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WELFARE FRAUD PREVENTION
AND INVESTIGATIVE FUNCTIONS
OF THE
DEPARTMENT OF PUBLIC SOCIAL SERVICES
INTRODUCTION
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The Research and Follow-up Committee of the 1998-1999 Grand Jury reviewed selected topics from the Final Reports of the previous five Grand Juries, noting specifically the responses given to the audited agencies to the recommendations made in those Final Reports.
One of those subjects was an audit by the 1996-1997 Grand Jury, pointing out changes needed in the DPSS to eradicate recipient fraud in the Los Angeles County Department of Public Social Services (DPSS), also called the Welfare Department. It appeared from the Research and Follow-up Committees' study that many of the previous Grand Juries' recommendations were not taken seriously, and in some instances were strongly disputed, or even vehemently rejected. Therefore, that Committee felt those responses to be unsatisfactory, inappropriate, or inadequate, and referred the subject to the Health and Human Services Committee for review and consideration for a more extensive overview audit of the DPSS's operation.
Almost concurrently the Los Angeles Times, in an August 14, 1998, article, reported an egregious instance of large-scale internal fraud by an employee of the DPSS. Subsequent newspaper articles and television documentaries further highlighted that instance and other potential and actual problems in the operation of the DPSS. We also learned from preliminary interviews that the potential for fraud, both external (recipient) and internal (staff), that exists in the Los Angeles County Department of Public Social Services is enormous. Further, based on extrapolated audit data obtained from two other Southern California counties, the potential annual savings that may be realized by Los Angeles County could exceed $500 million.
As a result, the Health and Human Services Committee of the 1998-1999 Grand Jury
determined that a wide-ranging management audit of the DPSS was necessary to accomplish the following goals:
1. Determine the nature, extent, and cost to taxpayers of welfare fraud in Los Angeles County.
2. Assess the adequacy of the DPSS's internal control systems which are designed to prevent fraud.
3. Develop on-going, permanent procedures to prevent, or minimize, the occurrence of fraud in the future.
4. Develop a reporting system designed to detect and periodically report welfare fraud on a regular and timely basis.
As the Committee studied the magnitude, extent, and objectives of such an audit, it was found that some, but by no means all, of the recommendations of the past audit had, in fact, subsequently been implemented. That, along with the budgetary limitations of the Grand Jury, made it necessary to perform only a Limited Management Audit.
Methodology:
The scope of this audit includes both recipient and staff fraud. The functions and activities of the Department's Welfare Fraud Prevention & Investigation (WFP&I) group, Internal Affairs Section, and Fraud Prevention Unit of two district offices (Metro Family, and Metro Park) were reviewed. Group and individual interviews were conducted with the Director and numerous department representatives, including the Director of the Bureau of Administrative Services; the Chief of the Specialized Services Division; the Chief of the Human Resources Division; the Director of Welfare Fraud Prevention and Investigation Section (WFP&I); the Human Services Manager of the Management Information & Evaluation Section; supervisors and selected staff of the WFP&I, and the Internal Affairs Section; directors and key staff of the Metro Family and Rancho Park district offices; and the Chief of the LEADER project; as well as other selected staff from that project. Representatives of the Fraud Division of the Office of the District Attorney were also interviewed.
There were briefings by the Department's Internal Security Task Force regarding Department plans to strengthen its internal controls. A personal visit was also made to San Diego County's Health and Human Services Agency and the District Attorney's Office to review their internal security, and fraud prevention and detection safeguards.
A sample of Internal Affairs and WFP&I case files was reviewed and 33 internal investigation files were selected at random from 187 cases opened between February 1997 and November 1998. In addition, 165 WFP&I files, which included both early fraud and full field investigation cases, were selected for review at random from the Ranch Park and Metro Family Offices.
Data and documents were collected and reviewed from the Department including caseload statistics, budgetary information, fraud related policies and procedures, previous Department, County, and other reports on fraud, overpayments, and investigative methods and findings.
A glossary of frequently used acronyms is provided at the end of this report.
OVERVIEW OF FRAUD FUNCTION
In Los Angeles County, welfare fraud detection and prevention are performed by a combination of Department of Public Social Services (DPSS) and District Attorney staff. The function is divided into two components: 1) external or recipient fraud, and 2) internal or employee fraud. Recipient fraud cases are investigated by the Department's Welfare Fraud Prevention & Investigation (WFP&I) section. Internal (employee) fraud cases are investigated by the Internal Affairs section of the Department's Human Resources division. WFP&I is part of the Department's Bureau of Health Adult, and Specialized Services. Human Resources is part of the Department's Bureau of Administrative Services.
