go

              beyond the simple filing of more cases.  We have fostered a

              greater awareness, expertise, and prosecution of UI fraud,

              increased the amount of fraudulent funds recovered, and have

              created an environment to deter fraud.  Additionally, by

              adopting the Jobs for Hoosiers program, we will be able to

              get unemployed individuals back to work more quickly, while

              ensuring only those that are truly unemployed receive UI

              benefits.  All of these efforts are important steps in

              improving UI program integrity.

                   Thank you for the opportunity to be with you today, and

              for your interest in our UI integrity initiatives.

                   [The statement of Mr. Sanders follows:]

                   *Chairman Reichert. [Presiding] Mr. Sanders, thank you

              so much for being here today, and thank you for your

              testimony.

                   Mr. Holmes, you are recognized —

                   *Mr. Holmes.  Thank you.

                   *Chairman Reichert.  — for five minutes.

              STATEMENT OF DOUG HOLMES, PRESIDENT, UWC, STRATEGIC SERVICES

              ON UNEMPLOYMENT AND WORKERS’ COMPENSATION

                   *Mr. Holmes.  Chairman Reichert, Ranking Member Doggett,

              and members of the Subcommittee on Human Resources, thank you

              for the opportunity to testify on the integrity of the

              federal and state unemployment insurance system.  I am Doug

              Holmes, president of UWC Strategic Services on Unemployment

              and Workers’ Compensation, UWC.  We very much appreciate the

              work of this subcommittee in the enactment of the integrity

              measures in the Middle Class Tax Relief and Job Creation Act

              of 2012, and the attention that you have given to the

              integrity issues this year.

                   We support H.R. 2826, the Permanently Ending Receipt by

              Prisoner’s Act.  We favor legislation and policy that

              addresses a number of key points, including; methods of

              administration should seek to reduce employer administrative

              burden while improving the efficiently and effectiveness in

              the exchange of information needed for proper administration.

                   Two, employers and their representatives should be

              actively engaged by USDOL and states in the design and

              implementation of new systems.

                   Public and private databases should be more actively

              used to avoid erroneous payments, and to identify fraud and

              overpayment issues.

                   States should implement regular statements of charges to

              employer accounts and use the full social security number in

              the exchange of information.

                   New performance measures for UI integrity should be

              developed based on return on investment to the unemployment

              trust funds.

                   Additional targeted resources should be provided with

              incentive funding to states with the best performance.  Clear

              direction should be provided to the states in defining the

              federal requirement that states must not pay unemployment

              compensation to individuals who have not been determined to

              be able to work, available to work, and actively seeking

              work.

                   The need for improved integrity became evident during

              the great recession, and the lack of integrity in the system

              led to dramatic increases in benefit payments, significantly

              higher benefit payment errors, and doubling of employer

              taxes.  The speed of payment, as measured by the time lapse

              standards developed by the U.S. Department of Labor, has been

              emphasized for many years over the quality of decisions in

              integrity of UI trust funds.

                   Four years after the end of the recession, state and

              federal unemployment taxes in many states continue to

              increase, and 18 states have outstanding unpaid Title XII

              loans, totaling over $20 billion.  Seven states have had to

              resort to bonds and borrowing in the private market to repay

              federal loans and interest, with employers paying the debt

              service for the next seven years.

                   Some individuals who are claiming unemployment

              compensation unduly limit their availability as long as they

              continue to receive unemployment compensation.  Individuals

              must be registered for work.  A mere statement by the

              claimant that he or she is actively seeking work should not

              be sufficient to meet the actively-seeking-work requirement.

              Work search should be documented and independently verified.

              If not, individuals should not be paid.

                   States should consider a variety of techniques to

              identify fraud.  Is the application or claim being filed

              through a foreign IP address?  Is the same IP address, phone

              number, and/or address used to initiate multiple UI claims?

              Are there multiple deposits of unemployment compensation into

              the same or related bank account?  Is there prior

              verification of a legitimate employer account or accounts

              against which benefits are to be charged?

