Reducing Fraud and Waste in
Income Security Programs
in Canada
C. A. MacDonald & Associates
ACKNOWLEDGEMENTS
C. A. MacDonald & Associates would like to acknowledge the
assistance of a wide variety of individuals in putting together this report
as part of the Fraser Institute
1995 Waste in Government competition. In particular, senior officials
in most Canadian provinces and territories were extremely helpful in identifying
issues and solutions at work within the various jurisdictions.
In the United States, the assistance of the executive and members of
the United Council on Welfare Fraud (UCOWF), as well as many state and
local officials were also of great assistance. This project could not have
been completed without their help.
C. A. (Tina) MacDonald
Sheila Blair
Duncan F. MacDonald
TABLE OF CONTENTS
ACKNOWLEDGEMENTS
TABLE OF CONTENTS
EXECUTIVE SUMMARY
INCOME SECURITY FRAUD IN CANADA
The Canadian
Context
The Issue
of Client Overpayment
The Magnitude
of the Problem
Current Solutions
The Missing
Pieces
LEADERSHIP - THE CRITICAL COMPONENT
The Federal
Role
Leadership
Components
Implementation
Strategies
Implementation
Costs
Issues
CLIENT IDENTIFICATION
Identifying
Clients
The Current
Situation
The Wages
of SIN
Social Insurance
Number Administration
Direct Benefits
Implementation
Strategies
Implementation
Costs
Issues
DATA-MATCHING
Description
of Problem
The American
Experience
Current Canadian
Strategies
Description
of Initiative
Direct Benefits
Implementation
Strategies
Implementation
Costs
Issues
TAX RECOVERY PROGRAMS
Description
of Problem
Current Strategies
Tax Refund
Intercept Programs
Direct Benefits
Implementation
Strategies
Implementation
Costs
Issues
ADMINISTRATIVE DISQUALIFICATION
Description
of Problem
Current Strategies
American
Administrative Disqualification Programs
Direct Benefits
Implementation
Strategies
Implementation
Costs
Issues
EARLY PREVENTION AND DETECTION
Description
of Problem
Current Strategies
Description
of Initiative
Direct Benefits
Implementation
Strategies
Implementation
Costs
Issues
OVERALL STRATEGIES AND TIMING
Putting It
Together
Implementation
Considerations and Strategies
Possible Timing
of Activities
Conclusion
EXECUTIVE SUMMARY
There are several critical types of fraud in the various income support
systems which are difficult to identify and prevent because of current
federal legislation. The following types of fraud account for the majority
of inappropriate expenditures, overpayments and waste:
-
Undeclared Income - Clients in all of the income support
programs are required to declare their income. Various program regulations
define how this income is handled, ranging from income exemptions, through
benefit reductions or complete disentitlement. Undeclared income results
in significant overexpenditures and unacceptable drains on publicly funded
programs.
-
Multiple program claims - Clients are often eligible for
more than one income support program. When income from other programs is
reported by the client, various regulations clarify how that income affects
benefit levels and eligibility. However, when this income is not reported,
overpayments result.
-
Cross-jurisdictional claims - Clients who are willing to
travel can establish eligibility in similar programs offered by several
jurisdictions (eg. two or more provincial welfare programs plus municipal
welfare benefits). This results in overpayments, particularly at the provincial
level, but these overpayments may have been cost-shared at 50% by the federal
government.
The approach proposed in this concept paper would allow these types of
fraud to be more readily controlled.
In the United States, the federal government has taken leadership in
the area of fraud control through legislation requiring states delivering
the federal programs of Food Stamps, Aid to Families with Dependent Children
(AFDC) and Social Security to implement fraud control programs. These fraud
control programs are also cost shared by the federal government. Other
federal legislation around security and privacy supports these initiatives.
In Canada, not only is there no leadership in this area, current legislation
actively works against detection and prevention of fraud and abuse in the
various income support programs. The following main thrusts would establish
a strong federal leadership role and a climate for appropriate fraud and
abuse control in all Canadian income support programs.
-
Establish a priority for fraud prevention and detection -
Through the development of new legislation and/or adapting current legislation
(eg. CAP legislation), identify a requirement for federal and provincial
income support programs to actively prevent and detect fraud and abuse.
Requirements for reduction of administrative and client error could also
be included. (Only a few provinces are currently active in fraud prevention).
-
Require the use of a common client identifier - The Social
Insurance Number (SIN) is the obvious choice for a client identifier. However,
current legislation on the use of the SIN prevents some programs (most
noticeably provincial income support programs) from requiring applicants
and spouses to disclose or obtain a SIN number as a condition of eligibility.
Cross-program and jurisdictional comparisons cannot occur without a common
identifier.
-
Improve access to federal tax information - The confidentiality
provisions in the current income tax system prevent income support programs
from accessing data to identify current income sources and amounts except
in individual cases. Routine data matching is required to ensure early
detection and prevention rather than the current system of using the income
tax information in specific cases to confirm the existence of fraud found
through other methods.
-
Facilitate routine cross-program and cross-jurisdictional data matching
- As the federal government embarks on a major program to redesign the
Income Security computer systems, a key objective should be to ensure the
feasibility of determining from which other programs an applicant or current
client is receiving assistance. In effect, this means the creation of a
client index for all federal programs (including federally funded natives
receiving assistance on reserves) which could also be accessed by provincial
and municipal administrations.
-
Allow administrative disqualification for assistance - In
Canada, enforced by CAP legislation, benefits are based on need only, and
past or current fraudulent behaviour has no impact on current and future
eligibility. In the United States, one identified instance of fraud or
program abuse can result in a six-month disqualification, two instances
can result in one year of disqualification, and more than two instances
of fraud can result in a lifetime disqualification. If this were implemented
in Canada, information on fraud and abuse disqualifications should be shared
between programs and jurisdictions.
-
Expand the use of the tax system to recover income support overpayments
- Currently, the record on recovering overpayments in provincial income
security programs, particularly on closed files, is dismal. The tax system
is regularly used to recover UIC overpayments. Expanding the use of the
tax system to include overpayments in other federal and provincial and
municipal income support programs would result in millions of dollars being
recouped annually. This is referred to as a "tax-intercept program" in
the United States.
-
Encourage the establishment of early fraud detection and prevention
systems - Over 30 American states, at the direction of the federal
government, have established early detection systems which intercept probable
cases of fraud before assistance is granted by integrating fraud
prevention and detection into the intake system. Cases are referred for
investigation if certain criteria are met (such as lack of or forged identification,
needs consistently exceeding income, etc.). In Florida, California, and
Texas, for example, approximately 70% of the cases result in assistance
being denied or benefits reduced.
The seven themes identified in this proposal combine to form a unified
and comprehensive fraud strategy for income security programs in Canada.
Although almost all of the investigations suggested here require changes
at the federal level, provinces, territories and municipalities will share
in the gains.
As the details in each chapter explain, it is often difficult to estimate
a specific cost-benefit for many of the initiatives. However, the American
experience clearly demonstrates that all these proposals offer a positive,
and sometimes very high, return on dollars invested. Canadian Income Security
programs cost over $85 billion, $39.2 billion of this expenditure supports
programs considered to be at high risk of fraud and client error. A conservative
estimate of the amount of fraud in these programs is 4%, and client error
is estimated at 5%. Therefore, the magnitude of the fraud and error "problem"
in income security programs in Canada is approximately $3.5 billion dollars,
spread across federal, provincial, territorial, and municipal programs.
If it is assumed that the initiatives proposed in this document offer the
potential to reduce the level of fraud and client error by one quarter
to one-third, this would result in a total savings to these Canadian income
security programs of something between $875 to $1,155 million annually
when fully implemented.
This is an ambitious proposal with many facets. However, it offers significant
savings at a time when the country needs deficit reduction strategies.
The mood of the electorate also makes this a timely proposal. It is clear
that taxpayers want to see expenditures reduced rather than taxes raised.
However, they also do not want to see their social programs decimated.
This proposal allows managed reductions at all levels of government without
affecting the benefits available to those who truly need assistance.
INCOME SECURITY
FRAUD IN CANADA
The Canadian Context
Successful deficit reduction in Canada hinges on the Canadian social programs,
as the recent 1995-96 Canadian budget demonstrates. Announced as part of
the budget package, the virtual elimination of the Canada Assistance plan
cost-sharing program, replaced by a block grant combined with health and
education funding, will successfully limit federal exposure to ever-growing
welfare caseloads. The comments of various federal officials in recent
media articles has indicated that in future years, seniors programs, UIC
and Canada Pension Plan benefits will increasingly be looked to as potential
sources of badly needed expenditure reduction possibilities. Fraud and
error control in income security programs can play a major role in reducing
the deficits faced by all levels of government in Canada. One area which
has not been pursued in any major way is a concerted effort to ensure that
current programs, or new programs being designed, are expending tax dollars
only on valid clients. Although the majority of Canadians dependent on
government income support programs are eligible for that support, the "politically
correct" level of fraud that most jurisdictions will admit to is 3% to
5% of total expenditures. In addition, most Canadian jurisdictions will
admit that the inclusion of what is classified as "client error" at least
triples the amount of overpayments attributable to fraud and client error
to between 9% - 15% of total expenditures. In 1994, overpayments accounted
for between $3.5 and $5.8 billion of the total expenditure of $39.2
billion (detailed on page 6) on the various income security programs offered
by the federal, provincial, territorial and municipal governments in Canada.
A national effort, involving all levels of federal, provincial, territorial,
and municipal governments, to control this costly leakage from the overall
income security system in Canada would engender wide-spread support from
all Canadian provinces and the vast majority of Canadian taxpayers since
it demonstrates an active concern for reducing government waste. This is
consistent with current proposals to reduce "cheating" in the Canadian
tax system.
The Canadian income security system is a complex mix of federal, provincial,
and municipal programs, including the following:
-
Canada Pension Plan
-
Old Age Security
-
Guaranteed Income Supplement
-
Provincial and municipal "welfare"
-
Veteran's Affairs
-
Student loans
-
Unemployment Insurance
-
Worker's Compensation
-
Child Benefit
-
DIAND Income Support Programs
-
Special support programs (eg. AIDS)
-
Training Allowances
Using data from the last few years, it is clear that approximately 80%
of the total expenditures on income support programs are federal (illustrated
on page 6). This increases to 90% if the historical cost-sharing of provincial
and municipal programs under the Canada Assistance Plan (CAP) is included.
As indicated in the recent budget, the CAP funding mechanism will change
significantly, from the traditional cost-sharing process to a block funding
mechanism. It is not clear at this point whether the remaining 10% of expenditures,
which is currently controlled through federal legislation even though the
programs are delivered at the provincial and municipal level, will be affected
by this change to block funding. It is quite possible that a set of national
standards or principles (as is the case in the Canada Health Act) will
be developed to control provincial income security programs. In fact, the
provinces have recently been asked to work with the federal government
to develop a consistent set of national principles. Thus, even provinces
that are actively pursuing the area of fraud and abuse control may continue
to be limited in how far they can go by various federal statutes, even
if the current control exercised through CAP is relaxed.
The Issue of Client Overpayment
Two main types of error can be identified on client files in the delivery
of income security programs: financial and non-financial. Financial errors
result in an overpayment or underpayment to the client. Non-financial errors,
on the other hand, cannot be directly demonstrated to result in an overpayment
or underpayment. For example, an issue of a benefit for which the client
is not eligible is a financial error - it results directly in an overpayment.
If, however, the file does not contain verification for the client's rent,
then a non-financial error may have occurred. If the client is misreporting
his rent, intentionally or not, this error also results in an overpayment.
But, it may also be that the rent verification validates the benefit issued,
so no overpayment results. Non-financial errors are characterized by a
need for additional follow-up to further define whether a financial error
results or, while policy and procedures are not followed, an overpayment
or underpayment does not occur. When examining overpayments, the two main
categorizing variables are the person(s) responsible for the overpayment
and whether or not the person(s) intended to create an overpayment.
The person(s) who may be responsible for an overpayment are the client,
the staff member(s) responsible for the file, and external vendors of goods
and services who receive payment directly from the jurisdiction on behalf
of the client. The following schematic demonstrates the associated types
of fraud and error.
Responsibility for Overpayment
|
Intentional Overpayment |
Unintentional Overpayment
|
Client |
Client Fraud |
Client error |
Vendor |
Vendor Fraud |
Administrative Error |
Staff |
Staff Fraud |
There is no clear-cut delineations of fraud and error in the sense that
the dividing line, where error crosses into fraud, is based on the psychological
construct of intent. And fraud is a legal term which applies when
intent
can be proven in a court of law. There are many cases investigated
in which the investigator is sure that fraud occurred, however, the strict
rules of evidence may prevent the case being proven in court. This category
could be referred to as "program abuse". In this concept proposal, the
techniques put forward would address program abuse as well as fraud and
error.
All of the categories
of error and fraud overlap, and it is often a matter of convenience or
legal requirements which determine how a particular case is labelled. Generally,
the overall caseload profile may be characterized as shown in the accompanying
graphic.
A key question for many jurisdictions is the total amount of fraud and
error which actually exists in the income security system. Obtaining a
definitive answer to this question is difficult, if not impossible, since
empirical studies and published data are rare, and unfortunately the data
that are available is often a reflection of the degree of emphasis that
the jurisdiction has placed on uncovering fraud rather than an absolute
measure of the amount of fraud. A high level of reported fraud is usually
indicative of an active fraud detection and prevention system and a low
level of reported fraud often demonstrates nothing more than a state of
blissful ignorance. This is a difficult concept for politicians, the public
and the media to grasp. However, in our experience, after surveying many
Canadian and American jurisdictions, this clearly appears to be the case.
