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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Reagan, Ronald: Gubernatorial Papers,
1966-74: Press Unit
Folder Title: [Welfare] - The Recipient Fraud
Incidence Study, January 1970
Box: P39
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
OF
PRESS
THE 40 EUREKA CHEMISTATE THE STATE OF
The Recipient
Fraud Incidence Study
CALIFORNIA
Conducted by
THE FRAUD REVIEW PANEL
for the
STATE OF CALIFORNIA - HUMAN RELATIONS AGENCY
DEPARTMENT OF SOCIAL WELFARE
PART I
Study and Findings
JANUARY 1970
REPORT ON A STUDY TO DETERMINE THE
EXTENT OF RECIPIENT FRAUD IN THE
AID TO FAMILIES WITH DEPENDENT CHILDREN WELFARE PROGRAM
January, 1970
January 7, 1970
Mr. Robert Martin, Director
State Department of Social Welfare
744 P Street
Sacramento, CA 95814
Dear Mr. Martin:
Enclosed is our report covering a special study made for the purpose
of identifying the extent recipient fraud is present in the Aid to Families With
Dependent Children (AFDC) welfare program and more specifically, the Family Group
and Unemployed Parent components of that program. This study was requested
following a preliminary survey, the results of which were published in a report
dated July, 1968.
The report is presented in six sections:
1. Study Background
2. Selection of a Sample of AFDC Cases
3. Guidelines Established for the Investigation
4. Conduct of the Investigation
5. Review by the Regional Teams and Fraud Review Panel
6. Study Findings and Projections
In performing the study the Fraud Review Panel used the services of
District Attorneys and, in some counties, welfare departments to investigate in
excess of 1,200 AFDC cases selected at random from all such cases in the State.
In addition, contributing efforts were received from a number of other state and
federal departments and agencies. We wish to thank and express our gratitude to
the hundreds of people who gave so much effort to assure that this study was
effective in determining the extent of recipient fraud.
Mr. Robert Martin
-2-
January 7, 1970
Findings developed by the investigators were first screened for
completeness and accuracy by one of three Regional Review Teams established to
provide study coordination and supervision. Following that screening, cases were
reviewed in detail by a Fraud Review Panel composed of five attorneys familiar
with the AFDC welfare program. In its review of cases the Panel designated those
as containing fraud only if there was clear evidence that the case fell within
the definition of fraud set forth on page 7 of the accompanying report.
Study results reveal that 15.75% of the sample cases contained fraud.
Of the dollar amount paid in June, 1969 to all sample cases, 10.00% was determined
to have been received fraudulently by recipients.
The estimate of fraud developed by this study as applicable to June,
1969 can be used to project the amounts fraudulently obtained during the total
year 1969. The Research and Statistics Division, California Department of Social
Welfare, has indicated that welfare payments have continued to increase since
June and that considering June as an average 1969 month would lead to a realistic,
but slightly conservative, estimate of the annual amounts. Multiplying the
estimate of fraud dollars in June by twelve, we estimate that during 1969 payments
totaling $59,109,744 were received fraudulently by recipients included in these
components of the AFDC program.
It is the sincere hope of the Fraud Review Panel that the findings in
this report and the comments and observations that have been made a part of the
study will be viewed in a positive context. It has been the Panel's goal not
only to establish the extent of AFDC recipient fraud, but also to indicate
Mr. Robert Martin
-3-
January 7, 1970
areas in which this fraud is most prevalent, all to the end that those truly
in need may be most benefited.
Very truly yours,
FRAUD REVIEW PANEL MEMBERS
Rath Jannon
Keith C. Sorenson, District Attorney
San Mateo County
John MPriz
John M. Price, District Attorney
Sacramento County
Richard N. Parslow, Jr., Deputy District
Attorney, Orange County
Ray Ray T. Sullivan, T Sullivan Jr., County Jr.
Counsel
Riverside County
Ruday 11 Nichaels
Rudolf H. Michaels, Chief, Legal Office
State Department of Social Welfare
REPORT ON A STUDY OF WELFARE FRAUD IN THE
AID TO FAMILIES WITH DEPENDENT CHILDREN WELFARE PROGRAM
STUDY BACKGROUND
In the spring of 1969, the State Department of Social Welfare was
directed to form a Fraud Review Panel to conduct a statewide study of the
incidence of recipient fraud in the Aid to Families with Dependent Children (AFDC)
program in California. This study was a follow on to an earlier survey of welfare
fraud which was reported in July, 1968. That study had failed to produce defini-
tive results relative to the extent of undetected recipient fraud in the AFDC
program. The requirement for such a review evolves from the continued controversy
over the extent of improper payments to recipients aided under this program, how
much is improperly paid, and in what manner such improper payments are obtained.
To determine the extent, if any, that improper payments had been made
to recipients, this study began with the selection of a sample from the State
AFDC caseload. It is important to note that the sample was a statewide sample,
not a sample of particular counties. Every effort was made to complete the study
promptly to make it possible for useful and effective legislation to be enacted,
should any be appropriate from the findings and conclusions developed. Accordingly,
once the decision had been made to go ahead with the study, the work tasks were
expedited as much as possible. The investigation focussed on two AFDC cash grant
assistance programs: the Family Group and the Unemployed Parent. The Boarding
Home and Institutions component of the AFDC program was not covered by the study.
The legal and administrative framework within which the investigation
was conducted includes the provisions of the laws and regulations related to
welfare administration as contained in the federal Social Security Act, the State
Welfare and Institutions Code, and the Operations Manual of the State Department
of Social Welfare.
-1-
In addition to developing a plan for scientific sampling of the state-
wide AFDC caseload, a carefully structured investigative plan for the conduct of
the investigation was also established. A description of the extent to which
security was maintained and the efforts which went into the selection of an
independent and statistically reliable sample follow.