DPSS Background
DPSS administers Los Angeles County's social services programs. Its major programs are CalWORKs (formerly Aid to Families with Dependent Children or AFDC), Food Stamps, General Relief, Medi-Cal, GAIN, and Adult Services. In the first nine months of 1998, the Department issued benefits to approximately 1.4 million persons, or over 800,000 cases, and received approximately 58,000 applications for aid each month. In September 1998, the value of the benefits issued by the Department totaled approximately $164.5 million for all aid programs. The Department has approximately 10,000 employees. The eligibility and case work staff is housed in 30 offices located throughout the county.
The DPSS has recently begun to implement welfare reform in response to changes in federal program regulations. In addition, the Department is in the midst of implementing a major department-wide new computer system.
The Welfare Fraud Prevention & Investigation Section (WFP&I).
This section has 321 employees, primarily investigators and clerical and administrative support staff. The investigative staff is divided into two groups: 1) Early Fraud/Early Action investigators; and, 2) centralized field investigators. The Early Fraud/Early Action investigators are all assigned to one of the 30 District offices. Investigators are in the District offices and are readily accessible and available to eligibility workers and other District office staff to quickly conduct investigations at the point of intake (Early Fraud) or after aid has been granted (Early Action). They are distinguished from the central field investigators, who are located at the WFP&I headquarters and are responsible for investigations where historical fraud is suspected.
Of the 321 total positions in WFP&I, 120, or 37 percent of the total, are Early Fraud/Early Action investigators and supervisors, and 107, or 33 percent, are central field investigators and supervisors. The other 94 positions, or 30 percent, are administrativesupport and management positions, or staff in the Section's Automation and Prosecution unit.
By design, the caseload for Early Fraud is much higher than that of the field investigators, as the cases assigned to the latter group are more complex and involve more research into case history. Early Fraud and Early Action investigations, on the other hand, are intended for cases that can be resolved very quickly at the District offices, with information that is fairly readily available.
All cases begin as a referral to either the Early Fraud/Early Action or central field investigation staff where they are assigned and processed. If fraud is found and if overpayments have been made, aid can be denied for applicants or discontinued or reduced for ongoing cases (where fraud is discovered at some point after aid has been granted and received). After a case is closed, the Department initiates a collection process to recoup the overpayments.
Caseload and results for WFP&I for FY 1997-98 (the most recent year provided by the Department) were as shown in Table A:
Table A
WFP&I Investigation Caseload Results: FY 1997-98
Early Fraud Full Field Investigations Total % Total
Complete d
Early Fraud Full Field Investigations Total % Total Complete d
Fraud found-no impact on eligibility
21,169 0 21,169 28.6% Aid denied or discontinued
11,054 150 11,204 15.2% Fines or court action taken
0 5,154 5,154 7.0% No fraud found 21,253 15,171 36,424 49.3% Total Investigations Completed 53,476 20,475 73,951 100.0% % Total 72.3% 27.7% 100.0%
As can be seen, 53,476, or 72.3 percent of the investigations completed by WFP&I in FY 1997-98, were Early Fraud cases. The other 27.7 percent, or 20,475 completed investigations, were full field investigations. Of the 73,951 total investigations completed, fraud was found and aid was denied or discontinued or court action was taken in approximately 16,358, or 22.2 percent of the cases (combining the 15.2 percent and 7.0 percent as shown in Table A). In 21,169 cases, or 28.6 percent of the investigations completed, fraud or misrepresentation was found but it had no impact on the recipient's eligibility. This means that the recipient provided inaccurate information in some area such as their income or household composition, but the misrepresentation did not change their eligibility or the amount of aid they received.
Finally, in 36,424 cases, or 49.3 percent of the total, fraud charges were not substantiated. Sometimes this conclusion was reached based on lack of credible evidence; in other instances it is reached by default due to the absence of needed evidence such as missing case file documentation. It should be noted that, though it may sound high, this no- fraud-found rate of 49.3 percent is not unusual for most counties. In the third quarter of calendar year 1998, for example, the statewide rate for the number of completed investigations with allegations unfounded or insufficient evidence was 52.3 percent.
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