One of the few Canadian jurisdictions which has attempted to answer the
question of the level of fraud and error in income security programs in
an empirical way is the province of Alberta. Through a process known as
Eligibility and Benefit Verification, a random sample of active welfare
cases was examined in depth every month for several years. This process
included a complete administrative file review, re-interviewing of the
client in their home and re-establishment of eligibility, often involving
contact with landlords, employers, banks, etc.
The most recent public data available(1)
is for the 1988-89 fiscal year when this process resulted in 22% of
cases being recommended for closure due to an inability to verify continued
eligibility. These closures were recommended because:
-
the address did not exist
-
the client was not at the reported address
-
the client requested case closure due to recent employment
-
the client refused to take part in the review
Of the more than 15,000 cases which were reviewed during the year, the
data demonstrated the following:
-
4% were referred for fraud investigation
-
15% of the files were complete and up to date
-
20% of the files contained minor errors not related to eligibility or benefit
levels
-
17% of the files contained underpayments
-
22% of the files contained overpayments (only 32% of these files, or 7%
of the total, were a result of administrative error - the rest were a result
of client errors)
-
22% of the files were recommended for closure because they could not be
verified at all.
On the basis of these findings, it is tempting to conclude that the total
amount of fraud is 4%, a level which is similar to the levels most jurisdictions
will admit to in public. However, several factors lead us to believe that
this is only the tip of the iceberg. First, "client error" is often the
administrator's way of saying that intent to defraud could not be
easily proven in court. Second, it is likely that some proportion of the
"unverifiable" 22% would have resulted in a finding of fraud if they had
been followed up on to determine whether fraud existed before the case
was closed.
For purposes of any overall typology of fraud and error control programs,
both legal fraud and program abuse are handled under the category "fraud",
since the mechanisms and procedures used to identify the incident are identical.
Non-financial errors, which are more of a case management issue, are not
addressed directly in this document. However, once a non-financial error
has been reviewed and clarified as having a financial impact, it may then
be classified as administrative or client error.
There are a number of mechanisms which income security clients typically
use if their intent is to defraud the government out of additional
funds. These techniques include:
-
Undeclared income
-
Multiple program claims
-
Cross-jurisdictional claims
-
Forged endorsement of stolen cheque
-
Additional adult with income in the home
-
False declaration of lost-cheques/cash
-
False description of family size/structure
-
Fraudulent needs declaration or verification
-
Undeclared assets
-
Multiple IDs
-
Lending of client identification
Several of these critical types of fraud in the various income support
systems are difficult to identify and prevent because of current federal
legislation. The following types of fraud account for the majority of inappropriate
expenditures, overpayments and waste:
-
Undeclared Income - Clients in all of the income support
programs are required to declare their income. Various program regulations
define how this income is handled, ranging from income exemptions, through
benefit reductions or complete disentitlement. Undeclared income results
in significant overexpenditures and unacceptable drains on publicly funded
programs.
-
Multiple program claims - Clients are often eligible for
more than one income support program. When income from other programs is
reported by the client, various regulations clarify how that income affects
benefit levels and eligibility. However, when this income is not reported,
overpayments result.
-
Cross-jurisdictional claims - Clients who are willing to
travel can establish eligibility in similar programs offered by several
jurisdictions (eg. two or more provincial welfare programs plus municipal
welfare benefits). This results in overpayments, particularly at the provincial
level, but these overpayments may have been cost-shared at 50% by the federal
government.
The approaches proposed in this concept paper would allow these types of
fraud to be more readily detected and prevented, resulting in substantial
savings of public funds.
The Magnitude of the Problem
As indicated above, estimating the total amount of fraud in the Canadian
income security programs is problematic at best. Very few Canadian provinces
or the federal government even attempt to seriously measure the magnitude.
However, the following table identifies the program expenditures and thus,
the potential amount of dollars at risk of fraud and error overpayments
in Canada.
In millions of $'s |
1985-86
|
1989-90
|
1993-94
|
Canada Pension Plan |
$5,349
|
$10,199
|
$14,197
|
Quebec Pension Plan |
$2,073
|
$3,169
|
$4,164
|
Old Age Security |
$12,525
|
$16,154
|
$20,207
|
Canada Assistance Plan |
$4,573
|
$5,612
|
$7,638
|
Provincial/Municipal "Welfare" |
$4,573
|
$5,612
|
$7,638
|
Veteran's Affairs Benefits |
$1,518
|
$1,686
|
$2,099
|
Unemployment Insurance |
$10,340
|
$11,772
|
$19,481
|
Worker's Compensation |
$2,675
|
$3,706
|
$3,865
|
Child Benefit |
$2,501
|
$2,658
|
$5,089
|
DIAND Social Assistance |
$390
|
$430
|
$600
|
TOTAL |
$46,517
|
$60,998
|
$84,998
|
TOTAL IN CONSTANT 1994 $'s |
$60,797
|
$66,715
|
$84,998
|
As the table indicates, the overall increase in income security payments
across all programs, in constant 1994 dollars, has grown from $60.8 billion
in 1985-86, to $85 billion in 1993-94, an increase of 39.8%. However, the
proportion of this total expenditure which is paid inappropriately to clients
is difficult to estimate. Generally, Canadian jurisdictions, both federal
and provincial, do not have any clear estimates of the amount of fraud
and error in these programs. For the purposes of this report, only funds
expended on the Canada Assistance Plan, Provincial/Municipal "Welfare",
Unemployment Insurance, Workers Compensation and the Department of Indian
Affairs and Northern Development (DIAND) Social Assistance are included
in financial calculations ($39.2 billion in 1994) as these are the programs
which would be most affected by the proposed administrative changes outlined
in this paper. This is not to say that the other programs are fraud
and error free. Canadian federal income security programs, such as OAS/GIS,
which have no positive detection and prevention programs in place, reported
only a $1 million loss to fraud and client error out of a $20 billion program.
This finding is not consistent with experiences in other jurisdictions.
One American state which has provided information to assist people to
understand the difficulty of estimating the amount of fraud is California.
Although the California Strategic Plan(2)
does not specifically state the amount of fraud in California's Aids
to Families with Dependent Children (AFDC) program, it does present a variety
of project results which estimated the amount of fraud in the AFDC program.
These results are presented below. It should be noted that the methodologies
of these reported studies are quite different, and the results from each
project are not directly comparable. However, the information does indicate
that the amount of fraud detected, depending on how fraud is defined and
the methodology used, is extremely variable, ranging from 4% to 100%. This
supports the conclusion that the more you look, the more you find. The
more "pointed" the investigation, the more fraud can be found in income
security files.
Bringing Integrity to Welfare in California
A Strategic Plan for Eliminating Fraud, Waste and Abuse - January,
1994
What is the Extent of Fraud in AFDC?
-
4 percent of cases randomly selected for Quality Control
review in 1992-93 were estimated to involve fraud. (Because state QC
reviewers lack many of the tools that investigators use to detect fraud,
this QC- based figure should be regarded as a low estimate.)
-
10-13 percent of all cases and 5-6 percent of all payments:
1977
Conputer-Aided Techniques Against Public Assistance Fraud prepared
by the MITRE Corporation for the US Department of Justice.
-
15.8 percent of all cases and 10 percent of all payments:
1970 Recipient Fraud Incidence Study conducted by the Fraud Review
Panel for the California State Department of Social Welfare (now Social
Services)
-
62 percent of a sample of 215 cases subjected to a fraud
investigation: 1993 Child-Only Fraud Pilot Project prepared
by the Orange County Social Services Agency for the California Department
of Social Services.
-
"AFDC Fraud is a billion dollar problem: 1987 State
Investigation of Fraud in the Aid to Families with Dependent Children
prepared by the Department of Health and Human Services, Office of the
Inspector General.
-
100 percent of a sample of 25 cases subjected to in-depth
study had unreported income: 1990 The Real Welfare Problem prepared
by the Centre for Urban Affairs and Policy Research, Northwestern University.
Taken from California's Fraud Strategic Plan,
June, 1994
|
Even at the lowest fraud estimate, the loss to California is staggering.
Another way of looking at the amount of fraud is to examine public information
provided by the American federal office responsible for the Food Stamp
program (which provides benefits to over 25 million Americans). The following
table demonstrates the variability of reported fraud and error rates, depending
on the fraud and error control programs in place in the particular jurisdiction.
The average known fraud rate in the United States is 4.4% of total program
disbursements. However, this ranges from a high of 13.62% in Massachussets,
to a low of 1.07% in Washington.
FRAUD AND ERROR RATES - 1992
UNITED STATES FOOD STAMP PROGRAM
|
|
Fraud Claims
as % of total $
|
Client Error Claims
as % of total $
|
Agency Error Claims
as % of total $
|
Alabama |
6.24
|
6.04
|
2.28
|
Alaska |
3.20
|
2.51
|
2.87
|
Arizona |
1.43
|
4.51
|
4.61
|
Arkansas |
4.86
|
4.97
|
1.16
|
California |
2.63
|
9.44
|
5.60
|
Colorado |
7.93
|
6.10
|
3.05
|
Connecticut |
4.17
|
1.54
|
0.22
|
Delaware |
5.44
|
4.40
|
1.64
|
District of Columbia |
4.48
|
8.20
|
0.83
|
Florida |
1.70
|
3.37
|
2.92
|
Georgia |
7.95
|
3.82
|
6.77
|
Hawaii |
6.86
|
9.02
|
2.57
|
Idaho |
4.30
|
2.60
|
3.43
|
Illinois |
6.13
|
31.43
|
4.44
|
Indiana |
2.95
|
7.17
|
1.91
|
Iowa |
2.82
|
8.78
|
2.71
|
Kansas |
4.22
|
6.32
|
2.40
|
Kentucky |
2.93
|
1.53
|
1.29
|
Lousiana |
2.59
|
3.98
|
0.91
|
Maine |
2.03
|
4.03
|
1.08
|
Maryland |
1.20
|
7.91
|
1.20
|
Massachusetts |
13.62
|
7.96
|
1.70
|
Michigan |
9.20
|
7.67
|
2.40
|
Minnesota |
6.64
|
20.75
|
6.85
|
Mississippi |
6.14
|
2.86
|
2.46
|
Missouri |
5.79
|
6.81
|
2.10
|
Montana |
2.30
|
2.72
|
0.24
|
Nebraska |
2.84
|
10.35
|
3.69
|
Nevada |
2.68
|
4.11
|
0.68
|
New Jersey |
10.47
|
27.30
|
1.86
|
New York |
2.08
|
10.77
|
1.44
|
New Hampshire |
5.66
|
7.75
|
3.05
|
New Mexico |
1.73
|
4.95
|
10.63
|
North Carolina |
3.40
|
2.11
|
1.21
|
North Dakota |
2.37
|
5.55
|
1.91
|
Ohio |
7.75
|
7.07
|
2.43
|
Oklahoma |
3.21
|
7.04
|
6.08
|
Oregon |
4.00
|
12.10
|
2.53
|
Pennsylvania |
5.59
|
24.17
|
2.25
|
Rhode Island |
2.33
|
2.40
|
0.30
|
South Dakota |
1.98
|
3.45
|
0.59
|
South Carolina |
5.21
|
6.72
|
2.76
|
Tennessee |
5.62
|
3.08
|
2.91
|
Texas |
3.11
|
6.26
|
1.93
|
Utah |
3.77
|
8.52
|
1.31
|
Vermont |
3.37
|
2.63
|
2.50
|
Virginia |
2.63
|
3.90
|
1.73
|
Washington |
1.07
|
10.10
|
2.33
|
West Virginia |
2.80
|
3.90
|
5.50
|
Wisconsin |
2.10
|
15.20
|
3.69
|
Wyoming |
5.59
|
11.78
|
1.97
|
UNITED STATES |
4.40
|
9.50
|
2.85
|
There are some anomalies in the data on client error. Four states (Illinois,
Minnesota, New Jersey and Pennsylvania) show very high rates of client
error, above 20%. It is possible that the methodology used in these states
for measurement purposes is more comparable to an eligibility review process
method than a file review mechanism. Even including these very high results,
the average error across all states is 9.5%, ranging from a low of 1.53%
in Kentucky to 31.43% in Illinois. The average agency error rate in the
United States Food Stamp Program is 2.85%.
These data raise a wealth of questions about both interpretation of
the data and the mix of programs in each state which contribute to the
absolute magnitude of the rates. It is beyond the scope of this proposal
to provide that level of detail for all 51 states. Although the American
programs are not directly comparable to the variety of Canadian programs,
it is likely that the Canadian experience falls somewhere within this range,
although it is possible that Canadian rates are actually higher, since
the American programs generally have more detection and prevention programs
in place.
For the purposes of estimating the cost-benefits attributable to this
proposal, the value of overpayments attributable to fraud in Canadian income
security programs is estimated to be 4%, and the value of overpayments
attributable to client errors is estimated to be 5%. This implies that
the magnitude of the fraud/error "problem" can be calculated, as a percentage
of total expenditures, of $39.2 billion, on income security programs in
Canada, as approximately $3.53 billion.
However, until Canadian jurisdictions get serious about measuring the
amount of fraud and error, the question of the total amount of fraud in
the system will likely remain unanswered in any definitive way. Experience,
in other jurisdictions, clearly demonstrates that the more you look for
fraud, the more fraud you find. The public and the media, unfortunately,
often treat high levels of uncovered fraud as a public scandal rather than
as a demonstration of active fiscal management of the public purse. Continued
public education may be the only solution to this dilemma.