-2-
SELECTION OF A SAMPLE OF AFDC CASES
The investigations made in this study relate to payments made to
recipients in the month of June, 1969. In that month, approximately 1,000,000
people, representing approximately 270,000 families, were participating as
recipients of the Family Group and Unemployed Parent components of the AFDC
program. Since the unit of measure was to be the family, it was from these two
sub-groups that the sample was selected.
The State of California engaged the international accounting and manage-
ment consulting firm of Ernst & Ernst to assist the Fraud Review Panel in obtain-
ing an appropriate, unbiased sample for investigation, as well as to assist in
coordinating the study. The firm provided an operations research and statistical
sampling specialist to work with representatives of the State Department of Social
Welfare's Research and Statistics Division to develop a proper method of selecting
the statewide sample to be used.
After study, a general plan was developed which conformed to the
essential criteria for unstratified random sampling. This type of sampling was
chosen because the purpose of the study was to measure the level of undetected
fraud among family welfare recipients as a whole, rather than any segment of
these recipients (age, ethnic group) or any one county or other geographical area.
To meet the accuracy criteria established for the study, it was determined
that a sample of 1,219 cases should be examined. To make allowance for the fact
that cases would inevitably be included in the final sample which could not be
investigated because they were closed at the time of the investigation, investi-
gators were provided with a larger number of cases than was actually required so
that sufficient cases might be investigated to provide the degree of confidence
and accuracy desired. Thus, an appropriate amount of over-sampling was built
into the random sample design.
-3-
After determining the number of cases which would have to be investi-
gated in order that the desired level of reliability might be achieved, the
next question to be answered was: From what source might the cases be selected?
The State Department Social Welfare maintains a Master Persons File
which was established for purposes of medical claims clearance. This file
includes the names of recipients in the Family Group and Unemployed Parent
components of the AFDC program, as supplied by the county welfare departments.
As a prelude to its use, appropriate tests were made of the file before any
investigations began to determine that it was reasonably reflective of payments
actually being made by the counties. Where it was found that this was not the
case, appropriate supplemental statistical sampling techniques were applied to
augment the sample so that it would be representative.
Ernst & Ernst provided independent guidance in the sample selection
process. That firm selected and maintained complete control over the random
number table used and directed the entire selection process as the random numbers
were applied against the Master Persons File. The random numbers used were
destroyed by Ernst & Ernst to prevent any possibility of disclosure of the sample
case numbers prior to the time they were given to the investigators.
To achieve study reliability and insure an unbiased sample, the cases
selected were scrambled before the order of investigation was designated. Thus,
assurance was given that the order of listing in the Master Persons File would
not be determinative of the cases selected for investigation. The cases were
then listed and all copies of the listing retained by Ernst & Ernst until such
time as the investigative process began. No representatives of the State of
California, the Fraud Review Panel, or any other body other than the firm of
Ernst & Ernst had any access to the list of cases selected for investigation until
the time that the investigation process began.
-4-
All of the steps taken were fully in line with meeting the most
rigorous requirements of unrestricted random sampling. Cases were examined
sequentially until the desired number of investigations was made. The field
investigation conformed well to the sampling plan. The actual number of cases
investigated was 1,213 compared with a planned investigation of 1,219 cases.
-5-
GUIDELINES ESTABLISHED FOR THE INVESTIGATION
ORGANIZATION AND RESPONSIBILITIES FOR THE INVESTIGATION
As previously noted, a Fraud Review Panel was formed to direct the
study. The functions of the Panel were:
1. To establish the guidelines for the conduct of the study, including
agreements on the nature and extent of the investigation, and to
adopt an appropriate definition of recipient fraud.
2. To review in detail, each of the sample cases selected, for the purpose
of determining the existence of fraud based on a predetermined defini-
tion thereof.
To support the Fraud Review Panel in its efforts, a group of four
consultants was named. They included experts in the welfare field representing
county and state agencies.
To further aid the Panel, and as noted previously, the services of an
outside management consulting organization were requested. Ernst & Ernst was
selected from a number of firms invited to submit qualifications to assist with
such a study. It was the function of this firm to:
1. Provide guidance to insure the objectivity of the study at all levels.
2. Provide guidance to insure adherence to the guidelines established by
the Fraud Review Panel.
3. Tabulate the results of the investigation.
4. Aid the Fraud Review Panel in the preparation of the final study report.
The actual investigation was performed by welfare and District Attorney
investigators throughout the state. From the sample case names provided, these
representatives developed case findings and conclusions with sufficient documenta-
tion to enable the Fraud Review Panel to determine the existence of fraud.
-6-
DEVELOPMENT OF THE GUIDELINES
After preliminary planning, the Panel began meeting in May, 1969,
to formulate the basic structure for the conduct of the investigation, as well
as the manner in which the study should be controlled until its completion. It
became obvious early in this organizational phase that investigation of over
1,200 welfare cases could not be properly supervised by a small group of people
coordinating the study from Sacramento. Accordingly, it was deemed advisable
that three area or Regional Review Teams be formed to assist the Panel in coordi-
nating and supervising the study. Each Team included a representative from a
District Attorney's office, a representative from a county welfare department,
a representative from the State Department of Social Welfare, and a representative
from the firm of Ernst & Ernst who acted as regional team leader.
So that findings might be related to total State payments, the study
concerned itself only with payments received by AFDC recipients in June, 1969,
and the case sample was drawn from the statewide AFDC caseload. Thus, the
incidence of fraud identified at the conclusion of the study was to be a statewide
figure which would in no way reflect the situation in a particular county.