                   The process that is used in most states in requesting

              employers to verify wages continue to be, believe it or not,

              paper requests.  A solution is needed to this earnings

              verification reporting that minimizes the general reporting

              requirements while preserving the ability to exchange

              information for effective prosecution of fraud.

                   In closing, permit me to emphasize that employers

              recognize the important role of the unemployment insurance

              safety net system.  Employers are willing to provide funding

              for the system.  However, employers also have an expectation

              of good stewardship of the funding they provide, and in the

              integrity of the federal/state UI system.  Thank you for the

              opportunity to testify.

                   [The statement of Mr. Holmes follows:]

                   *Chairman Reichert.  Mr. Holmes, thank you for your

              testimony.

                   And, Ms. Melvin, you are recognized for five minutes.

              STATEMENT OF VALERIE MELVIN, DIRECTOR, INFORMATION MANAGEMENT

              AND TECHNOLOGY RESOURCES ISSUES, GOVERNMENT ACCOUNTABILITY

              OFFICE

                   *Ms. Melvin.  Good afternoon, Chairman Reichert, Ranking

              Member Doggett, and members of the subcommittee.  Thank you

              for inviting me to today’s hearing.  My testimony discusses

              information technology systems supporting the unemployment

              insurance program.

                   With oversight by the Department of Labor, state

              workforce agencies rely heavily on information technology

              systems to collect and process the taxes that fund the

              program and to determine eligibility and administer benefits.

              However, the majority of the states’ existing systems for

              unemployment insurance operations were developed in the 1970s

              and 1980s.  And, although some agencies have performed

              upgrades throughout the years, many systems are reported to

              be outdated, costly, and difficult to support, and incapable

              of efficiently handling workload demands.

                   In September 2012, we reported on 9 selected states’

              efforts to modernize their unemployment insurance systems,

              and the challenges that they faced in doing so.  At your

              request, my testimony today summarizes our findings regarding

              those modernization efforts and the related challenges.  Our

              report noted that the selected states had made varying

              progress in modernizing their systems supporting the

              unemployment insurance programs.

                   Specifically, each of three states that were part of a

              multi-state consortium established to pool resources for

              developing joint systems were in the initial phases of

              planning that included defining benefits — I am sorry,

              business — needs and requirements.  Two individual states

              were in the development phase.  That is, building the system

              based on requirements.  Two were in a mixed phase, where part

              of the system was in development and part was in operations

              and maintenance.  And two states’ systems had been completed

              and were in operations and maintenance.

                   The states reported that modernization efforts already

              undertaken had, among other things, helped enhance their

              unemployment insurance technology to support web-based

              services with more modern databases, and replaced outdated

              programming languages.  Nevertheless, the states cited

              numerous challenges to achieving their modernized

              capabilities.

                   For example, all nine states said limited funding and/or

              the increasing cost of unemployment insurance systems had

              impacted their planning and execution of modernization

              projects.  Seven states cited a lack of staff in their

              unemployment insurance offices with the expertise necessary

              to manage IT modernization efforts.  And six states said that

              continuing to operate their legacy systems while

              simultaneously implementing new systems had required them to

              balance scarce staff resources between the two major efforts.

                   In addition, we noted separate and unique challenges for

              states participating in the consortiums.  These included

              differences in state laws and business processes that

              impacted efforts to design and develop a common system,

              difficulty among states in reaching consensus on the best

              approach for developing and modernizing systems, and

              decision-making by consortium leadership that raised concerns

              about the liability for outcomes that could negatively affect

              member states.

                   At the time of our study, the nine states had begun to

              address some of these challenges.  They had also established

              certain IT management controls that are essential to carrying

              out successful modernization initiatives, such as

              incorporating industry-accepted program management processes

              and tools in their modernization efforts.

                   We noted in our report that a comprehensive assessment

              of lessons learned from the modernization work could further

              assist states’ efforts, and that the Department of Labor

              could play a vital role in supporting and advising states.