Current Solutions
In order to fully understand where Canadian income security fraud and error
control programs are less effective than they could be, a full description
of possible control programs is critical. Programs which are designed to
identify, reduce and control levels of fraud and error, and the contingent
overpayments and underpayments, fall into five categories:
-
DETERRENCE - Deterrence activities and controls are intended
to cause clients, staff or vendors to choose not to commit fraud
or to desire to minimize errors. Given that only the individual
"deterred" has any knowledge of whether a certain activity caused them
to choose the desired course, this area is practically impossible to quantify.
Field practitioners vouch for the efficacy of deterrence activities, but
they do not lend themselves to any form of cost-benefit analysis. An example
is the fingerprint imaging process, as implemented in some counties in
California and New York, which deters clients from applying twice under
different names.
-
PREVENTION - Prevention activities and controls are designed
to ensure that, even if an individual intends to commit fraud, the individual
would be unable to follow through on their intentions because of some intervening
circumstance. Fraud and error prevention occurs when computer systems,
procedures or individual knowledge intervenes in the payment process to
correct or prevent the fraud or error before an overpayment actually occurs.
-
ACTIVE DETECTION - Active detection programs are predicated
on a jurisdiction's belief that fraud and error are an expensive reality.
These programs, through an assessment of ways that an individual could
make
an error or commit a fraud, involve a conscious effort on the part of the
jurisdiction to "go out looking" for incidences of overpayment. These are
often referred to as "early detection" or "front-end" programs. Public
awareness of these programs also has both deterrent and preventive effects.
-
PASSIVE DETECTION - Passive detection programs depend on
regular internal controls or on someone or something outside the
organization to identify a potential case of overpayment. Once that identification
of potential fraud or error has been made, however, post-fraud investigation
is required to confirm and correct the overpayment.
-
COLLECTION - These processes and activities relate to "righting
the wrong", and may involve "outsiders" to the program, such as police,
courts, personnel or finance departments.
The Typology of Fraud and Error Control (found elsewhere on this site outlines
a full analysis of the types of programs which can be put into place to
control various forms of client fraud and error. Most Canadian jurisdictions
have, at the very least, passive detection and collection processes in
place. However, only a relatively small proportion of jurisdictions proceed
beyond this level into deterrence, prevention, and active detection programs.
There is a very clear division between these two types of jurisdictions.
Only those who have made an active attempt to measure the degree, cause,
and dollar value of overpayments have implemented control programs beyond
the minimal programs of passive detection and collection. In several provinces,
and in many federal programs, the only fraud control program is investigation
of complaints.
There are a surprisingly large number of jurisdictions, including the
federal government programs who make no attempt to measure the degree of
error or fraud that they have within their programs. In these cases, neither
the program department itself, nor the related Auditor-General's department,
have identified the potential of cost-control through reduction in fraud
and error levels as a priority. These jurisdictions also invariably have
few, if any, programs for controlling or reducing the level of fraud and
error. It is highly unlikely that these jurisdictions are operating an
error-free or fraud-free program. However, if fraud and error levels are
not routinely measured and identified, there is no public or internal pressure
to "solve the problem".
The public sensitivity towards levels of fraud and error in Income Security
programs, coupled with an ever tightening fiscal environment, make it critical
that jurisdictions be able to demonstrate internally and publicly the integrity
of their income security programs. Therefore, a typology of fraud and error
control programs was designed (C. A. MacDonald & Associates. Typology
of Fraud and Error Programs. August, 1993) to assist jurisdictions
which recognize the need and are attempting to improve their levels of
fraud and error in their income security programs.
The concepts presented in this proposal have been selected from this
typology and are those which hold promise of a high cost-benefit ratio,
and have not been implemented to any degree in Canada.
The Missing Pieces
In the United States, the federal government has taken leadership in the
area of fraud control through legislation requiring states delivering the
federal programs of Food Stamps, Aid to Families with Dependent Children
(AFDC) and Social Security to implement fraud control programs. These fraud
control programs are also cost-shared by the federal government. Other
federal legislation around security and privacy supports these initiatives.
In Canada, not only is there little apparent leadership in this area,
current federal legislation actively works against detection and prevention
of fraud and abuse in the various income support programs. The following
main themes would establish a strong federal leadership role and a climate
for appropriate fraud and abuse control in all Canadian income support
programs.
-
Establish a priority for fraud prevention and detection -
Through the development of new legislation and/or adapting current legislation
as well as other techniques, identify a requirement for federal and provincial
income support programs to actively prevent and detect fraud and abuse.
Requirements for measurement and reduction of administrative and client
error
could also be included. (Only a few provinces, Revenue Canada and the UI
benefits administration are currently active in fraud prevention).
-
Require the use of a common client identifier - The Social
Insurance Number (SIN) is the obvious choice for a client identifier. However,
current legislation on the use of the SIN prevents some programs (most
noticeably provincial income support programs) from requiring applicants
and spouses to disclose or obtain a SIN number as a condition of eligibility.
Cross-program and jurisdictional comparisons of the client base cannot
occur efficiently and with accuracy without a common identifier.
-
Improve access to federal tax information - The confidentiality
provisions in the current income tax system prevent income support programs
from accessing data to identify current income sources and amounts except
in individual cases and normally only under court order or with the express
permission of the client. Routine data matching is required to ensure early
detection and prevention rather than the current system of using the income
tax information in specific cases to confirm the existence of fraud found
through other methods.
-
Facilitate routine cross-program and cross-jurisdictional data matching
- As the federal government continues work on a major program to redesign
the Income Security information systems, a key objective should be to ensure
the feasibility of determining from which other programs an applicant or
current client is receiving assistance. In effect, this means the creation
of a client index for all federal programs (including federally funded
assistance programs for natives on reserve) which could also be accessed
by provincial and municipal administrations.
-
Allow administrative disqualification for assistance - In
Canada, under current CAP legislation, benefits are based on need only,
and past or current fraudulent behaviour has no impact on current and future
eligibility. In the United States, one identified instance of fraud or
program abuse can result in a six-month disqualification, two instances
can result in one year of disqualification, and more than two instances
of fraud can result in a lifetime disqualification from receiving program
benefits. If this were implemented in Canada, information on fraud and
abuse disqualifications should be shared between programs and jurisdictions.
-
Expand the use of the tax system to recover income support overpayments
- Currently, the record on recovering overpayments in provincial income
security programs, particularly on closed files, is dismal. By redirecting
funds to the program to which funds are owing, the tax system is used to
recover UIC overpayments from refunds that would otherwise go to the client.
Expanding the use of the tax system to include overpayments in other federal,
provincial and municipal income support programs would result in millions
of dollars being recouped annually. The process is referred to a "tax-intercept
program" in the United States and is federally mandated and widely used.
-
Encourage the establishment of early fraud detection and prevention
systems - Over 30 American states, at the direction of the federal
government, have established early detection systems which identify probable
cases of fraud before assistance is granted by integrating fraud
detection and prevention into the intake process. Cases are referred for
investigation if certain criteria are met (such as lack of or forged identification,
needs consistently exceeding income, etc.). In Florida, California, and
Texas, approximately 70% of the cases referred for investigation result
in assistance being denied or assistance being granted at a reduced rate.
Each of these major components are outlined in detail in the following
chapters.
LEADERSHIP
- THE CRITICAL COMPONENT
The Federal Role
Unlike the Canadian federal government, the federal government of the United
States is actively involved in facilitating and pursuing fraud and error
control both within its own programs and by those programs controlled and
administered by the state and county income security systems. In 1991,
the AFDC program alone paid $20.7 billion in federal and state funds to
12.5 million people. It is estimated that at least one billion of those
funds were inappropriate payments. The techniques that the US federal government
uses to influence the state and county focus on reducing fraud and error
include:
-
legislation requiring all States to identify alleged fraud and develop
procedures for referring those cases to law enforcement officials.
-
cost-sharing the administrative cost of fraud and error control programs.
-
for programs funded totally by the federal government, but administered
by the states, such as Food Stamps, a "savings-sharing" formula has been
established which permits a proportion of savings to be retained by the
states as an incentive to prevent and detect program abuse.
-
for programs jointly funded at both the federal and state/county levels,
such as Aids to Families with Dependent Children (AFDC), providing direction
to the states regarding which fraud control techniques should be implemented
at the state/county level.
-
on-going evaluation of federal, state and county fraud initiatives coupled
with dissemination of information on effective techniques for fraud control.
-
mandating and facilitating state and county access to federal data banks
such as the Internal Revenue Service and Social Security benefits information
systems.
-
partially supporting the costs of national fraud conferences.
In Canada, not only does the federal government not provide this type of
leadership for fraud control, income security programs delivered directly
by the federal government have only a minimum of fraud and error control
strategies implemented, other than investigation of complaints. Thus, not
only is the federal government losing significant funds to client fraud
and error, but they are not as supportive as they could be of the provinces'
attempts to control fraud.
Without a strong federal presence, and a national priority placed on
fraud detection and prevention, Canada will continue to lose billions of
dollars to client fraud and error.
Leadership Components
Federal leadership in this area is contingent upon convincing the federal
government to place a high priority on fraud and error control in income
security programs in Canada. And, in today's context of the mounting debt,
this will not occur unless it can be clearly demonstrated that there are
significant
savings to be obtained from focusing on fraud and error control. The implementation
plans for each of the initiatives in this proposal allow for cost-benefit
data to be obtained at a fairly early stage, and prior to any large expenditure
of developmental funds in order to demonstrate the cost-savings which can
be achieved.
There are a number of components to federal leadership in this area,
each of which will be discussed separately below.
Legislative Framework
With the imminent demise of the Canada Assistance Plan, the federal
government will very rapidly be developing legislation to replace this
act and to support the block funding approach to social services with the
provinces. It is probable that this legislation will contain some form
of national standards, similar to the Canada Health Act. Discussion with
federal officials would indicate that the federal government will continue
to require that assistance be granted without regard to residency requirements
in the province of issue. This will support the free flow of income security
clients across the country, enabling clients to move to where opportunities
for employment are, without artificial barriers to movement.
A standard which is currently in place in the Canada Assistance Plan
is that need is the only determinant of eligibility. This means that provinces
cannot place conditions on individuals receiving benefits, or implement
certain forms of penalties on clients who have defrauded the system of
money. It is critical that this standard be removed, and replaced with
a more general standard which makes explicit that the receipt of income
security benefits in Canada is a privilege, not a right, and that appropriate
behaviour and certain responsibilities are expected of recipients in return,
both in terms of honesty and movement towards independence as rapidly as
possible. Then, if clients do not live up to these responsibilities, certain
penalties can be applied by the provinces or municipalities, which may
involve reduction in, termination of, and disqualification for future benefits.
This would be equally effective in encouraging clients to move towards
employment and as retribution for illegal activity.
There should be a clear requirement in the new legislation for provinces
and municipalities delivering income security programs to measure the degree
of fraud and error in those programs and to implement programs which would
reduce the level of overpayment attributable to client fraud and error.
There are some provinces who freely admit off the record that measurement
is not occurring because if the public knew the amount of overpayments,
it would become a public political scandal in the province. In fact, one
provincial income security manager typified this approach as "living in
a state of blissful ignorance".
In at least two provinces, British Columbia and Alberta, the result
of the public becoming aware of the magnitude of the fraud and error problem
has been the on-going development and implementation of two of strongest
fraud and error control programs in the country. In Alberta, the Auditor-General
blew the whistle in 1988-89 identifying $35 million in overpayments in
the previous year. In British Columbia, in 1993, a confidential report
identifying problems with internal controls was leaked to the public. In
both cases, the public outcry resulted in a serious attack on fraud and
error. Few other provinces even approach the kind of comprehensive programs
which are now in place in these two jurisdictions. It is unfortunate that
sometimes the only way to change government priorities is to have such
a public outcry! Certainly, the $3.53 billion estimated earlier on page
8 would seem to be sufficient cause for taxpayers to insist on a more effective
approach to controlling this waste of both federal and provincial government
resources especially in light of recently announced cutbacks in most other
program areas..
New legislation should allow for the Minister of Human Resources Development
Canada to mandate fraud and error control programs, establish effective
initiatives for the provinces to implement in order to retain federal funding
for programs. This is similar to the approach taken by the United States
federal government in suggesting all other states implement the "Orange
County" approach to fraud control. This approach is described in Chapter
8, Early Detection and Prevention.
Lastly, any new legislation should contain a statement about confidentiality
and privacy with regard to client information. In the legislation, trained
and regulated investigators should be given the same rights and powers
as law enforcement officials in terms of access to information, regardless
of privacy legislation. This is the approach taken in Ontario in their
privacy legislation, where fraud investigators are considered to be law
enforcement officials.
Establishment of Principles
Such new legislation may also be an appropriate mechanism for establishing
a set of principles for controlling fraud and error. These principles should
contain at least the following elements:
UNOBTRUSIVE Fraud and error
control programs should be as unobtrusive as possible to
individual clients unless strong suspicion or specific evidence of wrong-doing
has been established.
TARGETED
Fraud and error control programs should be targeted towards that segment
of the client population which are determined to present the highest risk
of
committing fraud or error.
CONFIDENTIAL Information which comes
to light during an investigation of an individual must
remain confidential until or unless it is used in a court of law or a
quasi-judicial setting such as an appeal hearing.
BENEFIT OF DOUBT Any individual under investigation for potential
wrong-doing shall be given
the benefit of the doubt in any circumstance for which the evidence is
questionable.
PRESUMPTION OF Any individual client shall be presumed to be
honest unless
HONESTY
specific evidence exists which demonstrates that this is untrue. In other
words, income security programs should be designed on the belief that the
vast majority of client are honest.
Other principles may also be required to set the appropriate "tone"
for a national focus on fraud and error, but these at least are critical
to establish the intent of the fraud and error control initiatives.