A major factor in establishing the investigation guidelines was the
definition of fraud which was to be applied. The Panel was in agreement that
the definition of fraud contained in Section 20-003 of the State Department of
Social Welfare regulations represented a valid definition for the purpose of this
study. That definition reads:
Fraud by applicants for or recipients of public assistance exists
when the applicant or recipient has:
1. Knowingly and with intent to deceive or defraud made a false
statement or representation to obtain aid, obtain a continu-
ance or increase of aid, or avoid a reduction of aid.
2. Knowingly and with intent to defraud failed to disclose a
fact which, if disclosed, could have resulted in denial,
reduction or discontinuance of aid.
-7-
3. Accepted aid knowing he is not entitled thereto, or accepted
any amount of aid knowing it is greater than the amount to
which he is entitled.
4. For the purpose of obtaining, continuing, or avoiding a
reduction or denial of aid, made statements which he did
not know to be true with reckless disregard of the truth.
Other guidelines prescribed by the Fraud Review Panel included the
following:
1. That the study would begin as soon as a statistically reliable sample
was developed.
2. That the random sample drawn at the beginning of the study would be
sufficiently large to satisfy the requirements of the statewide sample
needed, allowing for cases that would have to be rejected because they
were inactive at the time the investigation began.
3. That requirements for minimum investigative efforts be established.
By establishing these requirements it was not the intention of the Panel
to limit an investigator's effort but only to suggest the minimum efforts
for investigating each case. It was determined that each step in the
investigative process would be completed in spite of the fact that
evidence of fraud might be obtained at some point early in the investigation.
4. That an orientation program be developed to insure that investigations
would be conducted uniformly throughout the State, and that the program
be presented by each of three regional teams to the investigators in
their area who would be involved in the study. As developed, the
program included the following:
A. Necessary instruction which provided the investigator with an
overview of the general approach and purpose of the study, as well
as the individual steps of the investigative and review process with
which he would be involved.
-8-
B. An explanation of the sampling process.
C. An explanation of the organizational structure of the study and the
specific responsibilities of each person involved in the study.
D. Instruction on the definition of fraud to be applied.
E. A review of the investigative guidelines prepared for use by the
investigators.
5. That the Panel develop appropriate forms and procedures to assist each
investigator in his gathering of data, and developing conclusions on each
individual case. The checklists so developed, as well as appropriate
summary and conclusion forms, were distributed to each county investiga-
tive unit for inclusion in each individual case file. The checklists
essentially covered the review steps suggested for a minimum investigation
effort as previously prescribed by the Panel.
-9-
CONDUCT OF THE INVESTIGATION
ORIENTATION AND INITIATION OF THE INVESTIGATION
The orientation programs were conducted in each of the three regions
in mid-July, 1969. At these meetings the investigation checklists as well as
the master list of cases selected for each region were distributed to representa-
tives of county investigative units. This was the first time the cases selected
for investigation had become known to anyone other than the consultant firm of
Ernst & Ernst.
At each of these meetings, the Executive Secretary of the State Social
Welfare Board, the project coordinator from Ernst & Ernst, the Regional Review
Team leader and members, took part in describing the study and its approach.
Special attention was given to the role of the investigator and the requirements
he was to satisfy. A portion of the meeting was set aside for investigators to
ask questions relating to any facet of the study.
In the course of these meetings, certain qualifications were stressed.
For instance, the fraud to be investigated was explained to be solely that which
pertained to the welfare payments made in June, 1969. If, during the course of
the investigation, fraud was believed to have occurred, either before or after
the month of June, the investigator was asked to provide supplemental information
in the file and mention this fact in his report. It was made clear that local
District Attorneys' prosecution of suspected fraud cases should not be deferred
until the study was completed. It was made clear that any amounts of fraud
discovered which related to payments made in months other than June were not going
to be included in the results of this study. As noted, the study related only to
payments made in June, 1969. Administrative errors which came to the attention of
the investigator in the normal process of conducting his investigation were also
-10-
to be noted. The investigators were invited to accumulate information which could
be useful to the Fraud Review Panel in developing recommendations for improvement
of the AFDC program.
The procedures to be followed in processing the cases were explained.
Upon completing his investigation and preparing his report, each investigator was
to transmit the file of documents developed in the investigation to the regional
team for review. If the Regional Review Team found that all requirements were
satisfied in terms of the criteria and guidelines earlier established, it would
then transmit the case file to the Fraud Review Panel. If it was found the case
file did not indicate the investigative requirements had been met, it was to be
returned to the investigator for further work and completion.
Owing to the variation in size of the participating counties, the
number of investigators involved and attending this meeting in each region varied
from one to approximately sixteen per county. The county representatives were
primarily District Attorneys' personnel. In most counties, the District Attorney's
investigative unit was responsible for performing the investigations. In several
of the larger counties, the District Attorney's office was assisted by the local
county welfare department in performing the investigations.
THE COMPILATION OF FINDINGS AND DEVELOPMENT OF CONCLUSIONS
Documentation and findings were compiled in accordance with a standard
checklist for the conduct of each investigation. Even though fraud or adminis-
trative error was found in a particular case prior to completing all of the
investigative tasks, the investigator completed the collection and analysis of
all items required in the checklist. Where documentation or information could
not be included in the case file, the investigator was asked to provide justifi-
cation for its absence from the file.
-11-
The primary responsibility for developing the case information
necessary to enable the Fraud Review Panel to reach a conclusion rested with
the investigator assigned the case. This placed a responsibility on each
investigator to prepare a report on his investigation which conveyed to the
Regional Review Team and the Fraud Review Panel as complete and accurate a
presentation of the case as possible. He was required to show that his
findings in each case flowed logically from the evidence he developed, as
shown by the documents included in his case file.
-12-
REVIEW BY THE REGIONAL TEAMS AND FRAUD REVIEW PANEL
The review of cases was divided into two phases. The first phase was
a preliminary review performed by one of the three Regional Review Teams. The
second and final review was made and conclusions were reached by the Fraud Review
Panel in Sacramento.