              Accordingly, we recommended that Labor perform a

              comprehensive analysis of lessons learned, and distribute

              this analysis to each state through an information-sharing
              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 statement of Ms. Melvin follows:]

                   *Chairman Reichert.  Thank you, Ms. Melvin.

                   Ms. Dietrich, you are recognized.

              STATEMENT OF SHARON DIETRICH, MANAGING ATTORNEY, COMMUNITY

              LEGAL SERVICES

                   *Ms. Dietrich.  Thank you, Chairman Reichert, Ranking

              Member Doggett, and members of the committee.  My name is

              Sharon Dietrich.  I am a managing attorney with Community

              Legal Services in Philadelphia.  I have been a legal aid

              lawyer for 26 years.  During most of that time I have handled

              unemployment compensation cases on behalf of claimants.  And

              during most of that time I have been the lead policy advocate

              for the legal aid community in Pennsylvania on issues

              involving unemployment insurance.

                   Let me start by saying that, although I am here to

              represent the perspective of claimants, I, of course, agree

              that fraud must not be tolerated.  We can all agree on that.

              And I certainly have no objection with the content of House

              Bill 2826, that there be use of databases in order to make

              sure that people who are incarcerated and are not available

              for benefits are not getting them.

                   I would add, from my work in the area of helping people

              with criminal records, that not all criminal databases are

              necessarily infallible.  I have seen issues around accuracy,

              matching, updating.  And I do hope that, as one of the

              implementation goals here, making sure that the data is

              verified is part of how the statute would be implemented.

                   When discussing program integrity, I think that some

              context is important.  And as Ranking Member Doggett

              mentioned earlier, fewer than one in four overpayments is a

              fault overpayment.  Most overpayments in the unemployment

              system are for reasons of non-fault, either because there was

              agency error, employer error, or claimant error.

                   Secondly, I want to point out that dollars are lost from

              the system on both sides.  I understand from the amnesty

              program that Pennsylvania ran earlier this summer that a good

              deal of money was sought back from employers, as well as from

              employees, that 356 million was sought from employees for

              both fraud and non-fraud overpayments. 

               $274 million was

              sought from employees who committed fraud, as opposed to $257

              million being sought from employers for unpaid taxes.  So,

              clearly, money is leaking out of the system from the employer

              side, as well.

                   And third, I would note that many workers are underpaid

              unemployment benefits, or unpaid unemployment benefits.

              Indeed, more are underpaid than are getting fault

              overpayments.  And I certainly agree with the idea that

              correct payments must be made.  But I would urge that we

              consider making sure that people who are entitled to

              unemployment get paid, as well as those who are not and who

              are committing fraud.

                   Now, to meet this goal of making correct payments, I

              urge Congress to look at the issue of adequate funding of the

              state administrative programs, which is a topic that I think

              that Secretary Hearthway and I can agree on.  Certainly we

              have a federal source of funding for these programs, the FUTA

              funding source.  But funding has been stagnant for a long

              time, and the states are starting to hurt in their

              administration of the UI programs, as a result of that.

                   The Pennsylvania experience over the last year has been

              quite difficult, where there has been inadequate staff to

              answer phones and perform other work, as a result of which

              the Pennsylvania state legislature had to enact a measure to

              supplement our federal funding so that we would have adequate

              money to run our program effectively.

                   You may ask, “Why is adequate federal funding an issue

              of program integrity?”  Well, first of all, it allows the

              states to do a better job in administering the program, so

              that erroneous decisions can be avoided, and overpayments,

              therefore, avoided.  But I would also urge that, with more

              staff, claimants have a better opportunity to make sure that

              they understand what the system wants them to do.  In many

              cases, the difficult criteria of the program are simply not

              understood by claimants.  And if they are not able to speak

              to staff, agency employees, because they are not available,

              then, unfortunately, they may get into an overpayment

              situation that they did not intend.

                   Finally, a couple of preventative measures I urge

              consideration of.  First of all, is better communications

              with claimants.  I think if the states were to look at their

              notices, their technological interfaces, to make sure that

              clear communications are happening with claimants, there

              would be fewer overpayments.  And secondly, we should

              incentivize employers to engage on claims as soon as

              possible.

