O.C. Study Finds Welfare Fraud in 45% of Cases

Adding fuel to the debate over welfare reform, a controversial government study in Orange County found that nearly half of a group of families on assistance had committed fraud while obtaining financial aid or food stamps, primarily by concealing cash income that would have reduced their benefits.

The study concluded that overpayments of as much as $22.8 million are being made each year to county recipients of Aid to Families With Dependent Children and food stamps.

Despite the fact that Orange County already has a well-established program to prevent welfare fraud, the study found that the incidence was “substantial” and merits taking other steps to curb abuse.

When launched, the study--conducted by the Orange County Social Services Agency, the county district attorney’s office and the state--drew denunciations from civil libertarians irate over what they considered to be state-sponsored spying.

In some cases, investigators tailed recipients or questioned neighbors to ferret out fraud. The study, described as the most exhaustive review of its type in California in 28 years, examined 450 families with children who received aid over a 15-month period concluding in 1995.

The study found that fraud was committed in 45% of the cases. Thirty percent of the families received more assistance than they were entitled to.

Of the fraud cases uncovered, 76 were referred for criminal investigation, and 46 were deemed to meet the criteria for prosecution. In 21 cases, the charges resulted in guilty pleas, while another 20 await court dates. Five cases were dismissed or settled with restitution payments.

About 142,000 people in Orange County receive food stamps. Most of them also receive AFDC.

The study’s findings could bolster efforts by Gov. Pete Wilson to adopt a get-tough policy on recipients who commit fraud. He has called on the Legislature to enact a “one strike and you’re off” penalty for perpetrators of intentional welfare fraud.

“Those are stunning numbers,” said one Republican official involved in the welfare reform debate. “This is yet another indicator that our welfare system is desperately in need of repair.”

But the study, an extension of a similar Orange County investigation conducted in 1993, is already under fire from advocates for the poor. They say its findings are misleading at best and are intended to boost efforts to slash benefits for the needy.

“This is the kind of study that’s designed to get a lot of public attention and create alarms of widespread welfare fraud,” said Casey McKeever of the Western Center on Law and Poverty. “But this is pretty sloppy and cavalier use of the word ‘fraud.’ It is a misrepresentation, deliberately dishonest, but it creates an impression that is designed to have a political impact.”

McKeever noted that of the 450 cases, only 4.7% ended up pleading guilty to criminal charges of fraud. Many of the others cited in the study as examples of fraud, he said, are probably individuals simply struggling to understand the byzantine rules of the welfare code.

Authorities have traditionally estimated that welfare fraud occurs about 4% of the time, but the 1993 Orange County study of aid to illegal immigrant families with children who were U.S. citizens found that nearly two-thirds of the families had violated rules.

As an extension of the earlier study, state and local officials decided to conduct a broader probe of participants in the AFDC and food stamp programs. The 450 families were selected at random from the county’s AFDC cases, and field investigations were handled by a special team of eight investigators from the district attorney’s office.

Investigators considered a case to be fraudulent if they uncovered information that should have been reported during the determination of a family’s eligibility for the welfare program.

AFDC grants vary according to the county and the size of the family. In Orange and Los Angeles counties, AFDC monthly grants are $565 for a mother with two children.

The study suggests that the biggest fraud problem involves unreported income generated by the “underground economy,” where people are paid in cash and the income is not reported to state and federal tax authorities.

The study found that the incidence of fraud was most prevalent during a family’s first year on welfare. It concluded that the best way to snare families that are not properly reporting income is to have welfare staffers or investigators make home calls.

While bolstering the governor’s get-tough stance on welfare fraud, the report calls for more leniency on several existing requirements that have little effect on benefits.

It calls for a fresh evaluation of an existing rule prohibiting an unrelated male from living with a welfare mother and her children. The report also calls for streamlining the method used to determine the value of motor vehicles used by families that apply for welfare.

Supervisor Charles V. Smith said he had not yet reviewed the report but was eager to do so and planned to discuss with other county officials ways of preventing future fraud. One suggestion he had was to have county social workers do more thorough background checks of welfare applicants before benefits are awarded.

“We need to check this stuff out up front,” Smith said. “Once you give out the benefits, the money is gone, and you’re not going to get it back.”

The study has been marked by controversy from the beginning. When it was launched, civil libertarians charged that the study was an unjustified intrusion into the lives of private individuals. National welfare experts said the scope of the investigation was unprecedented.

Investigators not only conducted computer checks but interviewed a family’s neighbors and relatives. In some cases, they followed the adults to see if they had jobs that were not reported to welfare officials. They also made surprise visits to homes, asking to search rooms for signs that a family might have fewer children than reported, a tactic that would inflate assistance payments.

All that aside, advocates for the poor found plenty to criticize in the study’s findings.

McKeever suggested that the welfare staffers and fraud investigators had a vested interest in inflating numbers, thus undercutting any claim to credibility. “I think,” he said, “you’ve got some self-interested people doing the study, and it is not an independent, impartial investigation.”

He also said that investigators might have determined fraud in cases where they discovered “$10 in baby-sitting money” that wasn’t reported. While welfare rules have changed to give adults more leeway to hold a job while still collecting AFDC, McKeever said, many families do not understand the changes and might be hiding information that would have no impact on their benefit levels.

Those who dodge the rules, he suggested, do so out of a need to survive, not criminal intent.

“Aid to families has declined precipitously over the last five years,” McKeever said. “People are trying to scrape by on very little money, and so they will often not report income because it’s the only way they have of paying for their basic necessities.”

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Details of the Fraud Study

Here are the highlights of a study of welfare fraud in Orange County conducted by local and state agencies:

* Cases studied: 450

* Cases with fraud findings: 201 (45%)

* Cases having an impact on benefits: 134 (30%)

* Amount misspent on 450 cases: $28,961 per month

* Percent of welfare payments projected as fraudulent: 9.3%

* Annual projection of fraudulent payments: $22.8 million

* Most significant fraud factor: failure to report income

Sources: Orange County Social Services Agency and district attorney, California Department of Social Services