DIRECTIVE	:	UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 07-92
TO	:	ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM	:	DONALD KULICK Administrator for Regional Management
SUBJECT	:	Eagle Pass Task Force - Recommended Actions for Deterring and Detecting Fraud Activity in the Unemployment Insurance (UI) Program

1. Purpose. To present the findings from a review of the Eagle Pass, Texas, fraud scheme and to recommend actions for State Employment Security Agencies (SESAs) to consider for deterring and detecting fraud activity in the UI program.

2. Background. Approximately 2 years ago, the Texas Employment Commission (TEC) uncovered a fraud scheme operating at Eagle Pass which involved claimants using third party individuals to file both initial and continued UI claims. The TEC determined these claims to be fraudulent because third-party representatives were completing fictitious work search and continuing eligibility forms for the claimants who were, in fact, not available or searching for work.

   The Dallas Regional Office of the Office of the Inspector General (OIG) began an investigation of the case and provided information, through the Employment and Training Administration (ETA) Dallas Regional Office, to the other ETA Regional Offices on certain key addresses, with the request that all States perform a claims file search for those addresses. The file search resulted in the confirmation that 22 States had claims from claimants using the identified addresses. In April 1991, the third-party representatives pleaded guilty to the charges and were fined and/or sentenced to prison on June 10, 1991.

   The one dominant characteristic of the third party scheme was multiple claims going to a single address or Post Office Box.

3. Actions Initiated Thus Far. The following actions have been initiated in response to the Eagle Pass fraud scheme:

   1. Task Force.  The ETA National Office convened a Task Force to look into the issues involved in the Eagle Pass case with the goal of identifying lessons to be learned for the prevention of such occurrences in the future.

      The Task Force consisted of representatives from the Texas and California SESAs, the OIG, the Office of the Solicitor, and in ETA, the Office of Regional Management, the Office of Financial and Administrative Management, the Unemployment Insurance Service (UIS), and ETA Dallas and San Francisco Regional Offices. The Task Force met twice, on May 1-2 and on June 18-20, 1991, and made recommendations for deterring and detecting future fraud activity.

   2. Eagle Pass Local Office Review.  One outcome of the May 1-2 Task Force meeting was a recommendation that the Eagle Pass fraud scheme be analyzed to identify vulnerabilities for fraud in the UI System. As a result, a joint operational review by the Dallas Regional Office and TEC was carried out at the local office in Eagle Pass. The joint ETA/TEC review revealed that the common, long-standing practice of claimants using third parties to file UI claims has resulted in acceptance and tolerance by local office claims staff. The use of third parties in and of itself is not improper or illegal. However, the transition from legitimate claims assistance by third parties to illegal practices such as making up phony work searches, completing UI forms for the claimant, and signing the claimant's name, occurred without detection. Findings from the review formed the basis for some of the Task Force recommendations.

   3. Four State File Search of Zip Codes.  Another immediate response to the Eagle Pass indictments was an ETA National Office UIS request that the 4 States bordering Mexico, (Arizona, California, New Mexico and Texas) make a computer file search of their claims records for the period April 1, 1990 to March 31, 1991, to identify multiple claimant/single address occurrences within Zip Codes along the U.S./Mexican Border. A meeting was held in Albuquerque, New Mexico, on May 22-23, 1991, with representatives of the 4 border States, the ETA and OIG Dallas and San Francisco Regional Offices and ETA National Office UIS staff to examine the results of the 4 State computer searches.

      The data from the 4 border States confirmed that there are many instances where groups of claimants are using a single address to receive UI claims documents and benefit checks. Examination of interstate payments showed 33 States paying multiple claims to single addresses.

      The information also highlighted the fact that certain localities along the Texas and California borders appeared to be areas with very large volumes of claimants using a single address. Arizona and New Mexico had fewer multi-claimant/single address occurrences.

      The OIG Dallas and San Francisco Regional Offices and the California and Texas SESAs have selected key addresses or clusters of mailing addresses used by 75 or more claimants for an in-depth investigation. In addition, the New Mexico SESA has made a selection of addresses for further fraud investigations.

   4. Request for Thirty-Three State File Search.The ETA National Office sent a directive to all ETA Regional Offices requesting that the 33 SESAs identified as having multi-claimant/single address occurrences in the selected areas perform a specific file search to compare the addresses under investigation against addresses on the liable State active UI claim files. The 33 States were asked to include in their file search an address comparison using targeted Zip Codes to identify 5 or more claimants sharing the same address within those Zip Codes. It was asked that any State actions be closely coordinated with the 4 border (Agent) States. Reports were received from the majority of the 33 States in October 1991. A report of the results of this activity will be shared with the Regional Offices in the near future.

4. Suggestions for Further State Actions. The Task Force made numerous recommendations for deterring and detecting future fraud activity. A number of suggestions, based on the Task Force recommendations, are put forth for States to consider in efforts to further deter and detect fraudulent activity. It is recognized that States are already utilizing a number of these techniques in their own operations. However, in view of the abuses detected in the Eagle Pass fraud scheme, we urge State administrators to reexamine their deterrence and detection systems and procedures taking into consideration the following Task Force recommendations.

   1. Methods of Detection.

      (1)  Have Initial Claim form signed by the claimant in the local office in the presence of State staff.