                   In summary, I urge a holistic approach to program

              integrity, and I thank you for your attention, and am happy

              to answer questions.  Thank you.

                   [The statement of Ms. Dietrich follows:]

                   *Chairman Reichert.  Well, thank you all for your

              testimony.  And if you have testified before Congress, you

              know that the next phase of our hearing today is the

              question-and-answer phase.  So we would like to get into that

              for a moment.

                   But I would like to comment, first of all.  I apologize,

              Ms. Hearthway, for not being here for your testimony.  I

              appreciate the testimony of all the witnesses, and I just

              want to make a quick comment on Ms. Dietrich’s remarks

              regarding inaccurate law enforcement or criminal records.  I

              don’t know if the panel is aware of it, but I was in law

              enforcement 33 years, starting from the deputy through the

              end of my career as the sheriff in King County in Seattle,

              Washington.  I am very familiar with the fact that criminal

              records are not accurate.  I think it is very

              poignant point to make here.

                   And the other point you that made, the whole

              effort here is to make sure that those people who deserve the

              assistance are paid the assistance.  And I think that is

              really what this panel has come together

              and just some quick figures.  In New Jersey,

              20,000 inmates collected over $24 million.  And I could give

              you a list of some other states here, but the total cost of

              abuse, in this system, loss of dollars that could go

              to those folks that really need it, is $58 billion.  That is

              the total amount of UI improper payments over the last five

              years.

                   So, we do have a lot of work and ground to cover.  And I

              am very pleased to hear that Mr. Doggett is supporting the

              legislation, as are you, Ms. Dietrich, and I think other

              members of the panel have been invited to also sign on to

              this legislation.  It is common sense.

                   Common sense brings me to the first question.

              Ms. Hearthway, the steps that you have taken in Pennsylvania

              with your office of integrity,

              the word “remarkable” has been used.  And

              “remarkable,” I think it is just sort of a definition of what

              common sense is, I guess, now, in today’s world.  Because you

              have taken some valuable and available information, and you

              are actually putting it to use.

                   So, what lessons, from what you have done in

              Pennsylvania, can we learn and apply to this piece of

              legislation that we are considering?

                   *Ms. Hearthway.  I think perhaps the most obvious is

              that there are some simple solutions to some large problems.

              You have to look for them, you have to be open to those

              ideas.

                   We knew Pennsylvania has a JNET system that housed all

              individuals who have been incarcerated.  Obviously, we had a

              database for everyone applying for unemployment.  It was

              really, in all honesty, a simple step, then, to marry those

              two concepts.  In doing so, we knew fraud existed.  We knew

              the scam of sitting in prison and collecting an unemployment

              check existed.  The sheer numbers were a little surprising to

              us.  It is the kind of information — and Representative

              Kelly and I spoke about this briefly — that spreads pretty

              quickly through the prison system.  So, a few individuals

              receive a check, a whole lot more know about it.

                   Marrying two systems, technology allowed us to stop

              that process fairly quickly.  Now, the technology was there

              for us to do it, and it was not complicated.  So I think the

              first lesson is look at the fraud that is being

              committed and look at your existing systems.  There could be

              a program to implement quickly to stop the bleeding.

                   *Chairman Reichert.  So the bill points to the Social

              Security Administration’s prisoner database, but there might

              be other databases that could help states with this task,

              too.  What criteria should we use to evaluate various

              prisoner databases, in ensuring that the UI benefits are not

              paid to prisoners?

                   *Ms. Hearthway.  When someone is entering prison, if you

              marry up two identifiers, social security and date of birth

               — it is not a massive database, it is a prisoner

              database — that will pretty much ensure you have the

              accurate person.  We then match that with the social security

              number and date of birth of any claimant applying for

              unemployment.  There is the opportunity, should a mistake

              happen, for that individual to say, “No, I wasn’t

              incarcerated,” and then further checks can occur.  We have

              not had that situation.  We have been able to verify each one

              of the stops has been because someone was in prison at the

              time.

