U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210
December 15, 1994
December 31, 1996
UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 04-95
ALL STATE EMPLOYMENT SECURITY AGENCIES
MARY ANN WYRSCH
Third Party Fraud Project
Purpose. To request the assistance and cooperation of State Employment Security Agencies (SESAs) in a special project to evaluate the effectiveness and to determine the cost of an enhanced approach to detect and deter third party fraud in the unemployment insurance (UI) program.
References. Unemployment Insurance Program Letter (UIPL) No. 7-92, "Eagle Pass Task Force Recommended Actions for Deterring and Detecting Fraud Activity in the Unemployment Insurance (UI) Program."
Background. The validity of UI claims filed by claimants who use a third party to assist in filing has long been a concern of Federal and State UI administrators. Increased attention was focused on this concern in the early 1990's by the results of the Texas Employment Commission (TEC), the Office of Inspector General (OIG) and the Employment and Training Administration (ETA) investigation of a third party fraud scheme in Eagle Pass, Texas. A similar third party fraud scheme was subsequently uncovered in the Roma/McAllen, Texas, area. The Dallas OIG, with the cooperation of ETA and the SESAs, has successfully pursued prosecution and conviction of several individuals involved in these fraud schemes. Additional information concerning these operations can be found in UIPL No. 7-92.
Further investigations have uncovered a total of fourteen third party fraud schemes along the Texas/Mexico border to date. These investigations disclosed that the third party filed weeks claimed on behalf of claimants, certified to false work search contacts, and perhaps falsified answers to other eligibility questions in the claimants' absence. The third party also forged the claimants' signatures and cashed UI benefit checks.
The majority of the claimants identified during the third party investigations were filing interstate claims. These claims involved a total of thirty-three States, although most of the claims involved the States of California and Texas. Normally, after claimants file an interstate initial claim through an agent State local office, they correspond directly with the liable State by mail or telephone and only report again to the agent State local office if directed to report for eligibility review interview (ERI) purposes by the liable State.
UIPL No. 7-92 indicated the actions that had been initiated in response to the Eagle Pass fraud scheme which included the establishment of a Task Force to look into the issues involved in the scheme with the goal of identifying lessons to be learned for the prevention of such occurrences in the future. Also included in UIPL No. 7-92 were numerous Task Force recommendations for SESA administrators to consider for use in their own systems and procedures for deterrence and detection of fraud activity.
In addition to States taking specific actions to attempt to address the potential of fraud in the individual claims associated with cases in the Eagle Pass and Roma/McAllen fraud schemes, other significant activities that have been initiated since the issuance of UIPL No. 7-92 include:
In September 1993, UIS signed a Cooperative Agreement with the State of California to conduct a study to develop a prototype third party fraud profile system. The profile system will be directed toward early detection of potential third party UI benefit fraud.
A claimant benefit rights interview video and an informational booklet have been produced in both English and Spanish for use with interstate claimants in response to one of the Task Force's recommendations. UIPL No. 21-94, announcing the development of these materials and making them available to each of the States, was issued in April 1994.
A comprehensive Benefit Payment Control (BPC) Technical Assistance Guide (TAG) containing guidance on fraud detection and prevention was developed through a Cooperative Agreement between UIS and the State of Maryland. During 1994, three training sessions were held for State BPC staff in conjunction with the issuance of the BPC TAG to all States.
ETA Regional Offices hosted Regional and Multi-Regional BPC Conferences which have included information regarding third party fraud activity as well as other types of fraud activity.
Additionally, State agency officials from California and Texas and ETA and OIG officials from the Regional and National Offices have met on several occasions to discuss efforts toward detection and deterrence of third party fraud. During one of these meetings, it was agreed that in-depth ERIs and investigations could be conducted to assess the cost effectiveness of these actions in addressing the problems of third party fraud. TEC developed and submitted a proposal, with input from ETA and OIG officials, to provide an analysis of third party involvement in the UI process and related integrity issues and to attempt to quantify the detection/deterrence effect of in-depth ERIs and investigations. This project was approved by ETA.
Project Objectives. This project will extend for a 3-year period from October 1, 1994 through September 30, 1997, to allow for sufficient annual workload cycles to be able to accurately evaluate the effectiveness and determine the cost of the in-depth ERIs and investigations. The objectives of the project include:
Ascertaining the nature of third party involvement and the factors contributing to their use in the UI process.
Measuring the impact of increased investigative efforts and claimant interviews on third party fraud incidence.
Estimating the cost effectiveness of in-depth ERIs and investigations in detection and deterrence of improper payments.
Documenting the types of issues resulting in disqualifications and/or overpayments (e.g., able and available issues, and/or work search issues).
Developing recommendations for procedures designed to detect and deter third party fraud.
Ascertaining how agent and liable States may better coordinate efforts in detecting and deterring third party fraud.
Project Design. Six local offices will be selected based on an analysis of claimant addresses, historical significance in prior investigations, and other local area characteristics and demographics. Three local offices will be "test" offices and three will be "control" offices. In each of these local offices, the project population will be:
All claimants who are utilizing a single address used by multiple claimants as determined by a review of Texas files; and
Any claimants with prior third party involvement who have active claims with Texas addresses associated with the six selected local offices.
In the three "test" offices, such intrastate and interstate claimants will be called in for in-depth ERIs and all potential issues detected will be investigated. To ensure that all "test" offices are asking claimants the same questions, TEC will develop a comprehensive questionnaire. This questionnaire will provide for obtaining specific information such as residence address, labor market area attachment, work search activities, intervening/casual employment, etc. Fact-finding results from the ERIs and investigations will be provided to the appropriate TEC adjudication unit or liable State for determination and appropriate action.