Facilitation of Fraud Control
For any individual provincial, municipal or territorial jurisdiction
in Canada, the number of specialized fraud staff is very small as a proportion
of the overall staff delivering income security. As a result, there is
little specialized training for these individuals, and in fact, because
of these small numbers, these individuals tend to get ignored as part of
the overall organization. Often they are seen as a nasty, unwelcome reminder
that not all clients are honest, and tensions often exist between these
staff and front-line workers.
The federal government should support the setting up of a Canadian branch
of the American United Council on Welfare Fraud (UCOWF) and should encourage
provincial and territorial jurisdictions to purchase memberships ($25 per
year per membership) for all fraud and eligibility investigators and other
staff interested in the area of fraud and error control. This would provide
an extremely cost-effective mechanism to obtain access to national and
regional fraud conferences, information sharing and exchange with southern
colleagues, a certificate program for training fraud investigators, and
access to a wealth of training materials. Some Canadian investigators are
already members of the UCOWF organization, but Canada is not identified
as a separate region, with a Canadian Director on the Executive Board.
Although many fraud related issues and investigative techniques are the
same in both countries, Canadian programs are different, and this would
be recognized and reflected if a formal Canadian branch of the organization
were established. Then, individual jurisdictions could depend on the availability
of fraud and error control staff training without incurring major additional
costs. Selected Canadian members of UCOWF have been approached to attend
a meeting in Atlanta, Georgia, at the next annual UCOWF national convention
to discuss the establishment of a Canadian branch or region of UCOWF.
Funding for Fraud Control
Although not specifically required by the Canada Assistance Plan, fraud
and error control programs are cost-shareable. In addition, any savings
achieved by the provinces is also shared between the province and the federal
government. However, it was up to an individual province or municipality
to decide what and how much was expended in fraud control programs. Under
the new block funding scheme, the incentive to save money through fraud
and error control is even higher than under the previous cost-sharing arrangement.
For example, if a province implements a $1 million program, which saves
$4 million, under CAP the province would have only paid $500,000 of the
cost and would have retained $2 million of the savings, leaving the province
with a net gain of $1,500,000. Under the block funding scheme, for the
same program, the province would pay the full $1,000,000 cost, but would
retain all the savings, giving a $3,000,000 net gain, so for an extra $500,000
expenditure, an additional $1,500,000 would be gained. The relative cost-benefit
remains the same but the absolute cost savings increases significantly.
For provinces without any significant resources in fraud and error control,
a new federal mandate that provinces must enter into fraud control programs
would result in additional costs to the province. However, this is not
a true cost, since all evidence points to the fact that whatever the cost,
the savings will be significantly higher.
Establishment of a National Office of Fraud and Error Control
Initiatives
The fraud and error control programs proposed in this document all require
significant federal-provincial and inter-provincial cooperation, involving
all provinces and territories and at least two federal departments (several
divisions of Human Resources Development Canada plus Revenue Canada). This
inter-jurisdictional cooperation would be facilitated if a national office
of fraud and error control were to be established.
The Terms of Reference for this office would include: drafting of those
sections of the new legislation supporting the fraud strategies: overseeing
development of compatible information systems; working with national poverty
lobby groups to foster commitment and understanding of fraud and error
control programs; coordinating the development of federal-provincial data
sharing agreements; evaluating new approaches to fraud and error control;
and establishing and maintaining a national income security client index
(see Early Detection and Prevention).
Implementation Strategies
The first implementation issue is establishing fraud and error control
as a high national priority. Steps that could be taken to achieve this
end would include:
-
Establishing fraud control as a key item on the next First Ministers Conference,
followed by a joint communique identifying the priority of, and action
plan for, a concerted national thrust for attacking fraud and error in
Canadian income security programs.
-
Ensuring that the area of fraud and error control is an agenda item for
the next federal-provincial-territorial meetings of the Ministers of Social
Services, the Deputy Ministers of Social Services, and the Ministers and
Deputy Ministers of Finance.
-
Establishing a special meeting of federal-provincial-territorial Directors
of Income Security to discuss cooperative approaches to dealing with fraud
and error.
-
Establish the National Office of Fraud and Error control
-
In consultation with provinces and municipalities, develop a national workplan
for implementation of the various initiatives.
In addition, the theme of fraud and error control would have to be incorporated
into major federal activities such as the review of social programs and
the development of the new computer system for federal income security
programs.
Implementation Costs
At the federal level, the only real cost is the establishment of an National
Office of Fraud and Error Control Initiatives within Human Resources Development
Canada. This is envisaged as a small office, consisting of no more than
5 or 6 individuals, headed by an Executive Director level position, reporting
to an Assistant Deputy Minister within Human Resources Development Canada.
The cost of this office would be approximately $400,000 per year in staff
costs. In addition, the office would require some contract and other administrative
funds. In total, the National Office would cost approximately $600,000
per year. This would quickly be recouped by the savings facilitated by
the existence of the office.
The majority of the other costs would be less direct - legislation will
be required whether or nor fraud and error control sections are incorporated,
senior intergovernmental meetings will occur whether or not fraud is on
the agenda. A special meeting of Executive Directors would cost approximately
$2,000 per provincial delegate.
These costs are negligible compared to the immense benefits which a
national attack on fraud and error would engender, including increased
public support for income security programs and increased public confidence
in program administration.
Issues
The major outstanding issue in the area of establishing federal leadership
is primarily political. In order to explain why a major initiative on fraud
and error was being undertaken, politicians would have to admit that there
had been a lot of money wasted for many years, with little or no attention
paid to it. A government that has been in power for some time could see
this as an admittance of lack of fiscal stewardship, and would be loathe
to make this a public initiative. A new government, however, such as the
current Liberal leadership, can turn this into a positive strategy.
Because of the lack of measurement of fraud and error rates and losses
in Canadian income security programs, the area of fraud and error control
has not been seen as a high priority. And, in fact, politicians do not
like reporting high levels of fraud and error in their programs. However,
a well-designed communications strategy which focuses on the positives
of high reported fraud rates (demonstrating active detection, prevention,
and prosecution of fraud) can as equally well demonstrate fiscal stewardship
as fiscal malfeasance.
If such an initiative were announced, without a doubt there would be
concerns raised by client advocacy groups that this represented "picking
on" the poor, who could not defend themselves. The fact that fraud and
error is probably higher in the income tax system might even be used as
a rationale for not addressing fraud in income security programs. Advocacy
groups can be invited to participate in the planning and design of programs
as a way of engendering understanding of the magnitude of the problem and
the need to protect programs for the truly needy. A communications strategy
which emphasized that fraud is committed by a very small proportion of
the overall caseload, and that this small group gives a "bad name" to all
clients of the system may ameliorate this back-lash. However, the "silent
majority" will be strongly in support of the initiative. Not only does
everybody know someone who is supported by a Canadian income security program,
most people know of someone who is cheating the system! The public is far
more willing to concede the magnitude of the problem than are politicians.
These issues can primarily be addressed by publicizing the amount of
money which could be saved through fraud and error control initiatives.
For every dollar saved by not overpaying clients of income security programs,
one less dollar will have to be cut from the federal and provincial budgets
in another area to address the deficit. Clearly, the communications strategy
should be to tout these fiscally responsive initiatives as directly addressing
the reduction of the deficit and the protection of income security programs
for the needy.
CLIENT IDENTIFICATION
Identifying Clients
The issue of fraudulent access to government services has recently become
a public issue, as has the theft of personal identity generally. Cases
of individuals with forged, false or multiple sets of identification often
are brought to light, and public speculation regarding the amount of "double-dipping"
is becoming a serious matter. The existence of this problem is often a
result of a general inability on the part of federal, provincial/territorial
and municipal government departments to confirm the identity of the individual
applying for income security benefits. Similarly, it is extremely difficult
to ensure that an individual is not inappropriately accessing several similar
programs with the same set of identification.
A different, but related, problem occurs when the identification material
(cards, documents, etc.) is absolutely valid, but is being carried by a
person other than the one to whom the identification belongs. This could
occur for several reasons:
-
the identification has been lost, and found by another;
-
the identification has been stolen;
-
the identification has been inadvertently issued to a person not the actual
owner of the identification;
-
the identification has been sold, with the original owner perhaps paying
a small fee for replacement identification; or
-
the identification has been lent to another by the owner, who will expect
its return after the current carrier of the identification has obtained
the goods or services for which the identification assisted in establishing
eligibility.
When an individual applies for income security benefits from any one of
the myriad of programs in Canada, each individual program first matches
the client identification against clients who are already receiving benefits
or who were a recipient at one time. There are three related problems at
this point:
-
Clients with multiple sets of ID obtaining benefits fraudulently under
several identities;
-
Client with no identification obtaining benefits on a temporary basis prior
to confirmation of identity;
-
The lack of, or requirement to use, any common identifier (i.e., SIN) across
programs and jurisdictions means that data linkages may relay on a name/birthdate
as an identifier, which often leads to missed or inaccurate matches.
Cases of multiple identity are among the most difficult types of fraud
to detect, as are loaned, stolen or purchased cards being used by ineligible
individuals. However, implementation of a common identifier across programs
and jurisdictions would permit effective data linkages across programs
and jurisdictions.
Each jurisdiction facing these issues could address the problem independently,
developing improved client identification mechanisms. If several provinces
and territories or individual federal income security programs began to
independently develop and implement various solutions to the question of
fraudulent identification, the various levels of government run the risk
of significant additional costs resulting from duplication of administration
and development costs. In addition, although the resulting potentially
incompatible systems may solve each jurisdiction's problem, inter-jurisdictional
issues may not be addressed. The problem of fraud resulting from inadequate
client identification is an inter-jurisdictional issue, requiring consistent
solutions and cooperation between the federal provincial and municipal
governments to gain maximum results from efforts to minimize duplication
and unnecessary costs.
The Current Situation
Jurisdictions which have implemented programs involving data matching across
programs or with other similar jurisdictions have had significant success
in preventing large overpayments due to unreported income. These successes
would be increased even further if a common client identifier was required
from all clients applying for income security benefits.
In the United States, all clients must present their Social Security
Number in order to apply for or receive any income security benefits. In
Canada, however, even though a comparable unique identifying number exists,
the Social Insurance Number (SIN), federal legislation restricts the use
of this number to specific labour related situations. This is very much
a "Catch-22" for provincial governments. Revenue Canada requires provinces
to produce a T-4 slip for all clients who receive benefits from income
security programs, linked to the client's social insurance number. Yet,
provincial income security programs can request, but cannot insist on a
client producing a SIN number, since the use of the number is legally restricted.
Most federal income security program require the use of a SIN number
when applying for assistance. Some provinces, such as Newfoundland, insist
on the production of a SIN card in spite of the restrictive legislation
on use of the SIN. Ontario, faced with a recent appeal by a client who
did not wish to produce his SIN number, is much less insistent (the client
won the appeal and did not produce his SIN card). In addition, the
current "need is the only basis for eligibility" standard in the current
CAP legislation means that benefits cannot be denied on the grounds of
not producing or obtaining a SIN number.
Several provinces and municipalities, including British Columbia and
Metro Toronto are attempting to strengthen their client identification
requirements. However, without federal leadership through changing the
SIN legislation to allow income security programs to require the
SIN number as client identification for all clients (head-of household,
spouse and teenage children), these initiatives may solve each jurisdiction's
problems, but will not assist in resolving the inter-jurisdictional and
inter-program issues related to data matching mentioned earlier.
Again, federal leadership is required to sanction and facilitate the
use of a common client identifier which all income security programs can
use. This common identifier is a necessary underpinning for the remaining
initiatives in this proposal.
The Wages of SIN
There are several reasons why an individual might not be able to produce,
or may wish not to produce a Social Insurance Number: he/she has had the
SIN card stolen; the card is lost; he/she is an illegal immigrant; he/she
has never worked outside the home/farm for income; he/she has earned income
only in the underground or illegal economy; or he/she is embarking on a
course of fraud. Ideally, an individual would not be eligible for continued
income security benefits without a Social Insurance Number. Only temporary,
short-term assistance would be available without this identification. However,
in most legitimate cases, an individual can obtain a SIN number easily
and rapidly, so benefits would not be unduly delayed.
Two changes at the federal level are required:
-
Revising the section of the legislation on the use of the Social Insurance
Number to extend use of the SIN to include provincial/territorial/municipal
income security programs; and
-
In any new set of national standards governing provincial/territorial/municipal
income security programs, ensure that lack of a SIN number (or production
of a SIN within a reasonable time) for all working-age dependents in the
household is valid grounds for denying benefits.
If provinces are restricted to continued use of name/birthdate data matching,
many matches will be missed or inaccurate. For example, Mrs. Susan Quinella-Jones
may be on file in a particular jurisdiction as S. Q. Jones, and be registered
in other programs as Sue Jones, Suzy-Q Jones, S. Quinella Jones, Suzanne
Quinella, or many other variations on the basic legal name. Each potential
match would have to be visually confirmed by a case-worker or another individual,
resulting in a major increase in workload. In addition, Mrs. Jones may
also be retaining all of her identification from her pre-marital status
as Miss Quinella. Many matches on the basis of name would therefore be
missed, or a perfectly innocent Susan Jones who is no relation to Susan
Quinella-Jones may be identified as being on more than one program incorrectly.
Use of a single common identifier such as SIN across all programs would
minimize this problem.
Once all clients and other working-age recipients were identified by
a Social Insurance Number, access to all federal income-related files would
be more effective. This would of course not help in the area of discovering
non-reported sources of income such as income earned in the underground
economy, through illegal pursuits such as prostitution, gambling or drug-dealing,
or from many forms of self-employment income. However, over 70% of all
income in Canada is in the form of wages and salaries, where the employer
is deducting both income tax and, often, UIC premiums at source. In addition,
significant portions of the remaining 30% are reported to Revenue Canada
directly by tax-filers. This information is all accessible via linkage
through the Social Insurance Number.