                   *Chairman Reichert.  Thank you for your answers.  And we

              are going to go to three minutes a piece, because we have, I

              have been told, some votes that may be called to interrupt

              our day.  So, Mr. Doggett is recognized.

                   *Mr. Doggett.  Thanks to each of you for your testimony.

              Secretary Hearthway, I was particularly interested in your

              comment just now, that we can act fast and stop the bleeding,

              and that states can act fast on this, as well.

                   Do you know if your counterparts in some of our other

              states have followed your example on this?

                   *Ms. Hearthway.  I know we have talked to a number of

              other states, told them about our program.  Not all states

              have a similar or the same JNET-type system that we do.  So

              each state could run into slightly different problems.  But

              once you institute this, it is something that comes to a stop

              pretty quickly.

                   I mentioned a moment ago the sort of word of mouth that

              goes through a prison when there is a benefit like this.  The

              same word of mouth will go through the prison when it can’t

              happen, because it would affect someone’s parole, perhaps

              probation.  This is a type of fix that can go a long way.

                   *Mr. Doggett.  And, Ms. Dietrich, thank you for your

              comments.  I gather that, while there may be some policy

              differences with the Secretary in Pennsylvania on some other

              issues, this particular program that she is testifying about

              today has not led to any negative consequences in your state.

                   *Ms. Dietrich.  I have not personally seen any.  I would

              point out that this program has not been in effect for all

              that long.  So I feel it is a little premature to say that

              from our perspective it has worked perfectly.

                   I think the issue that has most concerned me as I have

              studied it is the question of whether people who are

              incarcerated pending the posting of bail are running into any

              difficulties after they are able to post bail and have made

              themselves able and available for work again.

                   But, no, personally I have not seen any issues with

              that —

                   *Mr. Doggett.  And the accuracy of the systems, as you

              discussed with the chair.

                   While we want to prevent even one dollar of fraud,

              overall I think your testimony is that this problem of

              prisoners getting payments to which they are not entitled is

              a pretty small part of this.

                   *Ms. Dietrich.  Oh, absolutely.

                   *Mr. Doggett.  And as far as the integrity of the system

              generally, maybe you might just expand on your testimony as

              to where you think our focus needs to be.

                   *Ms. Dietrich.  Well, I do think that preventative

              measures are a great idea.  And one thing that worries me

              about the increased technological way that claims-handling is

              being done these days in order to save money is that we have

              lost the opportunity for unemployed people to talk to live

              staff sometimes.  And the result of that is that the sort of

              isolated unemployed person is in a position where he or she

              doesn’t necessarily know what the rules are.

                   My brother, for instance, was unemployed last year.  He

              was a laid-off school teacher.  He has a master’s degree in

              reading comprehension.  And he was often confused to what the

              rules are, and said to me that if he was confused, certainly

              somebody with a much lesser level of education might be

              confused.

                   So, I do think that, from the perspective of the

              claimants, getting out better information, making available

              good ways of getting answers to questions, looking at

              interfaces to the computer systems, I commend Secretary

              Hearthway for having taken very seriously feedback that we

              gave the Department about ways that we thought the computer

               — the online application was confusing, so that people

              aren’t answering incorrectly because they don’t see the world

              quite the same way that unemployment insurance administrators

              do.

                   *Mr. Doggett.  Thank you.  Thank you, Mr. Chairman.

                   *Chairman Reichert.  Thank you, Mr. Doggett.  Mr. Young,

              you are recognized for three minutes.

                   *Mr. Young.  Thank you, Mr. Chairman.  The General

              Accountability Office’s report on this very topic, where you

              studied IT modernization challenges for the states with

              respect to their UI programs, one of the things I find quite

              interesting is towards the end of your oral and written

              testimony.  You indicate that, number one, you recommended to

              Labor to perform a comprehensive analysis of lessons learned,

              and they agreed with that recommendation.