THE REGIONAL REVIEW TEAM
The three Regional Review Teams were in existence for the duration of
the study. The scope of their involvement included the following:
1. Development and presentation of the orientation for investigators.
2. Providing assistance to the investigators in initiating the investigations.
3. Conducting periodic reviews of the investigation progress and coordinating
as required.
4. Controlling cases and information about the study within their region.
5. Reviewing submitted cases.
6. Transmitting completed cases to the Fraud Review Panel, or returning
incomplete cases to the investigative unit.
7. Providing general assistance to the Fraud Review Panel as required.
The first two tasks in this list have been discussed briefly in previous sections
of this report. Highlights of the other tasks are discussed below.
Periodic reviews of the investigation progress and investigative coordi-
nation were performed in each region. This was necessary to assure that the study
deadlines would be met and to alleviate problems, particularly with agencies not
directly involved in the study, whose assistance had been requested. Individual
members of each regional team assumed special coordination assignments. In one
region, the county welfare department representative was instrumental in acquiring
many additional services from the welfare agencies in support of the study.
-13-
For two of the Regional Teams, this coordinating task was especially time
consuming owing to the extensive geographical area included in their regions.
Based on the need for reliable study results, the scientific design
of the study, and the techniques applied in the selection of sample cases,
control of the cases in each region was imperative. Master lists of case names
and numbers were maintained by each Regional Review Team for control over the
systematic and sequential allocation and investigation of cases. Each case
reviewed by the Teams was checked against the master list to insure it was properly
includable in the study. In addition to control for statistical purposes, each
Team was responsible for maintaining the confidentiality of each case and the
information evolving from the investigations.
The scope of review of individual cases also included the measuring
of the quantity and quality of the investigative work as presented against the
guidelines set forth for the investigation; determination of the completeness of
the documentation and its orderly compilation; assurance that the findings and
reporting were accurately and completely presented; and the correcting of any
clerical errors.
The screening process at the Regional Review Team level called for
individual members of each Team to review individual cases. For particularly
complex cases or cases in which the investigator's reporting raised questions,
the entire Team participated in the review. Team members making the individual
case reviews used the expertise of other members of the Team for support in
assuring that a proper investigation had been made and the findings were properly
presented.
From this screening, cases were either forwarded to the Fraud Review
Panel with appropriate comments, or returned to the investigative unit for further
work. In a few instances cases were rejected from the study by the Regional Team
inasmuch as the case was not active at the time the investigation began.
-14-
THE FRAUD REVIEW PANEL
The Fraud Review Panel held meetings in Sacramento as the number of
cases received merited such meetings. An Ernst & Ernst representative, serving
as coordinator, attended each of these meetings as a non-voting participant and
as a Regional Review Team coordinator. Great care was taken by the Panel in
this review to ascertain that there was clear evidence of recipient fraud in
a case before it was so designated. Each case of recipient fraud, as determined
by review of the case, was discussed at length by the entire Panel. All of the
Panel members were attorneys familiar with the AFDC program. As such, they were
familiar with the implications of the definition of recipient fraud. Further,
they were aware of the evidence needed to establish the existence of fraud.
In addition to compiling information on the extent of fraud in the
sample cases investigated, the Panel also gathered information on administrative
errors that had come to the attention of the investigator at the time of his
review. The frequency and extent of the incidence of administrative errors are
included in the final section of this report. However, it should be emphasized
that the study was not aimed at determining the extent of administrative error.
This information, as a by-product of the study, is submitted in this report in
the expectation that it will be useful in reducing the extent of such errors in
the future.
-15-
STUDY FINDINGS AND PROJECTIONS
Investigation of the AFDC cases selected for review from the statewide
Master Persons File indicated a significant number contained recipient fraud. It
was also noted that a significant number contained administrative error which
resulted in an incorrect payment to the recipient.
Cases investigated totaled 1,213. Of these, 191 or 15.75% were found
to contain recipient fraud. The most common type of identified fraud was found
to be 'Unreported Income' which was present in 8.74% of the cases investigated.
The second most common was the presence of an 'Unreported Man Assuming the Role
of Spouse' which was found to be present in 4.21% of the cases investigated.
Recipient fraud of some other type was found to be present in 2.80% of the cases
investigated.
Although the study's aim was to determine the amount of recipient fraud
present in the program, examples of administrative error also came to the atten-
tion of the investigators as they performed their review tasks. Administrative
errors were found to be present in 5.36% of the cases investigated. The study
was not aimed at determining the extent of administrative error. Accordingly,
the amount of such error quoted here, and in the accompanying tables, is not to
be considered as properly reflective of all such error in the sample or the
AFDC program.
A tabulation of the findings developed by the study is outlined in
Table I accompanying this report.
The statistics outlined above deal with the frequency recipient fraud
and administrative errors were found to be present in the cases investigated.
When the findings relating to the dollars fraudulently received by recipients
are examined, a better understanding of the effect of these fraudulent activities
-16-
is obtained because mere determination that fraud existed in a given case does
not necessarily mean that the entire grant was fraudulently obtained. In
instances of outright ineligibility, the entire amount paid would be due to
fraud but in other cases, such as those of unreported income or the failure to
report the ineligibility of one of several children, only a part of the grant
would be attributable to the fraud while the balance would be characterized as
"properly paid." Of the total amount paid to recipients covered by the cases
included in the sample, 10.00% was found to have been received fraudulently.
Further, 1.76% was found to have been paid as a result of administrative error.
The total amount paid in June, 1969 to all recipients included in the
Family Group and Unemployed Parent components of the AFDC program amounted to
$49,258,124 according to Welfare Department records. Relating the study findings
to these total payments, and considering the reliability which can be given to
the results developed from the sample used, there is a 95% reliability that, plus
or minus 1.61%, $4,925,812 of the total amount paid in June, 1969 to the families
covered by these components were received fraudulently. Table II further outlines
these findings.