Social Insurance Number Administration
If the Social Insurance Number were to become the lynch-pin of fraud detection
and prevention through data matching systems, some significant changes
to the rules, regulations and administrative processes would also be required.
Improvements in the following areas would be necessary in order to maximize
the effectiveness of national use of the Social Insurance Number.
-
Linkage between temporary SIN numbers for new immigrants and a later "permanent"
number. Metro Toronto Social Services is currently pursuing this issue
with the federal government on a pilot basis.
-
Improved federal record keeping and control-oriented processes for replacement
of lost and stolen cards. Currently, the process seems to be a simple re-issue
of a new card with the original SIN number, possibly resulting in two individuals
with access to the same number--the original owner, and the person who
fraudulently obtained a replacement card or stole or found the original
card.
-
Linkage of SIN numbers to the proposed National Death registry, currently
being explored by Statistics Canada in conjunction with provincial Vital
Statistics departments. SIN numbers belonging to deceased individuals must
be permanently retired and not re-issued. Individuals using SINs belonging
to deceased persons would only be doing so for illegal purposes.
It would become absolutely critical that the administration of the Social
Insurance Number system be as effective and efficient as possible in order
to minimize duplicate issue of the same number. A truly effective control
will not be possible until some form of "hard" identification such as fingerprint,
retinal scan, palm print, etc. is consistently used across Canada to ensure
that an individual is not registered more than once, under different identities,
with two or more valid Social Insurance Numbers.
In the United States, a commercial computer program is available, to
income security administrations for approximately $30, which "unscrambles"
any individual Social Security Number, and identifies the date and place
of issuance. The Canadian SIN for any individual also identifies where
and when the card was issued. With this information available through a
simple computer program to front-line intake workers in federal, provincial
or municipal income security offices, the intake worker would have a major
new tool to assist in identifying stolen or forged cards. For example,
if a 40-year old male, reporting 20 years of employment history applies
for assistance using a SIN which was issued two years ago, a whole new
line of exploration regarding the individual's eligibility for assistance
is uncovered.
Direct Benefits
Requiring a Social Insurance Number as a condition of on-going eligibility
for income security benefits would result in a deterrent effect (almost
impossible to measure and quantify without careful research), in that individuals
who were registered in one income security program would no longer be tempted
to apply for assistance in another jurisdiction or program without also
disclosing the amount already received. Then the normal myriad of rules
about different types of income and the various ways that income is "counted"
by the income assistance programs would come into effect.
One side-effect of improved administration of the Social Insurance Number
with regard to lost and stolen SINs would be the general benefits to all
Canadians by affording some additional protection from theft of identity
with all of the ensuing tax problems, and criminal record problems presently
caused by having the activities and behaviour of the individual who has
stolen an identity attributed to the wrong person.
Implementation Strategies
The primary implementation strategy would be the requisite legislative
change to the Social Insurance Number legislation to enable SINs to be
required as a condition of eligibility by provincial and municipal income
security programs. This could occur at the same time (as a consequential
amendment) as the passage of the new legislation supporting the move to
block funding, eliminating the "need is the only requirement" clause in
the current CAP legislation, and establishing a new focus on fraud and
error control.
The passage of the legislation would require federal, provincial and
municipal income security agencies to contact all clients (and other working-age
adults such as spouses, teenage children) who did not have SIN numbers
on file. Depending on the province or municipality, this could range from
0% to 15% of the total caseload. Clients would be informed of the legislative
change, the reason for requiring a SIN (to link data files with other programs
and jurisdictions), and given a specific time period in which the SIN would
have to be reported. Clients who still refused to provide, or obtain, a
SIN would be terminated from assistance. This refusal to provide a SIN
would be considered prima facie evidence of fraud or abuse and may
warrant a fraud investigation to determine if overpayments had been occurring
and could be recovered, or whether prosecution was warranted.
Implementation Costs
The legislative changes required to implement this initiative are relatively
cost-free at the federal level. However, at the provincial and municipal
level, there would be workload impacts in following up with clients to
obtain SIN numbers. Whether or not actual additional costs would be incurred,
or whether this impact could be absorbed within the regular workload would
be a function of the size of caseload which workers were handling, and
the proportion of each worker's cases which did not have the requisite
SIN on file. This could vary dramatically by province and by worker. The
cost-saving attributable to case closures for individuals who refused to
divulge or obtain a SIN would most likely more than make up for any temporary
increase in workload.
The cost of improving administration of the Social Insurance Number
system is somewhat peripheral to the proposal outlined in this document,
and has not been addressed directly, but may include the costs of establishing
new processes and installation of new computer systems.
Issues
The main reason for the legislative restrictions on the use of the Social
Insurance Number when the system was first established was to protect the
privacy of individuals who were concerned about the government being able
to link information through the use of the SIN. And, this is exactly why
the extension of the use of the SIN is being proposed--to enable such linkages
of pertinent data relating to individuals. However, with the modern data
matching technologies, only individuals who were receiving funds from two
or more programs would be identified--all other individuals would not be
affected. Of those receiving money from more than one source, those who
are honest are already reporting that income information to the program
administrators so their privacy would not be further invaded. Although
the intake process for an income security program may be considered by
some to be an invasion of privacy, it has already happened long before
any data match occurs.
It is only those who had neglected to report income from another program
or jurisdiction or from earned or unearned income sources who would suffer
from an "invasion of privacy". And, since these individuals are clearly
breaking the law, it is strongly suggested that these cases of "invasion
of privacy" would be supported by politicians and the general public.
DATA-MATCHING
Description of Problem
Information gathering and record-keeping by both public and private organizations
throughout the country, including federal, provincial and municipal programs
is inexorable and ever increasing. And these files, the majority of which
are now computerized with various degrees of sophistication, contain massive
amounts of information about individuals in Canada. Much of this information
is relevant to the question of eligibility for the federal, provincial
and municipal income security programs.
When the question of establishing data matches is raised, the immediate
public response is that "Big Brother" is watching, and that with developments
in computer technology, privacy and confidentiality require stringent legal
protection. The fact of the matter is, "Big Brother" has been watching
for some time. through a variety of mechanisms. There are several other
types of data linkage which already occur in government income security
programs. The following listing identifies these types of current data
exchanges.
-
Downloading of basic client data from a central data base -
most federal income security programs, and provinces/municipalities have
established a central data base of client data which can be accessed when
a client reopens his/her application for assistance. The main data base
will download to the remote terminal the basic client data on the data
base, including the name, birth date, names of dependents, and other relevant
information on client eligibility. This reduces administrative workload
attributable to the re-entry of client data; it prevents clerical errors
(such as the misspelling of the individual's name); and allows for updating
of variable information on the main data base, such as address, change
of name (through marriage for example), or adding dependents to a case
file.
-
Identity cross-checking for initial registrations - Some
provincial and federal programs have automated internal cross-checking
of client data against other registrants on the file. For example, some
provinces check current client addresses against the addresses of other
registrants to identify whether there are other recipients listed at the
same address. Similarly, checks for duplicate name/birthdays, SIN, or duplicate
registration of dependents are also performed.
-
Legislatively required data linkage - There are information
links which are identified by government policy or legislation (for example,
the free provision of health care services to income security clients is
common across Canada). In these cases, the data linkage is often one-directional,
with the "base" program, income assistance, automatically registering the
individual for services on the health care data base. These linkages minimize
administrative duplication, expedite service to individuals, and minimize
intrusion into the lives of individuals.
-
Access to information required by program legislation - Some
programs require personal or financial information in order to ensure eligibility
for benefits. For example, eligibility for the Alberta seniors benefit
is tied to eligibility for the Guaranteed Income Supplement. Federal data
tapes are transmitted to Alberta to allow calculation of eligibility for
the provincial program. In addition, most provincial income security programs
require information on assets owned by individuals applying for assistance.
In Alberta, for example, on-line access to Vehicle Registration files to
confirm assets owned by individuals has been established as part of the
Eligibility and Benefit Verification process referenced earlier (page 4).
Again, this linkage is one-directional - Income Security can access Vehicle
Registration, Vehicle Registration cannot access Income Security files.
The rationale for this type of linkage is based on the eligibility requirements
of each program.
-
Improvement in Individual Service - The Pharmacare Network
project in British Columbia is an excellent example of data linkage which
improves service to individuals. With the linking of prescription records
across the province, individuals can be assured that their prescriptions,
possibly obtained from several doctors and pharmacies, are safe if taken
in combination. This system is also linked to the Pharmacare billing system
to clarify in a non-judgemental or non-stigmatizing way what proportion
of the cost of the prescription is payable by the individual. From the
perspective of the individual pharmacist, this system increases the privacy
of individuals. Since the pharmacist cannot access billing information
directly, the pharmacist has no way of knowing which government program
is covering the cost of the prescription, whether the individual is receiving
a seniors discount, has reached the deductible cost of pharmaceutical,
or is receiving Income Security.
-
Improvement in Vendor Service - Data linkage can also improve
payment of government accounts to individual vendors. Again, the BC Pharmacare
Network Project enables payments to be made to pharmacists within a week
of the prescription being filled, a major improvement in speed of payment.
-
Identification of Fraud - Data linkages already occur which
assist programs in identifying fraudulent access to programs. An example
is the recent interprovincial agreement between British Columbia, Alberta,
and Saskatchewan, with other provinces exploring joining the network, to
identify individuals receiving assistance in more than one province, using
the SIN number as the primary identifier where available, and name/birthdate
where it is not. Similarly, several provinces, including Alberta, Ontario,
and New Brunswick are experimenting with on-line linkage to UIC files,
to ensure that new applicants are not already receiving undeclared UIC
payments. These data-matching processes do not identify any individual
unless there are strong grounds to suspect that illegal activity is occurring.
The existence of a common client identifier such as the Social Insurance
Number will ensure the accuracy of and streamline these existing linkages
between programs as outlined above. However, it will also facilitate many
other forms of linkage which do not currently occur.
Current methods of linking data between programs include transmission
of paper documentation (forms), one-way transmission of electronic data,
case-by-case requests for information, tape-to-tape data matches and on-line
access. The effectiveness of these mechanisms suffer from several drawbacks:
-
Lack of a common identifier - current data linkages often
occur on the basis of a combination of SIN and name/birth date/address
matching. The lack of any consistent common identifier means that these
matches are very difficult and result in having to sort through large numbers
of potential duplicate registrations due to an inability to easily confirm
an actual match of client files.
-
Incompatible file formats - Using name/address/birth date
matching is only possible if the electronic file formats are similar. Unless
this is the case, each individual file match would require a lot of systems
work to rewrite the files to put them in compatible formats. This degree
of data manipulation makes these matches an expensive, time consuming and
inexact process.
-
Too much information is shared - A department requesting
case-by-case access to another program's files often receives additional
extraneous information which was not required or allowed by their legislation.
This compromises the privacy of individuals.
-
Dependent on clerical accuracy - The accuracy of data linkage
can often be compromised, either by matching an individual with the wrong
file, or not finding a match at all due to clerical errors in entering
the name or birth date.
-
Administratively time consuming - Obtaining information on
a client-by-client basis can be administratively time consuming and is
such an inefficient use of time that it is often not done by harried caseworkers.
Careful implementation of data linkages, using a common client identifier
such as the SIN, with judicious selection of automated file linkage would
be more accurate, would restrict data exchange to only that data permitted
by program legislation and policy, would remove the possibility of error
in linking files, and should be far more efficient and cost-beneficial.
Technology exists which would use the new common client identifier to
build on existing program automated file structures to link information
where supported by legislation and policy. The rapidly developing field
of local and wide area PC networks, applications of CD-ROM technology for
storage of and rapid access to huge amounts of information, and Windows-based
SQL inquiry processes, to name but a few of the new technical developments,
ensures that the technology exists to do anything that is required from
a practical perspective. Computer security features, using password and
access code control provides a far more secure environment for individual
information than the current systems which are still largely paper-based.
However, the detailed technical aspects of mechanisms to link files are
beyond the scope of this proposal.
The real issues are not of a technical nature.
The American Experience
There has been a long history in the American Welfare System of computer
data matching to detect improper Welfare, Food Stamp and Medicaid payments:
Congress implemented Project Match, a federal project to match Aid to
Families with Dependent Children (AFDC) and Medicaid files.
1979- Congress passed a law requiring State agencies to use income information
(wage matching) in determining eligibility for AFDC. In 1983, Congress
added that requirement for the Food Stamp program as well.
Congress introduced the Family Assistance Management Information System
(FAMIS) to promote computerized information systems for the States.
Congress passed the Agriculture and Food Act and the Omnibus Reconciliation
Act, requiring the States to match social security numbers of Food Stamp
recipients with computerized wage data.
These initiatives led towards a far more encompassing data matching
undertaking, the Income and Eligibility Verification System.
The Income and Eligibility Verification System (IEVS) was established
by Congress under the 1984 Deficit Reduction Act to reduce errors in determining
eligibility and benefit levels in the Food Stamp, Aid to Families with
Dependent Children (AFDC) and Medicaid programs.
Implementing regulations require State welfare agencies to compare income
reported by program applicants and recipients with income from several
data sources:
-
Internal Revenue Service (IRS) data on interest, dividends, and other types
of unearned income;
-
Social Security Administration data for Retirement, Survivors, and Disability
Insurance benefits, Supplemental Security Insurance benefits, and annual
earnings; and
-
State quarterly wage reports and unemployment insurance benefits.
States are required to follow up within 45 days on at least 80 percent
of all IEVS information received on applicants and information targeted
for review on applicants.