                   Secondarily, you recommended they distribute the

              analysis to each state through an information-sharing

              platform or repository.  Say, a website.  And they were

              silent, for some reason, on that recommendation.  Do you have

              any thoughts about the manner, if you wish, do they intend to

              share best practices, unsuccessful practices, or so forth,

              absent a website?

                   *Ms. Melvin.  It is my understanding that they are in

              the process of compiling lessons learned.  They have not

              communicated back with us about how they would do that, other

              than that they were putting that information together to

              disseminate —

                   *Mr. Young.  Okay.

                   *Ms. Melvin.  — to the state officials.

                   *Mr. Young.  I just think it is essential that we get

       better in all areas of public policy at the state level through

   talking more, and sharing best and worst practices.  I understand

             there are differences across populations and cultures and

             sub-cultures and economies.  But, nonetheless, we have to

             formalize these things, as I see it.  And hopefully, Labor

             will be a willing and engaged partner in that regard on this

             topic.

                   Commissioner Sanders, we have a great story to tell in

             the State of Indiana.  I am going to give you an opportunity

             to expound upon it a little bit.  But perhaps you could start

             just by indicating what motivated you and DWD and the

             administration more broadly to take up this initiative of

             targeting UI fraud, and then maybe speak to where you go from

             here.

                   *Mr. Sanders.  Well, thank you, Congressman.  I think it

             gets back to really having unemployment insurance truly be a

             safety net for those that are unemployed.  And I think too

             often we see the amount of waste, fraud, and abuse that goes

             on in the system.  And one of the challenges we had in

             Indiana was getting local prosecutors to take up the drum and

             march with it.  And obviously, as the secretary mentioned,

             word of mouth in unemployment insurance moves very quickly,

             whether it is those that are incarcerated, or those that are

             actually unemployed and that are gaming the system.  So now

             that we have been able to pick up the prosecution front in

             Prosecutor Curry’s office, we have been able to really move

             the ball forward.

                   I really think the piece, though, with Jobs for

             Hoosiers, that will attack UI fraud, as well.  It is similar

             to the program that the Feds started in — last year, but

             they brought individuals in at the 27th week.  By that point,

             it is too far out.  We are going to bring those individuals

             in the fourth week to verify that they are who they are, and

             then also help them get re-employed.

                  *Mr. Young.  Well, thank you so much for your good work.

             To the extent — for all of you — we can help remove

             obstacles for further reform and further improvement in these

             programs and how they operate, please let us know.  I yield

             back.

                  *Chairman Reichert.  Thank you, Mr. Young.  Mr. Kelly,

            you are recognized.

                  *Mr. Kelly.  Thank you, Chairman.  Just so we

            understand — and, Secretary Hearthway, maybe you could help

            us — the revenue that goes into unemployment insurance,

            where does it come from?

                 *Ms. Hearthway.  Employers, primarily.  Now,

             Pennsylvania —

                  *Mr. Kelly.  Thank you.  Employers.

                  *Ms. Hearthway.  Yes.

                  *Mr. Kelly.  All right.  I happen to own a company.  We

             pay eight percent of everybody that works for us.  And I

             think they put in about 7 percent on their own.  So I want

             to make sure we understand this isn’t some benevolent monarch

             showering these folks with some kind of a benefit.  It comes

             out of employers.  It drives the cost of operation higher.

             And you have to be very careful of that.

                  Pennsylvania, though — it may be early — you are

             estimating savings of $100 million.

                  *Ms. Hearthway.  Yes.

                  *Mr. Kelly.  Well, in a time where 100 million means

             absolutely nothing.  That was, last minute, what we spent in

             interest.  I think it is incredibly important that everybody

             understands everybody who deserves this funding should get

             it.  Those who don’t should not.  And why do I say that?

             Because it ruins the safety net for those who are deserving.

             So I am all on board with you.

                  Let me ask you, though, to share the

             information — because there are 49 other states that could

             benefit from what you have done — is there a best business

             practices exchange?  How do we share that information?  How

            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.]


Public Submissions For The Record

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SUBCOMMITTEE: Worker and Family Support