      For those local offices where claimants are required to report in person to file the initial claim application, this action might assist SESAs to detect potential cases of fraud when they compare the signature on the Initial Claim form with signatures on continued claims forms and cashed checks.

      (2)  Implement an audit/review which consists of comparing, on a sample basis, signatures on Initial Claim form with signatures on the continued claims forms.

      The implementation of a review of a sample of claims to compare signatures on the Initial Claim form against the continued claim form(s) can lead to detection of potential cases of fraud. If signatures appear to differ significantly on the forms, appropriate action can be initiated including scheduling an interview with the claimant to obtain an explanation for the differences.

      (3)  Periodically pull a sample of cashed checks and compare signatures with signatures on the Initial Claim forms (Intrastate and Interstate).

      The implementation of a review of samples of cashed checks to compare signatures on the checks against the Initial Claim form and possibly continued claim forms can lead to detection of potential cases of fraud. If signatures appear to differ significantly on the forms, appropriate action can be initiated including scheduling an interview with the claimant to obtain an explanation for the differences.

      (4)  Perform periodic/routine computer file searches to identify multiple claims/single address occurrences which may require further investigation. Both intrastate and interstate liable claims should be included. States may develop the listings based on pre-established State criteria, i.e., number of checks/claims per address, clusters by city/zip codes, etc. States may also screen the results for selection of cases for investigation such as comparison of last names in order to determine potential for fraud.

      File searches for multiple claims/single address occurrences are an effective way in which SESAs can detect potential fraud in the system. In particular, instances where large numbers of checks/claims have been issued to a single address are often an indication that a fraud scheme may exist and that further investigation is necessary. SESAs need to consider that seasonal workers will not be in active claims status during certain periods of the year. The file searches may need to be conducted at different times of the year so as to obtain information on the seasonal workforce.

      (5)  Periodically obtain a list of known mail drops from the Postal Service via the OIG and match against active claim files/employer files. (This may also assist in detecting fictitious employer schemes.)

      SESAs may wish to work with the Postal Service to attempt to detect potential schemes whereby large numbers of checks/claims are being issued to a single address or address group. Each SESA would need to establish its own policy/procedures in working with the Postal Service.

      (6)  Follow Interstate procedures prescribed in the Interstate Handbook, including the requirement that if a Post Office Box mailing address is used by the claimant, the claimant's residence (street address) must also be identified.

      Prevention/detection of interstate fraud may be more difficult than intrastate fraud. It is of particular importance to take preventive measures at the initial claimstaking stage. Many of the procedures outlined in the Interstate Handbook are designed to maintain quality and integrity in the program.

   2. Techniques for Deterrence.

      (1)  Publicize UI fraud convictions.

      Many SESAs regularly publicize fraud convictions. It is universally recognized that publicizing fraud convictions serves as a deterrent to fraud.

      (2)  Use posters, hotlines, etc., to educate claimants and the public concerning fraud.

      Communication of eligibility requirements and penalties for committing fraud, as well as encouragement of public interest in maintaining program integrity, helps to reduce fraud and abuse in the system.

      (3)  Issue periodic notices such as a fraud warning flyer and hotline numbers in claims and check mailings. This may also include pertinent Benefit Rights Interview (BRI) information.

      Periodic notices which include information on UI eligibility requirements and/or fraud warnings would help remind the claimants of what they are required to do to continue to be eligible for benefits and of the penalties imposed for committing fraud to obtain benefits. Fraud warnings and hotline numbers on the notices serve as deterrents to fraud.

      (4)  Publicize the fact that paid third parties are not needed by claimants and claimstaking assistance is provided free of charge at the local office.

      All SESAs provide claimants with claimstaking assistance free of charge. Where necessary, such assistance often may be provided by local office staff who speak languages other than English. In addition, local offices often have forms developed in languages other than English.

      Publicizing the fact that this service is available free of charge may help to better inform the public of this service and make claimants more comfortable and willing to contact the local office for assistance without the use of a third party.

   3. Benefit Rights Information/Eligibility Review Program.

      (1)  Plan for full use of resources provided for BPC and Eligibility Review Interview (ERI) activity.

      Active BPC and ERI functions serve as deterrents to fraud and abuse by making claimants aware of the eligibility requirements for benefits and the importance that is placed on program integrity. Activity such as the ERI should serve to reduce misunderstandings and help to prevent fraud from occurring.

      (2)  Conduct work search verification as part of the periodic ERI process for both Intrastate and Interstate claims.

      Work search verifications performed while the claimants are in the local office for the periodic ERI can be useful in determining if they are actually searching for work as required and provides the opportunity to assist them if they are having difficulties with their search for work. Such verification would help to deter and detect fraud and abuse as well as clarify any possible misunderstandings in regard to work search requirements.

      (3)  Cover pertinent BRI information during ERIs.

      Pertinent BRI information reemphasized during an ERI would help to ensure that the claimant continues to be aware of the requirements necessary to maintain eligibility for benefits and helps to reduce the potential for error and/or fraud.

      (4)  Develop BRI pamphlets, materials and claims documents in languages other than English, based on claimant population needs (Intrastate and Interstate).

      Many SESAs have begun to develop methods by which non-English speaking claimants can be better informed of their rights and responsibilities, including developing materials/forms in languages other than English. This service should help to better ensure that all claimants are informed of UI requirements.