Since the federal legislation mandating computer matches was passed
in 1984, individual States have made various degrees of progress towards
implementation of the full range of data matching. As well, some States
are conducting matches in addition to those mandated and some States are
requesting access to additional Federal data banks such as Veterans Administration
benefits, Federal employee salaries and pensions, U.S. Savings Bond holdings,
and State death records maintained by the Social Security Administration.
There are two aspects to IEVS:
-
Applicant System - client identifying information, i.e., name, SSN,
sex, DOB, is submitted via computer by eligibility or intake workers once
an application for benefits is completed. Information from the data sources
listed above is usually available within 3 - 5 working days for those States
with this system, and can be used to confirm eligibility or to deny benefits
as appropriate. However, Counties cannot unduly delay initial assistance
while awaiting match results. As well, prior to submitting client identifying
information for data matching, Counties must inform clients, in writing
that the match will be conducted.
-
Recipient System - this system provides information from the matching
of active clients with a variety of other systems at various times of the
year, depending on the match type. Various threshold levels are used to
ensure that only information that could impact eligibility or benefit levels
is sent to the worker for follow up.
California, as an example, has the following matches in place:
-
Payment Verification System (monthly) - provides information on recipients
that receive, or will receive Retirement Survivors Disability Insurance
(RSDI), State Unemployment Insurance (UI), or State Disability Insurance
(DI).
-
Integrated Fraud Detection System (quarterly) - identifies unreported wages
and duplicate aid for AFDC, Food Stamps and Supplemental Security Income/State
Supplementary Program (SSI/SSP).
-
State Franchise Tax Board Asset Match (annual) - a state-wide automated
system that matches the welfare recipient file against FTB's interest and
dividend file. FTB's file contains information from financial/investment
institutions based in California or having offices in California. Only
those cases with interest and dividend income which exceed specified levels
are reported.
-
IRS Asset Match System (annual) - an automated system that matches the
welfare file against the IRS Unearned Income File.
-
Beneficiary Earnings Exchange Record (monthly) - BEER reports contain wage
information from the Social Security Administration (SSA) which includes
self-employment, out-of-state wages, military wages, and Federal wages.
An October, 1994 study of the status of IEVS by the Office of Inspector
General, Department of Health and Human Services, made numerous recommendations
for improvements and adjustments to the system, especially with respect
to the need to improve the data-matching processes so that more of the
information is available up-front; i.e., at the time of application for
benefit. The study found that while many concerns were identified, the
states are making significant progress in implementing IEVS and there is
increasing recognition of the advantage gained from front-end or preventative
matching processes.
The Office of the Inspector General study found that:
-
88% of the IEVS computer matching systems are used by the Food Stamp and
AFDC programs,
-
69% are used by the Food Stamp and Medicaid programs, and
-
26% are used by the Food Stamp, AFDC and Medicaid programs.
About half the states limit their matching to the primary sources of data
(unemployment insurance, wage, Social Security Administration and files
internal to the Welfare/Food Stamp agency); the other half also match against
some other external databases (e.g., Department of Motor Vehicles, banks,
local tax agencies).
The state agencies responsible for administering assistance programs
have been developing increasingly sophisticated computer systems to support
program operations, particularly for using computer matching activities
to corroborate client information or to detect discrepancies in information.
Federal funding incentives encourage the development of new systems and
concerns about initial client eligibility have prompted agencies to examine
the increased use of up-front matching processes as a preventative cost-avoidance
measure.
Applicant matching (up-front matching) has been shown to improve the
morale of eligibility workers by helping them establish the integrity of
case determination. As well, the availability of information about individual
applicants was seen to improve the delivery of services to clients. The
information allows eligibility workers to more easily meet case disposition
deadlines and documentation requirements. The computerized databases can
be a way to save applicant's time by relieving the client of the need to
locate the required documentation/verification themselves.
Overall, increasing concern for the detection and prevention of fraud,
waste, abuse and error in Government programs has stimulated the development
of techniques using information technology to detect and prevent these
problems.
Current Canadian Strategies
For the purposes of this proposal, a brief survey of most Canadian provinces
(Nova Scotia, Quebec and the Yukon were not contacted) was undertaken to
determine who was sharing data with whom, and which federal files were
being accessed by the provinces. Although most provinces have access on
a case-by-case basis with federal files, this analysis focuses on actual
data sharing agreements which are total caseload to total caseload tape,
electronic, or on-line matches. The table on the following page illustrates
the results of this information gathering exercise.
Provincial data links with other provincial programs focus on links
to Workers' Compensation Boards, Maintenance Enforcement data bases, Land
Titles, Motor Vehicles and Student Finance Boards. Newfoundland has also
established links with the public service payroll files and public service
pension plans. An interesting linkage which Metro Toronto is pursuing is
with the Insurance Crime Prevention Bureau to purchase client information
on income received from insurance companies to recompense individual who
lose regular employment income due to being off work as a result of a motor
vehicle accident.
(X=data sharing agreement in place; P=On-line pilot underway; E=Exploring/negotiating
an agreement):
|
U.I.C. |
OAS/GIS |
C.P.P. |
Revenue
Canada |
Immigration
Canada |
Inter-provincial
Matches |
Provincial
Program
Matches |
British Columbia |
X
|
|
|
|
|
X
|
X
|
Alberta |
X (P)
|
X
|
E
|
E
|
|
X
|
X
|
Saskatchewan |
X
|
|
E
|
E
|
|
X
|
X
|
Manitoba |
X
|
|
|
|
|
X
|
|
Ontario (provincial) |
X
|
|
E
|
|
X
|
E
|
X
|
Metro Toronto |
X (P)
|
|
|
|
X
|
X
|
|
New Brunswick |
X (P)
|
E
|
|
E
|
|
E
|
X
|
Prince Edward Island |
X
|
X
|
X
|
|
|
|
X
|
Newfoundland |
X
|
|
|
|
|
|
X
|
North West Territories |
X
|
|
|
|
|
|
|
Yukon |
|
|
|
|
|
|
|
In all cases of federal-provincial agreement except the UIC on-line pilot,
these matches are tape-to-tape matches. In addition, even without a formal
data sharing agreement, provinces have access to most federal files on
a case-by-case basis. That is, after a province has determined that
an individual has committed fraud, information to confirm that fraud can
be obtained from the relevant federal file, usually via court order. However,
this method does not assist in identifying, or preventing at an early stage,
new cases of fraud, which a tape-to-tape match of caseloads would do.
In the case of every province that was contacted, the initiative to
establish the data link came from the provincial/municipal level, and each
agreement is unique. Even in the case of UIC/Income Security agreements,
which every province has in place, the amount and type of data obtained
differs for each province. This perhaps unintentional "divide and conquer"
strategy of the federal government has resulted in different provinces
obtaining different data. For example, Prince Edward Island has a data
agreement in place, but cannot pursue the on-line linkage feature being
pilot tested by Alberta, Ontario and New Brunswick, since the on-line linkage
allows access to more data than is allowed by the specific PEI/Canada agreement.
The agreement will have to be renegotiated before on-line access will be
a possibility. The primary reason for different agreements across the country
is that agreements are negotiated by each individual UIC Regional Office,
with no obvious central coordination.
Description of Initiative
Most importantly, the federal government should take leadership in the
area of developing data matches with the provinces, in order to significantly
reduce the duplication of effort that is currently occurring both within
Human Resources Development Canada and the provinces in establishing unique
agreements for each program with each province.
It is apparent that the federal government has already created linkages
among some of its own programs, at least through Revenue Canada for purposes
of clawback and overpayment recovery. There are several recommended themes
for the federal government to follow in the area of data matches:
-
Ensure that appropriate linkages occur between all federal programs to
ensure that fraud and error within the federal system is minimized.
-
Establish a consistent data sharing mechanism for on-line access to CPP
and OAS/GIS information to which all provinces can link.
-
Provide access, either as an on-line system or as a periodic tape-to-tape
match, to information on current UIC contributions and income-tax withholding
data in Revenue Canada files to provide the most up-to-date information
on income.
-
Provide access on an annual basis (June of each year) to previous year's
income tax data for those current clients who were also on assistance for
the previous year to aid in determining whether all income and assets were
reported. This will require careful programming to restrict the amount
of information available to the provinces to only that data which is required
for program administration. Particular care must be given to only providing
information for the period of time during which the individual was actually
receiving assistance and the month prior. This turns the current one-way
flow of information (of provinces providing T4s for clients) into a two-way
link.
-
The federal government should work with native bands to establish a registry
of natives receiving income security benefits through the Department of
Indian and Northern Development which can be made available to provinces.
In return, provinces should allow access to native bands to provincial
client index data to assist native communities in determining whether an
applicant is already receiving assistance elsewhere.
-
The federal government should monitor and evaluate the cost-effectiveness
of each of these linkages to determine which are the most beneficial, and
to estimate the true magnitude of "double-dipping".
Direct Benefits
The federal government is already well aware of the effectiveness of data
matches and has monitored in a limited way their comparative effectiveness
against other techniques. The accompanying table demonstrates that in Revenue
Canada, data matching offers by far the highest cost benefit. No other
investigative technique used by Revenue Canada in attempting to uncover
unreported income is even half as effective as data matching.
Activity
Average
Additional Tax
Assessed per
Man-Year
Audits
$350 Thousand
Office Examination
$226
Post Assessing
$216
Data Matching
$938
Delinquent Actions
$322
Special Investigations
$156
Auditor General of Canada |
Similarly, information available on the effectiveness of the IEVS system
in the United States offers comparable evaluative evidence on the effectiveness
of this approach.
Lastly, the interprovincial matches that were started by British Columbia
and Alberta, and have slowly moved east to include Saskatchewan and Manitoba,
with other eastern and northern jurisdictions soon to join, have identified
hundreds of cases of "double-dipping" since their inception. These hundreds
of cases translate into hundreds of thousands of dollars saved each
month. These matches are of individuals registered under the same name
in more than one province, and do not include individuals using different
identities in different provinces. The first match is invariably the largest
as all the cases with undeclared income come to light, with subsequent
months settling down to a smaller amount, as the match becomes more of
a deterrent for those clients who are aware of the matching process.
Implementation Strategies
In 1990-91, Australia
announced that it was embarking on a major fraud initiative, including
significant data matching between government files at the federal and state
levels. The most interesting component of this plan was the announcement
of a six-week "amnesty" period. As the sidebar indicates, just the announcement
alone created nearly $50million in savings. Australia and Canada are quite
similar in population composition and characteristics. Thus, there is no
reason to believe that similar savings would not be achieved through a
comparable communication strategy in Canada. Clearly, an announced amnesty
period should be a major component of the Canadian strategy.
Given the potential impact of increasing tape-to-tape, electronic or
on-line matching between provinces and the federal government, and the
amount of follow-up that individual caseworkers would be required to do
to follow-up on each "match" , a staggered implementation is suggested.
It is proposed that a series of pilot sites be established between the
federal government and individual provinces, each site focusing on linkage
with one federal data source, such as CPP or Revenue Canada. Careful monitoring
and evaluation of the results of each pilot would help quantify the actual
savings attributable to each source of information.
Implementation Costs
Based on information obtained from provinces who have established data
matching either between provinces or with on-line UIC links, for each province/municipality,
the following costs would be incurred for each new data source added to
the data matching system:
Policy/program design specialist, including drafting agreements 1 month
$5,000
Systems analyst to establish initial match 1.5 months
$9,000
System analyst, testing system, setting up procedures 1 month
$6,000
On-going computer costs (storage time, CPU time) Per month
$1,300
Cost to add additional province to system 1 week
$1,500
Hardware/network installation Per Office
$5,000
In addition, the costs of caseworker staff training (for 1 day) are
equivalent to one day's salary for the workers in the office. Local computer
costs average about $500 per office, per month.
The federal government is currently redesigning the supporting information
systems for federal income security programs. It is probable that these
costs can be absorbed within the overall $127 million budget (not including
any potential over-runs which may occur) which has been identified for
the project, providing decisions were made very quickly.
Issues
Again, the key issues here are confidentiality and privacy. However, every
client who applies for income security benefits in any federal, provincial
or municipal program must, as part of the intake process, sign a release
authorizing the program to access relevant financial data about the individual,
much like taking out a loan from a bank. So, although privacy issues do
not in fact change, protections are still necessary.
The federal government in the United States has clearly specified the
protections with which the data involved in the IEVS matches will be ensured.
Federal and State law and regulations provide that agencies receiving IEVS
information or information provided by other agencies through IEVS, must
protect the confidentiality of the information from unauthorized access
or disclosure.
-
The information shall be used only to the extent necessary to assist in
the valid administrative needs of the program receiving such information
and shall be disclosed only for these purpose.
-
The requesting agency shall not use the information for any purpose not
specifically authorized.
-
The information shall be stored in a place physically secure from access
by unauthorized persons.
-
Information in electronic format, such as magnetic tapes or discs, shall
be stored and processed in such a way that unauthorized persons cannot
retrieve the information by means of computer, remote terminal, or other
means.
-
Precautions shall be taken to ensure that only authorized persons are given
access to on-line files.
-
The county shall instruct all personnel with access to IEVS information
regarding the confidential nature of the information and the sanctions
against unauthorized disclosure are to be specified in state statutes.
In addition, the regulations provide for clear disclosure rules to applicants
of AFDC and Food Stamp. In this case, "applicant" includes all individuals
seeking assistance, including persons being added to an existing case,
and any other individuals whose income and resources are considered in
determining the amount of benefits.
Section 1137 of the Social Security Act (PL 98-339) mandates that, during
the application process, all applicants be informed that:
-
Everyone who wants assistance must apply for and/or provide an SSN;
-
SSNs will be compared with records from the SSA (Social Security Administration);
-
SSNs will be used in computer matches to check income and assets with records
of tax, welfare, employment, and other agencies;
-
Differences between the information provided by the applicant and that
provided in the computer matches will be checked out and may have an impact
on eligibility or benefit level.