The estimate of the dollar amount of fraud in June, 1969, can be used
to project the fraudulent amounts for all of 1969. The Research and Statistics
Division, California Department of Social Welfare, has indicated that welfare
payments have continued to increase since June and that considering June as an
average 1969 month would lead to a realistic, but slightly conservative estimate
of the annual amounts.
By multiplying the June estimates by twelve, it is estimated that
payments totaling $59,109,744 were received fraudulently and payments of at
least $10,403,316 were received as a result of administrative error in 1969.
-17-
Payments received fraudulently are estimated to have been made as a result of
the following fraudulent acts in the amounts indicated:
Estimated 1969
Amount
Type of fraud:
Unreported Income
$27,958,908
Unreported Man Assuming
Role of Spouse
20,688,408
Other
10,462,428
$59,109,744
-18-
RECIPIENT FRAUD INCIDENCE STUDY
June, 1969
NUMBER OF CASES, TOTAL PAYMENTS, AND FRAUD PAYMENTS IN AFDC SAMPLE CASES, BY TYPE OF FRAUD
TOTAL PAYMENTS
FRAUDULENT PAYMENTS
CASES
AVERAGE
PERCENT
AVERAGE
TYPE OF CASE
NUMBER
PERCENT
AMOUNT
PERCENT
PER CASE
AMOUNT
ALL PMTS.
PER CASE
Cases Determined to Contain Fraud:
Unreported Income
106
8.74%
$ 20,947
9.30%
$197.61
$10,649
4.73%
$100.46
Unreported Man Assuming Role of Spouse
51
4.21
10,626
4.71
208.35
7,890
3.50
154.71
Other:
Unreported Change in Family Composition
7
.58
1,561
.69
223.00
779
.34
111.29
Misstatement of Material Fact
9
.74
1,519
.67
168.78
746
.33
82.89
Unreported Ineligible Child
3
.25
664
.30
221.33
116
.05
38.67
Unreported Excess Personal Property
5
.41
936
.42
187.20
936
.42
187.20
Unreported Ineligible Recipient
4
.33
557
.25
139.25
557
.25
139.25
Failure to Disassociate
5
.41
1,165
.52
233.00
684
.30
136.80
Misrepresentation of Availability for Employment
1
.08
166
.07
166.00
166
.08
166.00
Total Other
34
2.80
6,568
2.92
193.18
3,984
1.77
117.18
Total Cases Determined to Contain Fraud
191
15.75
38,141
16.93
199.69
$22,523
10.00%
$117.92
Balance of Cases
1,022
84.25
187,133
83.07
183.10
TOTAL IN SAMPLE
1,213
100.00%
$225,274
100.00%
$185.72
NUMBER OF CASES, TOTAL PAYMENTS, AND PAYMENTS INVOLVING ADMINISTRATIVE ERROR IN AFDC SAMPLE CASES
TOTAL PAYMENTS
ADMINISTRATIVE ERROR
CASES
AVERAGE
PERCENT
AVERAGE
TYPE OF CASE
NUMBER
PERCENT
AMOUNT
PERCENT
PER CASE
AMOUNT
ALL PMTS.
PER CASE
Cases With Administrative Error
65
5.36%
$ 11,161
4.95%
$171.71
$3,956
1.76%
$ 60.86
Balance of Cases
1,148
94.64
214,113
95.05
186.51
TOTAL IN SAMPLE
1,213
100.00%
$225,274
100.00%
$185.72
Note: It can be accepted with 95% reliability that the sample percentages above which relate to recipient fraud
I PABLE
are accurate to within better than + 2.2%. Information relating to administrative error was noted incidental
to the investigation of recipient fraud and the review tasks were not designed to determine the extent of such error.
Accordingly, no accurate projections of such error can be made from the cases investigated.
RECIPIENT FRAUD INCIDENCE STUDY
June, 1969
ESTIMATED TOTAL NUMBER OF CASES AND AMOUNT OF PAYMENTS INVOLVING FRAUD
CASES
PAYMENTS
SAMPLE
ESTIMATED
SAMPLE
ESTIMATED
TYPE OF CASE
PERCENT
NUMBER
PERCENT
AMOUNT
Type of Fraud:
Unreported Income
8.74%
23,170
4.73%
$ 2,329,909
Unreported Man Assuming Role of Spouse
4.21
11,162
3.50
1,724,034
Other
2.80
7,423
1.77
871,869
Payments With Fraud
15.75
41,755
10.00
4,925,812
Balance of Payments
84.25
223,353
90.00
44,332,312
TOTAL PAID IN JUNE, 1969
100.00%
265,108
100.00%
$49,258,124
ESTIMATED TOTAL NUMBER OF CASES AND
AMOUNT OF PAYMENTS INVOLVING ADMINISTRATIVE ERROR
CASES
PAYMENTS
SAMPLE
ESTIMATED
SAMPLE
ESTIMATED
TYPE OF CASE
PERCENT
NUMBER
PERCENT
AMOUNT
Cases With Administrative Error
5.36%
14,210
1.76%
$
866,943
Balance of Cases
94.64
250,898
98.24
48,391,181
TOTAL PAID IN JUNE, 1969
100.00%
265,108
100.00%
$49,258.124
Source: Total June, 1969 cases and payments from California Department of Social Welfare,
Research and Statistics Division.
Note: It can be accepted with 95% reliability that the sample percentages and derived
amounts above which relate to recipient fraud are accurate to within better than
+ 2.2%. Information relating to administrative error was noted incidental to
the investigation of recipient fraud and the review tasks were not designed to
determine the extent of such error. Accordingly, no accurate projections of
such error can be made from the cases investigated.