In the three "control" offices, ERIs for intrastate and interstate claimants will continue to be scheduled and conducted based on current policy and procedures.
Comparable data will be accumulated at all phases to compare activity and results in the "test" and "control" offices.
TEC Activities. TEC will perform all the following activities under this project:
Utilize the Interstate Benefit Rights Interview (BRI) in the agent State claims process.
Identify project population, e.g., multiple claimants utilizing a single address, OIG list of claimants with prior third party involvement.
Call in all selected claimants in the "test" offices for in-depth ERIs that will focus on able and available issues, such as labor market attachment, work search, method(s) of seeking work, and other potential issues.
Thoroughly investigate all potential issues identified including:
(1) visiting, inspecting, or investigating single addresses used by multiple claimants and/or contacting third parties, as appropriate.
(2) establishing contact sources for information at utility companies, law enforcement authorities, postal service, and State and Federal Courts, as needed.
Refer potential issues and investigative results to appropriate adjudication units (TEC or liable State).
Conduct special supplemental interviews/investigations as requested by adjudication or prosecution units and/or liable States.
Coordinate assistance from DOL-OIG regarding fraud cases as appropriate.
Document the cost of conducting the in-depth ERIs and investigations (e.g., staff time, travel dollars, etc.).
Collect and compile project data with respect to "test" and "control" offices for reporting purposes.
Request liable States to provide information pertaining to the disposition of each case investigated and referred by TEC.
Develop a follow-up form for use by liable States to provide the requested information on the disposition of each case to TEC.
Data Analysis and Reports. Efforts are being made to ensure that data captured with respect to the "test" and "control" offices will provide sufficient information to address the project objectives so that meaningful conclusions can be reached and fraud detection and deterrent procedures for the UI system can be recommended. The identification of all data collection elements has not been completed. However, some of the information that will be compiled and separately arrayed by interstate and intrastate program for analysis with respect to claimants and third parties in the "test" and "control" offices is as follows:
Number of identified claimants;
Characteristics of claimants filing from suspect addresses
Residence address (if available)
Distance of residence from labor market area
Number of ERIs scheduled, conducted and results;
Number of claimant investigations conducted;
Number of determinations (fraud/non-fraud);
Amount of fraudulent and non-fraudulent overpayments established;
Number of claimants living outside the local labor market area while filing a UI claim;
Number of claimants working while filing a UI claim;
Number of claimants identified in prior investigations;
Number of claimants referred for prosecution;
Number of claimants convicted; and
Number of claimants prosecuted under Federal mail fraud statutes.
Third Party Information
Number of third party interviews/contacts conducted;
Number of third party fraud investigations initiated;
Number of third party cases referred for criminal prosecution;
Number of third parties convicted;
Number of third parties referred to OIG for prosecution; and
Number of third parties contacted/investigated that were involved in prior OIG investigations.
Liable State Assistance. As mentioned above, this project will be on-going through September 30, 1997. Each State, therefore, is requested to designate a contact person to coordinate interstate communications for this project during this period. Although TEC and the Dallas OIG will identify potential claimant fraud cases involving interstate and third parties and will be able to collect information regarding the issue, this project will be successful only with each liable State's assistance and cooperation. The TEC Project Director, Mr. Ken Helm, will be sending a letter to all SESAS informing them of the selected local offices and providing additional information regarding the project.
Mr. Ken Helm will also be transmitting to SESAs a State specific OIG list of Social Security Numbers (SSNs) and addresses utilized by claimants with prior third party involvement. SESAs will be requested to conduct file searches of the information on the list against their active claim files in order to identify any active claims with Texas zip code addresses associated with the selected local offices. This will allow TEC to include in the project population, claimants with prior third party involvement who are not in TEC's agent State files but who are in an active claim filing status.
To attempt to facilitate the use of the OIG information lists, these lists are being made available on floppy disks using Lotus spreadsheets. SESAs can use the OIG lists for their own integrity related purposes as they may deem appropriate.
OIG Assistance Available. The Dallas OIG has agreed to work with TEC and the Dallas ETA Regional Office in order to ensure a comprehensive approach. The Dallas OIG will assist TEC in investigating the interstate cases and in preparing cases for prosecution. In addition, in order to assist liable States in prosecuting cases related to these interstate and third party cases, the Dallas OIG has agreed to assist liable States by providing testimony as to the OIG investigation of the third party, including evidence obtained. In some cases, as appropriate, the OIG will pursue Federal prosecution via the mail fraud statutes.
Action Required. SESA Administrators are requested to:
Ensure all appropriate SESA staff are aware of and familiar with the material in this UIPL and UIPL No. 7-92.
Designate a contact person to coordinate interstate communications for this project and provide the name, telephone number, and address by December 30, 1994, to:
Texas Employment Commission
Kenneth Helm, Director
Benefit Payment Control Department
101 East 15th Street
Travis Building, Suite 200
Austin, Texas 78731
Phone Number (512) 502-3701
Fax Number (512) 502-3704
Establish a means to provide follow-up data to TEC pertaining to the disposition of each case referred by TEC utilizing the form which TEC develops.
Information requested will include:
Disposition of issue.
Amount of overpayment.
Results of prosecution.
Provide TEC with the PS/NPS cost of providing the follow-up information requested.
Inquiries. Direct any questions to the appropriate Regional Office.