It is recommended that Canada establish a similar set of protections to
ensure that only information which is legitimately required by the program
is made available.
TAX RECOVERY PROGRAMS
Description of Problem
The theory of the "economic man" would dictate that clients would choose
the most advantageous position regarding their access to income security
benefits. In other words, if clients can arrange to be overpaid, then pay
back that overpayment very slowly, it might be a sound economic choice,
particulary if the overpayment is unlikely to be repaid in full. There
are three ways that clients can temporarily receive benefits higher than
the normal rates:
-
Some provinces "advance" money to clients for one-time-only purchases,
and then take a repayment agreement to allow the client to repay the debt.
This is often the case for items such as security deposits on accommodations.
There is absolutely no wrong-doing or error on the part of the client as
this agreement is freely entered into jointly by the provincial government
and the client.
-
The client makes an honest error in reporting, with no intent to defraud,
but it results in an overpayment. For example, a single parent may renegotiate
custody with her husband, resulting in her children moving from living
full-time with her to living with her ex-spouse, and she retains visiting
rights on alternate weekends. She does not understand that this arrangement
may affect her benefit level.
-
The client chooses to falsely report circumstances, but it is impossible
to prove intent in court. For example, a man with a history of mental illness
reports that his cheque is missing, and the province replaces the cheque.
After forensic examination, it is proven that he cashed the cheque himself.
He denies any knowledge of cashing the cheque. Did he intend to defraud?
Or was it a lapse of memory? No fraud investigator or public prosecutor
would be willing to take this case to court--so an overpayment is filed
against the client.
If clients were on assistance long enough to repay the overissue, without
incurring another overpayment before the first one was paid off, or if
provinces had a way of effectively recovering the money after the case
were closed, this would not be a problem. However, most clients who incur
an overpayment leave the income security caseload before the overpayment
has been recovered. And, although the outstanding overpayment is normally
turned over to Crown Debt Collection agencies, recovery rates are dismal.
Generally, overpayments filed as a result of repayment agreements or
client error are relatively small. Overpayments as a result of fraud tend
to be much larger. In 1992, the Ontario Auditor General reported that the
outstanding debt due to overpayments for clients who are or were on Ontario
provincial income security programs was $80 million. Based on a confidential
survey of Canadian provinces(3) , overpayments
average about 3 to 4% of the total budget for income security at the provincial
level. Thus, at any given time, approximately $230 million is outstanding
in recoverable debts from clients to provincial governments.
Current Strategies
In order to collect these overpayments, provinces generally reduce the
level of benefits by some small amount, usually not over 5% of the total
benefits, or some small benefit is eliminated, such as a personal allowance
(approximately $20 per month). Because of the requirements of the Canada
Assistance Plan, clients can appeal even these small reductions on the
grounds of hardship.
This means that even a small repayment (such as a $600 damage deposit)
would take over two years to repay, assuming the client did not win a hardship
appeal. And, it is not uncommon for a client to incur another overpayment
long before the first is paid off. Added to this, the majority of clients
leave the caseload long before their overpayments are recovered through
benefit reduction.
After a case is closed, even in cases where a repayment agreement has
been signed by the client, provinces generally make very half-hearted efforts
to recover outstanding overpayments. Every year, provincial Treasury, Finance
or Crown Debt Collection departments "write off" millions of dollars in
unrecoverable overpayments. These funds are written off with no lasting
effect on a client's credit rating or any other long-term impact.
When a client has been prosecuted for, and found guilty of, fraud, the
court can order seizure of assets, court-ordered restitution, legally defined
repayment schedules, or at the very least, legally establish the existence
of the overpayment. If the client does not repay as ordered, jail sentences
and other penalties as well as civil recovery action can ensue. However,
for general repayments, there are no penalties to speak of, since provinces
do not take action to establish these debts for civil recovery or refer
these debts to commercial credit bureaus.
Tax Refund Intercept Programs
Several U.S. states, including California, Michigan, North Carolina and
Alabama, have instituted procedures whereby tax rebates and government
lottery winning are intercepted before they are paid to the clients who
have outstanding overpayments on AFDC or Food Stamp files. There is federal
supporting legislation allowing federal tax refund intercept for Food Stamp
program overpayments. In 1993, $27 million was collected from federal tax
refunds to repay Food Stamp debts. North Carolina collected $300,000 in
the first month after instituting the program. Some states are implementing
state
tax refund intercept programs for AFDC as well.
This is similar in nature to the use of the Canadian tax system to intercept
income tax rebates before they are issued if the tax-filer has been overpaid
by UIC, or is in arrears with student loan payments. These debts are "netted"
against the income tax rebate owing to the tax-filer and returned to the
federal government before monies are paid to the individual.
Individual provinces, which are "writing off" millions of dollars in
outstanding overpayments every year on closed cases, where the individual
or family is no longer receiving government income security benefits, have
no ability to access the national tax system to recoup these outstanding
debts.
In the Canadian context, a decision would have to be made at the federal
level whether this could be considered as taxes owing, whether only tax
rebates would be affected by this strategy or whether child tax benefits
and GST rebates would also be affected. Some states have also had success
intercepting larger lottery winnings in order to repay overpayments against
state income security programs.
Direct Benefits
Given that there are approximately $230 million in outstanding overpayments
in provincial jurisdictions across Canada, any effort to recoup these payments
will improve the fiscal position of the provinces. Tax and lottery recovery
programs will not only recoup monies for the provinces, it will directly
prove to individuals who have an outstanding debt to the provinces that
there is no "free lunch" and that these funds are a debt no different than
a VISA bill, an outstanding mortgage or a department store credit card,
and in fact may be more serious in that the debt is owed to the Canadian
taxpayer. If this additional money obtained by the client were not, in
effect, an interest free loan, the monthly payments allowed by most provincial
legislation would barely cover interest charges, with the principle debt
amount never being repaid. Even without interest being added, considering
a $5,000 overpayment, at a repayment rate of $20 per month, the debt would
be not be retired for 21 years, assuming the client does not incur a second
or third overpayment. And once the client leaves the system, very little
of the money owing is recovered after that time.
It is difficult to estimate, without a careful evaluation of a pilot
test, the amount of monies which may be recouped through tax and lottery
intercept programs. However, it is likely that at least 10% to 20% of the
outstanding overpayments could be recovered each year through this mechanism.
This would translate into $23-$46 million a year of additional revenues
returned to the provinces which they were unable to obtain before.
Implementation Strategies
Strategies to implement this option would include:
-
Establishing, through federal and provincial legislation, that overpayments
would be recouped through the tax system.
-
Establishment of a national data base of outstanding overpayments for closed
cases. It would be quite possible for an individual to have overpayments
registered against several jurisdictions (federal, provincial, municipal,
and first nations).
-
Federal/provincial bilateral agreements that the federal government would
intercept tax and other rebates in order to collect monies on behalf of
the provinces and would remit same to the provinces.
-
Establishment of a pilot test to develop procedures and quickly estimate
the amount of money which could be recovered.
-
Develop a public/client information campaign to inform individuals of the
new process.
This would entail a federal-provincial cooperation process involving the
various provincial and municipal finance departments as well as Revenue
Canada.
Implementation Costs
The primary costs associated with this aspect of the strategy involve the
initial establishment of a national registry of overpayments (registered
by SIN), administered by Revenue Canada, and the provincial administrative
costs of regular up-dating of the registry. This registry would have to
be sensitive to the re-opening of cases, when normal recovery procedures
(deductions from regular benefits) occurs.
Although this cost of establishing a national registry could be estimated
at approximately $1.5 million, the recoveries of funds to the provinces
should far exceed this amount. It may be unreasonable, in today's fiscal
climate, that the federal government would agree to this kind of expenditure
with no return. A federal provincial cost-sharing arrangement, perhaps
dependent on the proportion of tax points for each province, might be an
incentive for the federal government to cooperate. Alternatively, the provinces
might fund the development of the program.
Issues
It is absolutely essential that clients be informed, both on intake, and
when an overpayment is established, that any possible tax rebates or lottery
winnings will be intercepted to recover the monies owing while the case
is open and after the case is closed.
As long as the intercept is focused purely on a rebate of overpayment
of income tax or lottery winnings, public reaction will probably be positive,
however, if child tax benefit and GST rebates are also recovered, there
will probably be a public outcry that "the deficit is being carried on
the backs of the poor".
Very generally, the public is unaware of the sheer amount of the monies
owing by past or present income security clients which is written off as
bad debts. Much of this negative reaction could be dealt with through a
proactive communication and media campaign.
ADMINISTRATIVE
DISQUALIFICATION
Description of Problem
As the previous chapters indicates, there is no real penalty for incurring
an overpayment or committing program abuse: as long as intent is not "provable",
it can not be prosecuted in court. Any incurring of an overpayment, whether
accidental or intentional, is "punished" by the same approaches: a minor
reduction in benefits occurs. But, ongoing benefits continue.
Current Strategies
This lack of penalties is primarily a result of federal legislation ensconced
in the Canada Assistance Plan, regarding "need is the only determinant
of eligibility". If a client is clearly defrauding the programs, whether
federal or provincial, there is no way under current legislation that the
clients can be "punished" for defrauding or attempting to defraud federal,
provincial or municipal income security programs, other than any penalties
imposed by the courts, assuming the case is suitable for prosecution. Taking
the criminal prosecution route on cases where the overpayment is relatively
small is very costly--to both program administration and the courts. Certainly,
under current legislation, that client cannot be discriminated against
on the grounds that they have admitted, or have been found to have attempted
to defraud the particular income security program.
There is nothing more demoralizing to a front-line worker than being
forced by policy and legislation to continue to support an individual who
has been charged and convicted of fraud, or who has admitted culpability
in obtaining an overpayment. They know very clearly that the probability
of recouping the funds is very slight.
Generally. there is no recourse in Canada for a federal, municipal or
provincial program but to reinstate an individual who has been convicted
of fraud or who has admitted to fraud as long as qualifying conditions
are met. Only in Prince Edward Island, where provincial legislation allows
recovery of an established overpayment through deduction of the entire
amount of the individual's benefit, can the overpayment be quickly recovered.
American Administrative Disqualification Programs
There has been an Administrative Disqualification process in the Food Stamp
Program, which is administered by the Food and Nutrition Administration,
Department of Agriculture, since 1977. Under the Food Stamp Act, all States
are responsible for investigating cases of alleged intentional program
violations and ensuring that cases are acted upon either through Administrative
Disqualification Hearings or through the criminal court system.
Individuals found to have committed intentional program violations are
notified in writing of the specifics of the overpayment, and for cases
where criminal prosecution is not to be undertaken, the client can choose
to request an Administrative Disqualification Hearing (ADH) or to sign
a waiver of right to a hearing.
Hearings are held at the state level, in some cases by telephone conference,
and afford clients the opportunity to explain why they believe they did
not commit a violation. Some states find that providing an "evidence packet"
which outline the evidence supporting the violation in advance of the ADH
is quite successful in convincing clients to sign the hearing waiver at
that time.
On the basis of a signed hearing waiver, an Administrative Disqualification
Hearing which confirms the violation, or a successfully prosecuted criminal
case, the overpayment is established and the client becomes ineligible
for further benefits as follows:
-
for a period of six months for a first violation
-
for a period of one year for a second violation
-
permanently for a third violation
If the disqualified individual is not eligible for program benefits at
the time the disqualification period is to begin, the period is postponed
until the client applies again and is determined to be eligible for benefits.
The disqualified individual's household is responsible for repayment of
the over-issuance which results in the disqualification, regardless of
household's eligibility for program benefits.
States are required to report, to the federal Food and Nutrition Administration,
information on each individual disqualified. A national registry is maintained
for access by state welfare agencies. In 1991, federal legislation was
passed allowing states to extend the Administrative Disqualification process
to the Aids to Families with Dependent Children program.
Direct Benefits
It is difficult to establish the cost-benefit of a comprehensive Administrative
Disqualification process as much of the benefit is in the deterrence effect
- client who know they may be disqualified would be much more reluctant
to break the rules in the future. It is hoped there would also be a concern
on the part of an adult with children that the entire family is to some
degree penalized by the reduction in benefits as a result of disqualification.
In addition, there is the cost-saving attributable to the fact that benefits
are not being paid to an individual who would otherwise be eligible
for the program for a period of six months or a year.
Implementation Strategies
Implementation strategies for Administrative Disqualification would entail:
-
Assessment of what will be the new or revised Canada legislation in place
of CAP and the removal of restrictions provincial and municipal authorities
now face on refusing benefits to clients who can show they are "in need".
Once this has been done, provincial and municipal authorities may require
amendments in some cases to their own legislation.
-
A process would have to be developed to allow clients relatively fast access
to Administrative Disqualification Hearings - this may be an additional
role for already existing Appeal Committees in each jurisdiction, or other
systems would have to be established. Some American states have found ways
of streamlining this process that could be considered for implementation
here.
-
A national registry would have to be established with an effective and
efficient system for jurisdictions to register information on each disqualified
person, assuming disqualification in one jurisdiction would apply across
the country. This may be a task for the National Office of Fraud and Error
Control Initiatives.
-
An intensive public campaign would be required to ensure all clients and
potential clients were made aware of the consequences of abusing the program.
-
A few pilot test sites in several provinces or municipalities may be desirable
to determine the impact of such a process.
Implementation Costs
The costs of implementation would include legislative development, establishing
hearing processes (or expanding the mandates of Appeal Committees), the
development of the national registry and the cost of a public information
campaign. These costs would be offset, in the long-term by the benefits
derived from the program, and the reduction in costs required for criminal
investigation and prosecution.