TABLE II
PRESS
GREAT SEAL EUREKA OF THE STATE
The Recipient
THE
OF
Fraud Incidence Study
CALIFORNIA
Conducted by
THE FRAUD REVIEW PANEL
for the
STATE OF CALIFORNIA - HUMAN RELATIONS AGENCY
DEPARTMENT OF SOCIAL WELFARE
PART II
Recommendations
JANUARY 1970
RECOMMENDATIONS DEVELOPED FROM A
STUDY TO DETERMINE THE EXTENT OF RECIPIENT FRAUD IN THE
AID TO FAMILIES WITH DEPENDENT CHILDREN WELFARE PROGRAM
January, 1970
January 7, 1970
Mr. Robert Martin, Director
State Department of Social Welfare
744 P Street
Sacramento, CA 95814
Dear Mr. Martin:
The results of the study to determine the incidence of undetected
recipient fraud in the Aid to Families With Dependent Children (AFDC) caseload
have been reported to you under separate cover on this date.
In conducting this study new benchmarks have been established in coopera-
tive relations between county and state government. The major part of the study
work has been performed by District Attorneys and members of their staffs. In
spite of the extreme pressure of other responsibilities, these individuals and
agencies have given generously of their time, sometimes at personal sacrifice.
In addition, a number of county welfare departments have also contributed investi-
gative and other valuable staff services.
The taxpaying public which has the responsibility of caring for those
who are truly in need deserves to have confidence that the regulations governing
the welfare program are scrupulously adhered to. For the same reason, those who
are in any way involved in the administration of the system have the absolute duty
to insure that such is the case. Only in this way can the proper concept of
public support of welfare programs be realized.
In conducting this study the Fraud Review Panel was given a unique
opportunity to survey and critically examine many of the procedures and problems
related to the program.
Mr. Robert Martin
-2-
January 7, 1970
Our observations and the study findings clearly indicate a serious
problem is present which will require continuing attention. It appears most
advisable that a program be developed which will constantly assess the level of
administrator and recipient compliance with the law and regulatory requirements.
We recommend that a program be adopted which will provide for continuing review
and monitoring of that compliance.
Accompanying this letter are further recommendations developed during
the conduct of the study. Many are not new. Many have been discussed elsewhere.
The Panel believes, however, that the study findings add a new note of urgency,
and it is for this reason that they are restated here. The findings in the report,
the comments and observations above, and the accompanying recommendations should
be viewed in a positive context. It has been the Panel's goal to establish the
extent of fraud and to suggest ways in which waste can be curtailed to the end
that those truly in need may be most benefited.
Very truly yours,
FRAUD REVIEW PANEL MEMBERS
Recti Shinnon
Keith C. Sorenson, District Attorney
John San Mateo County M Price
John M. Price, District Attorney
Sacramento County
Bill Richard N. Parslow, Jr., Deputy District Attorney
Orange County
Ray Ray T. T.Sullevan Sullivan, Jr., County &
Counsel
Riverside County
Rudsept. Michaels
Rudolf H. Michaels, Chief, Legal Office
State Department of Social Welfare
RECOMMENDATIONS
State and County Administration
A significant portion of welfare fraud losses result from the failure
to report changes in family composition and income; either earned income, income
in-kind, or income received from other sources. Related to this is the need for
a clearer understanding on the part of the recipient of his responsibility to
report such circumstances, and improvement in the system by which such reports
and status changes are received and processed by the counties.
It is clear there is room for improvement in all of these areas. The
recipient-oriented caseworker must realize the serious implications for the
recipient as a result of his (the caseworker's) failure to insure the recipient's
understanding of these requirements. The consequence of such a failure can lead
to prosecution. While this fact should be impressed on the recipient, the case-
worker must also understand that failure to adequately cover this subject in his
discussions with the recipient may be exposing both to needless difficulty.
A significant portion of the fraudulent conduct and many of the errors
identified in this study commenced or were permitted to continue unabated because
some caseworkers were not sufficiently aware of the danger signals. The apparent
lack of training and/or interest on the part of some caseworkers may be viewed as
a significant factor associated with the incidence of fraud and error.
There is a serious lack of uniformity between the counties as to
(1) when during the month such reports of changes in family composition and income
are due, (2) the manner of processing the reports, and (3) the ease with which the
information contained in the reports can be applied to the grant. In connection
with these problems the Panel recommends that:
-1-
1. Regulations provide for a mandatory, timely, simplified and uniform
system for reporting income and changes in family composition by
recipients throughout the State.
2. Regulations and forms on this and other subjects be written in a clear
and concise manner to the end that ambiguity is eliminated. For
example, the word "prompt" would be better understood if a specific
period of time were substituted; the words "Income" and "Family
Composition" would be better understood if they were clearly defined
and their definitions impressed on recipients.
3. Monthly detailed status and income reports be required as a pre-requisite
of paying aid.
4. The recipient be instructed, before being asked to complete any document
relating to eligibility for aid, that any false statement will subject
him to criminal penalties.
5. Regulations regarding signatories on affirmations and reaffirmations
require that all adults in the home who affect the grant must sign
these documents, as well as any and all adults responsible for the
child.
6. Greater attention be given to those cases in which there is variable
income or income from self-employment, as well as during those periods
in which there are five weekly pay periods.
7. Consideration be given to pressing disciplinary and/or legal action
against caseworkers and others who deliberately or negligently overlook
illegal situations or who aid and abet in the commission of welfare
fraud.
8. It be required that each applicant for aid receive a pictorial pamphlet
outlining his responsibilities; and this document be followed up with
-2-
mailings at intervals in the future. An example of such a brochure
accompanies this report as Appendix A.
9. Efforts to simplify AFDC program regulations be continued. The extensive
detail involved in policy, regulations and calculation of the need and
the grant, results in confusion and misunderstanding of the program
requirements.
In the course of the study the Fraud Review Panel was exposed to some
of the administrative complexities of the internal system at both the state and
county level. The vastness and costs of these systems would seem to justify
close and continuing scrutiny to insure that the internal mechanism functions as
efficiently and economically as possible. While payment documentation is a
necessity, attention should be given to simplifying the steps, eliminating
unnecessary steps and providing some tracking system in order to determine without
delay the number and amounts of grants received in a particular case in a given
period. Reports of all kinds should be carefully evaluated to insure they are
still justified in terms of their usefulness and purpose and, if so, that they
are both accurate and timely. Although these comments are of a general nature,
the Panel recommends that:
10. Continuing attention be given by the State Department of Social Welfare
to updating the Master Persons File and developing procedures which
will assure that it remains current. In this connection it is important
that the counties continually provide current information for input
into the file.
11. Regulations concerning the final payment of aid in the month of discon-
tinuance be improved. At this point substantial overpayments can be
made which are difficult or impossible to recover due to the inability
of the system to respond promptly to change.
-3-
12. Notices advising recipients of discontinuance contain in bold print
that there is no further entitlement; that any warrants received should
not be cashed but returned to the welfare department. Further, that
such notice recite the penalty for non-compliance with this requirement.
13. As an aid to maintaining better controls, support contributions received
by the probation or other departments of county government in all cases
be uniformly transmitted to the welfare department to offset the grant
instead of being paid directly to the recipient.
In their review of sample cases in this study, members of the Panel have
identified a number of problem areas associated with the payment of aid and the
policies and regulations related thereto. As a means of resolving these problems,
the Panel recommends that:
14. A system of closer followup be established to insure that extra sums
paid recipients to meet specific special needs are actually used for
the purpose intended.
15. A policy be adopted which will provide for the discontinuance of
aid when a recipient absents himself from the state for thirty days for
whatever reason.
16. Regulations require the listing of parent social security numbers as
well as other potential employable family members on the application
for aid, and a greater effort made to obtain these numbers on current
cases. Applicants for aid who do not have social security cards can be
assisted in completing the simple application at the time the applica-
tion for aid is taken.
17. In cases involving fraud, the guilty party not have the benefit of
deductions for work-related expenses and/or other exemptions in
computing the amount of the overpayment.
-4-
18. Caseworkers alone not have the authority of declaring individuals
incapacitated. Supervisory staff should participate in this decision
after appropriate evaluation and verification.
The Panel makes two observations with regard to existing statutes and
the need for legislative action. First, the wording in Section 10500, Welfare
and Institutions Code is such that it is being used for purposes contrary to its
intent. Secondly, Section 11482 of the Welfare and Institutions Code, as related
to Section 487.1 of the Penal Code causes a distinction to be made between welfare
recipients and non-welfare recipients.
The Panel recommends that legislation be introduced for the purpose
of amending:
19. Section 10500, Welfare and Institutions Code reads as follows:
"Every person administering aid under any public assistance
program shall conduct himself with courtesy, consideration, and
respect toward applicants for and recipients of aid under that
program, and shall endeavor at all times to perform his duties
in such manner as to secure for every person the maximum amount
of aid to which he is entitled, without attempting to elicit any
information not necessary to carry out the provisions of law
applicable to the program, and without comment or criticism of
any fact concerning applicants or recipients not directly related
to the administration of the program."
This section should contain language which speaks to the recipients'
responsibility and, further, sets forth the requirement that welfare
benefits are to apply as a supplement to all other benefits to which
the recipient may be entitled, and after property which exceeds the
limitations has been utilized.
20. Section 11482, Welfare and Institutions Code reads as follows:
"Any person other than a needy child, who willfully and knowingly,
with the intent to deceive, makes a false statement or representation
or knowingly fails to disclose a material fact to obtain aid, or who,
knowing he is not entitled thereto, attempts to obtain aid or to
continue to receive aid to which he is not entitled, or a larger
amount than that to which he is legally entitled, is guilty of a
misdemeanor."
-5-
This section should be amended so it is consistent with Section 487.1 of
the Penal Code; that is welfare fraud resulting in an overpayment of
less than $200 should be considered a misdemeanor and in excess of $200
should be defined as a felony. Such a change would clarify the present
law.
Caseworker-Recipient Relationships
Efforts of caseworkers, both eligibility and social workers, are directed
toward assisting the recipient in obtaining financial independence and self-
determination, as well as improving his self-image and his physical and emotional
environment as well as that of his family. The tools used by the caseworker in
achieving these objectives are the various financial aid and service programs
supported by the public or private organizations within certain limits and guide-
lines. The caseworkers' responsibility to render aid in a humane and understanding
manner is obvious. Their responsibility in administering public funds and the
public trust involved is just as obvious.
There appears to be however, a minority of caseworkers who overlook and
encourage acts by recipients which are contrary to the letter and intent of the
prescribed limits and guidelines. Aside from fostering greater dependency in the
recipient, these few caseworkers should realize that welfare cheating is a morally
degrading act. Unlawful acts are just as degrading when committed by a welfare
recipient as when committed by an individual who is financially independent. For
these caseworkers to fail to shoulder their responsibility in this area - to
deliberately overlook or in other ways to encourage this behavior in recipients
is directly contrary to basic social work philosophy. An indication of this
adverse and negative attitude manifested itself recently when some caseworkers
advised their co-workers and recipients not to cooperate in this study, a study
-6-
which was instituted and conducted within the jurisdiction of welfare administra-
tion. Public employees have the same obligation to taxpayers, as employees of
private organizations have to their employers, and such activities should be dealt
with accordingly.