Issues
Clients must be informed very clearly about consequences of potentially
fraudulent actions. An outstanding issue is how individuals support themselves
if they have no access to social security benefits for a period of time.
It must be remembered that at the time of disqualification the client was
not eligible, often because of excess income or assets. Thus, the client
may have resources to depend on, at least in the immediate future.
There will be a concern raised that, by denying benefits to one household
member, the system is, in effect, penalizing all household members, especially
children, for the transgression of one. However, the argument of personal
responsibility would say the offending client very deliberately made the
decision to abuse the system, knowing the potential consequences.
It should be noted that when Colorado implemented the Administrative
Disqualification process, a class action suit was launched challenging
the constitutionality of the initiative. This suit was ultimately unsuccessful
in the courts.
EARLY
PREVENTION AND DETECTION
Description of Problem
It was pointed out in the last chapter that Canadian provinces do not have
effective mechanisms for recouping overpayments due to fraud or error once
the client has obtained the funds. Thus, it is far more cost-effective
to prevent the fraud or error from occurring in the first place than to
attempt to recover the funds after the fact.
Current Strategies
British Columbia is the only province which has taken a direct approach
to fraud prevention as opposed to detection of fraud and following-up
on complaints. In 1994, a special branch, called Prevention, Compliance
and Investigation was established within Social Services, headed by a Director.
The province is currently exploring alternate ways to prevent fraud from
occurring in the first place. Alberta has also implemented a number of
pilot or short term projects to detect fraud at an early stage, but these
programs are not truly preventive in nature, since most of the programs
do not focus on detecting problems before any benefits are issued.
Description of Initiative
Supported by the federal government, over 30 US states have implemented
programs for early detection and prevention of fraud. These programs integrate
fraud control into the intake process, through the establishment of a series
of indicators of fraud risk, such as lack of, or suspicious, identification,
expenses consistently higher than income, etc. Clients who apply for assistance
who score high on these indicators are referred for fraud investigation
before
eligibility is confirmed and benefits are issued. In most programs,
the investigator has 48 hours to let the worker know if the information
provided by the client is confirmed or whether additional investigation
is required. Within a week, a final report confirming or denying the accuracy
of the information presented by the client is returned to the intake worker
for decision on eligibility. The American experience with these programs
have been very successful in reducing program losses due to welfare fraud.
As part of the state efforts to utilize federal funding for fraud detection
and prevention programs, many U. S. states have embarked on early fraud
prevention programs (specific information was obtained from many states,
including Washington, California, Texas, Florida, and Ohio), in addition
to their active post-benefit investigations. A comparison of the benefits
of these activities follows:
Table 1 - Cases Reviewed with Savings (1991-92)
FLORIDA
TEXAS
Cases
Savings
Cases
Savings
Post Fraud Referrals (after
18,549
$5,843,803
12,852
$15,800,000
benefits were paid)
Fraud Prevention Referrals
4,081
$7,236,443
4,880
$12,900,000
(before benefits were paid)
TOTAL
22,630
$13,080,246
17,732
$28,700,000
|
The fraud prevention program savings are calculated on the basis of
the amount of benefits that the eligibility specialist would have awarded
without benefit of the additional information gathered by the investigator,
minus the amount of benefits awarded, if any, after the investigation.
Two observations can be made about this data. First, the savings identified
from Post Fraud investigative activities are speculative at best - the
state is often unable to recover the monies owed. Secondly, fraud prevention
savings are cost-avoidance, but are fully realized.
For those states undertaking any type of pre-benefit issuance investigation,
fraud prevention has been integrated into the intake process, through the
detailed training of intake workers in recognizing probable fraud, and
referral for investigation prior to benefit issuance rather than depending
only on post-fraud investigation, as was the case prior to the introduction
of the front-end program. Specific referral criteria have been developed
in each state. If these criteria are met, then the case is referred for
investigation prior to eligibility being approved. Depending on the state
and the program in question (Food Stamps, Aids to Families with Dependent
Children, Medicaid), between 4% (Florida) and 21% (Orange County, California)
of intakes are referred for investigation prior to benefits being granted.
These programs, since they are preventative in nature, result in cost-avoidance
rather than identified overpayments. They also reduce the necessity for
post-benefit investigations, costly criminal prosecutions, and attempts
to recover the benefits that were fraudulently received. Combined data
from the fraud prevention investigations in the Food Stamp and AFDC programs
in Florida during the period July 1, 1991 to June 30, 1992 show the following
results:
Table 2 - Action Taken
Cases
% OF TOTAL
Cases Approved without Benefit Adjustment
1,234
30.8%
Cases Approved with Benefit Reduction
541
13.5%
Cases Denied Benefits
1,973
49.2%
Cases where the Application was Voluntarily Withdrawn
261
6.5%
TOTAL CASES DISPOSED OF IN FY 91-92
4,009
100.0%
PROGRAM SAVINGS
Food Stamp Program
$3,915,232
AFDC Program
$3,321,211
TOTAL SAVINGS IN FY 91-92
$7,236,443
|
Similar results
were found in Orange County, California. Out of 10,192 cases referred from
the Food Stamp and AFDC programs, 6,854 (67%) were denied benefits. Based
on the assumption that clients would have received benefits for 24 months,
a savings of $70,928,214 has been estimated with a savings of $33 for every
dollar spent. In the county-operated General Assistance program (which
would include all single clients), 5,398 clients were denied benefits out
of a total of 5,987 referrals (90% denial of benefits). In 1992 in Ohio,
6,005 referrals resulted in 2,814 cases where cost-savings resulted, for
a projected saving of $4,849,559.
In 1988, the federal government passed legislation recommending that
every county nation-wide establish Early Detection Units using the Orange
county model. A recent survey by the United Council on Welfare Fraud reported
that 22 of the 30 states included in the survey had implemented a front-end
prevention system. In the first six months of FY 1991, these 22 states
had completed 48,663 investigations, with a total cost avoidance of $68,700,000.
On the basis of interviews with Canadian provinces and territories,
there is no Canadian jurisdiction which has undertaken a front-end fraud
prevention program. From a review of the detailed program documentation
provided by the U.S. states contacted, there does not seem to be any specific
legislative or other barrier to their implementation in Canada. In addition,
despite significant differences between the American Food Stamp and AFDC
programs and the Canadian provincial social assistance programs, there
is no reason not to anticipate a similar level of cost-effectiveness when
this process is applied to Canadian programs.
American program directors indicate that these programs work particularly
well in conjunction with extensive data matching and administrative disqualification
processes.
Direct Benefits
In all states contacted which had implemented these early fraud prevention
programs, the effectiveness of these programs was confirmed. A summary
of the overall impacts of front-end fraud prevention was identified by
Billy Davis of Florida, an acknowledged expert in fraud prevention, in
a presentation at the National Eligibility Worker's Association Conference,
held in Bismarck, North Dakota, August 19-21, 1992:
-
Provides higher eligibility worker (intake worker) morale.
-
Stops fraud from taking place and thus:
-
eliminates post investigations
-
eliminates prosecution of recipients
-
eliminates the need to recover lost funds
-
Provides eligibility workers (intake workers) with a sense of importance
because they are controlling the process.
-
Provides a cost-effective measure to reduce error rates.
-
Provides a method of accountability and cost reduction.
-
Increases teamwork between eligibility workers (intake workers) and investigators.
-
Provides avoidance of the client becoming involved in the criminal justice
system (saves the client from himself).
However, he went on to say: "...FPI (Fraud Prevention Investigation) and
any other single front-end verification process will not solve all your
problems. However, FPI, along with the proper use of computer matching,
improved training for eligibility workers, recruitment of conscientious
staff, good supervision, increased training in interviewing skills, a commitment
to proper use of computer matching, improved training for eligibility workers,
recruitment of conscientious staff, good supervision, increased training
in interviewing skills, a committment to quality, etc. will go a long way
towards reducing your error rates. These enhancements have to be a total
commitment and there is no single effort that will provide you with a quick
fix to heal your ills."
Implementation Strategies
In the United States, these programs were implemented using a pilot approach.
The pilot phase is necessary to ensure that the list of referral criteria
is appropriate for the office in question, to ensure that processes and
protocols between investigators and intake workers are working smoothly,
to fine-tune the training strategies for the front-line staff, and to gain
commitment from the intake workers to make quality referrals. Generally,
it took each state about two years to have the program implemented in every
office (some states only implemented the program in the larger centres
where an investigator could be fully employed).
In Canada, federal support is not necessary to implement these programs,
although federal assistance with facilitation of a comprehensive data matching
program would certainly improve the cost-effectiveness of the programs.
Implementation Costs
There are two types of costs involved in implementing a fraud early detection
and prevention program: staff training and additional investigative staff.
In the California's "Bringing Integrity to Welfare in California: A Strategic
Plan for Eliminating Fraud, Waste and Abuse", 1994, the state has established
a staffing standard for investigators in the early prevention program of
one investigator for every 300 applicants.
In Canada, the turnover rate in provincial income security programs
is approximately 10% per month, that is, there is roughly 1 new or re-opening
applicant for every 10 on-going cases on a monthly basis. And, there are
over 1,000,000 active welfare files at the provincial and municipal levels.
Thus, on a monthly basis, there are approximately 100,000 new applicant/cases.
This means that Canada-wide, approximately 330 new investigators would
be required across all ten provinces, at an annual cost of approximately
$60,000 per investigator (includes salary, benefits, and some administrative
support), for a total of nearly $20 million. If the cost-benefit ratio,
based on the US experience, is conservatively calculated at approximately
3 to 1, this $20 million investment will return $60 million in savings.
Issues
In an era of government downsizing, the addition of over 300 positions
in 10 provinces across the country would not be well accepted by elected
officials of any political stripe. It would be unfortunate if the potential
for significant savings as offered by this program was not achieved because
these staff could not be hired. After all, public opinion would likely
place reducing the deficit and accumulated debt far higher than down-sizing
government.
OVERALL STRATEGIES
AND TIMING
Putting It Together
The seven themes identified in this proposal combine to form a unified
and comprehensive fraud strategy for income security programs in Canada.
Although almost all of the changes suggested here require changes at the
federal level, provinces, territories and municipalities will share in
the gains.
As each chapter has identified, it is often difficult to estimate a
specific cost-benefit for many of the initiatives. However, American experience
clearly demonstrates that all these proposals offer a positive, and sometimes
very high, return on dollars invested. To reiterate, Canadian income security
programs cost over $85 billion annually, $39.2 billion of which support
programs which are considered to be at high risk of fraud and client error.
A conservative estimate of the amount of fraud in these programs is estimated
to be 4%, and client error is estimated at 5%. Therefore, the magnitude
of the fraud and error "problem" in income security programs in Canada
is approximately $3.5 billion dollars, spread across federal, provincial,
territorial, and municipal programs. If it is assumed that the programs
proposed in this document offer the potential to reduce the level of fraud
and client error by one quarter to one-third, this would result in a total
savings to these Canadian income security programs of something between
$875 to $1,155 million annually when fully implemented.
Implementation Considerations and Strategies
There are a series of implementation obstacles which will have be overcome
in order to implement these programs. These include:
-
sheer program inertia
-
political defensiveness
-
differing political perspectives
The commitment of politicians and senior officials at all three levels
of government, across all 13 jurisdictions, is needed for full implementation.
However, as long as the federal government implements the strategies outlined
here, the provinces, territories and municipalities can choose to take
advantage of a number of the initiatives.
On the positive side, the imminent demise of the Canada Assistance Plan
leaves a vacuum which will enable many of these proposals to be implemented
far more easily than if CAP were still firmly in place.
Possible Timing of Activities
Due to the complexity and comprehensiveness of this proposal, and the need
for political agreement across many jurisdictions, a finely detailed implementation
plan is an impossibility. However, over the next five years, a rough outline
of activities might look as follows:
1995-96 Establish federal leadership
and establish the National Office of Fraud and Error
Control Initiatives.
Extend current agreements to all provinces (eg. province-to-province data
matches,
on-line UIC and CPP links).
Develop Revenue Canada on-line linkage software.
1996-97 Implement pilot programs
in provinces/territories/municipalities (tax intercept,
administrative disqualification, early prevention, on-line access to Revenue
Canada
data).
Federal establishment of a national client index and national overpayment
collection
information system.
New data sharing agreements with Revenue Canada established.
1997-98 Pilot project evaluations
1998-99 Full implementation begins.
2000 Implementation
complete.
This is an ambitious schedule, especially since many provinces, and
the federal government will be facing elections midway through implementation.
However, it is an achievable target for implementation with senior political
commitment.
Conclusion
This is an ambitious proposal with many facets. However, it offers significant
savings at a time when the country needs deficit reduction strategies.
The mood of the electorate also makes this a timely proposal. It is clear
that taxpayers want to see expenditures reduced rather than taxes raised.
However, they also do not want to see their social programs decimated.
This proposal allows managed reductions at all levels of government without
affecting the benefits available to the truly needy.
For additional information, contact:
Fazil Mihlar
C. A. (Tina) MacDonald
Program Coordinator, Fraser Institute
C. A. MacDonald & Associates
626 Bute Street
15407-75 Avenue
Vancouver, B. C., V6E 3M1
Edmonton, Alberta T5R 2Y9
Phone: (604) 688-0221
Phone: (403) 487-8943
Fax: (604) 688-8539
Fax: (403) 481-0923
E-mail: tina@camacdonald.com |
1. 0 Alberta Family and Social Services.
Income Support Branch. Report on the Eligibility and Benefit Verification
Project and Related Initiatives, October, 1989.
2. 0 California. Office of the Governor.
California's
Fraud Strategic Plan. June, 1994.
3. 0 C. A. MacDonald & Associates,
1993.