Welfare recipients specifically and the public in general have a right
to expect that caseworkers will be trained and knowledgeable in their areas of
responsibility. Although recognizing there is a great amount of detail involved
in this work, the Panel believes that a significant part of the administrative
error and fraud identified in its report could have been avoided with improved
caseworker training.
On the general subject of caseworker-recipient relationships, the Panel
recommends that:
21. Greater emphasis be placed on developing in caseworkers, a sophisticated
awareness of the possibility that they may be deceived. This subject is
discussed at greater length below.
22. Increased emphasis be placed on supervision and review of case record
material by caseworkers and supervisory staff. More than isolated
instances were noted where glaring errors and omissions requiring
follow-up did not receive necessary attention or were subject to
unnecessary delay.
Detection and Prevention of Fraud
In general terms, one of the most pressing needs in connection with
preventive programs is a systematic training program for caseworkers and eligibil-
ity workers. Such training should be included in the initial caseworker orientation
and furthered by the use of in-service training programs. Involvement should be
mandatory. A suggested plan for developing such a comprehensive program is contained
in Appendix B.
In the area of detection and prevention, the Panel recommends that:
-7-
23. In consideration of the extent of welfare fraud and administrative
error revealed by the fraud study, county governments carefully
review the present level of fraud investigation and staffing to
determine whether they are adequate to cope with the size of the
existent problem.
24. A method be developed for identifying, for closer follow-up, those cases
in which the recipient has previously been suspected of welfare fraud
or has, in fact, been convicted of welfare fraud.
25. The State utilize information developed by state and federal agencies
as aids to administering the program. Systematic obtaining of informa-
tion on recipients earnings, benefits and property would be of signifi-
cant benefit in this regard.
26. Cases involving large monthly totals of aid payments and other income,
and cases involving unemployed or incapacitated parents, be scheduled
for special and more frequent follow-up.
27. In instances where recipients are not furnished caseworker services,
provision be made for frequent review of eligibility.
28. County governments be encouraged to expand their investigative staffs
to meet the problems identified by the study. Smaller counties should
receive assistance in developing investigative staffs in the areas of
child support and welfare fraud, perhaps through a county pooling
arrangement.
29. Where school attendance is a condition of receipt of welfare the
caseworker contact the school with sufficient frequency to insure that
eligibility continues to exist.
30. The policy of non-scheduled home visits by caseworkers during normal
business hours be adopted by all counties.
-8-
APPENDIX A
DOES
ABOUT MONEY YOU GET FOR YOURSELF OR YOUR CHILDREN
YOUR
from your job
from a child's father
from disability
SOCIAL
0000
from a child's job
0000
from rent
from unemployment
from your family
from social security
from any other source
WORKER
from your friends
from workmens' compensation
KNOW
ABOUT PEOPLE IN YOUR HOME : - WHEN ANYONE MOVES IN,
?
MOVES OUT, OR VISITS
00
a family member
[] another adult or child [] your child
a friend
ABOUT YOUR PROPERTY THINGS YOU OWN OR BUY
if you are buying or selling:
00
a home
a car
other property
[_] appliances
00
furniture
if you are buying life
insurance
HAVE YOU MOVED LATELY? ARE YOU PLANNING TO MOVE?
Does your social worker know your new address? []
SCHOOL
Do you have a child over 15 who does not go to school? []
IF YOUR SOCIAL WORKER DOES NOT KNOW THE THINGS YOU
HAVE CHECKED ABOVE, call him and tell him now - this
is for your PROTECTION !
#93
(a) Aug., 1968
PROTECT
For your child
to get the right
WHAT
A few people do not
tell their social
YOURSELF
amount of aid,
worker all the facts.
your social worker
IS
must know about:
FRAUD
These people can be
TELL
arrested for fraud.
YOUR
MONEY you or your
child get - no
?
What is FRAUD?
SOCIAL
matter who or
where it is from.
Fraud is a crime. A
WORKER
person may have to
THINGS you own or
pay a fine and he
are buying.
may be put in jail
for fraud.
PEOPLE who live
with you - no
When a person gets
matter who they
aid that he should
are.
not get, he may be
guilty of fraud
PLANNING
Have you told your
WITH
social worker ALL
IF the aid was paid
YOU
he must know to
because he lied.
To
Help
pay aid for your
child?
IF the aid was paid
because he told only
STOP
Don't wait for him
part of the truth.
to ask. Tell your
FRAUD
social worker ALL
IF the aid was paid
THE FACTS now !
because he did not
tell all the facts
right away.
You can help stop fraud, Check
DEPART
the list inside this folder. If
your social worker does not know
all these facts about you and
your family - tell him NOW :
ERESNO COUNTY WELFARE
SUGGESTIONS FOR DEVELOPING A
FRAUD PREVENTION AND DETECTION TRAINING PROGRAM
1. The Director of the State Department of Social Welfare would have
responsibility for mandating this program in all counties.
2. The curriculum would be developed by a group consisting of representatives
of the County Welfare Directors' Association and the District Attorneys'
Association who have demonstrated an interest in this area. Included would
be a Deputy District Attorney with experience in welfare fraud and child
support, an experienced casework and eligibility supervisor, a county
welfare investigator and district attorney investigator as well as selected
executive staff of the State Department of Social Welfare.
3. Each new caseworker and eligibility worker would receive fraud detection
and prevention training as a part of his orientation.
4. Within the first six months the new staff member would participate in a
full days fraud prevention and detection training activity.
5. Advanced courses would be provided for supervising staff at regular intervals
and participation would be mandatory. Subject matter would be varied.
6. Programs would include a heavy emphasis on prevention, as well as:
a. Identification of clues and leads
b. Actions to be taken
C. Referral procedures
d. Recipient responsibility
e. Staff member responsibility
f. Case examples to illustrate
APPENDIX B