Welfare Fraud Tab May Hit $500 Million a Year

Fraud by welfare recipients and social services officials may be costing the public as much as $500 million annually, according to a report by the Los Angeles County Grand Jury.

In a blistering 58-page audit released Wednesday, the grand jury reported that “the potential for fraud . . . in the Los Angeles County Department of Public Social Services is enormous.”

The report found 16 deficiencies in the department, including overpaying recipients, allowing a huge case backlog and ineffectual investigation of fraud by both welfare recipients and members of the department’s staff. The department’s failure to control fraud reflects “the inertia of a bureaucratic monolith,” the report said.

Los Angeles County is far less likely to investigate welfare clients than other Southern California counties, the report stated. In Los Angeles, 5% of cases are investigated by the department, compared with about 24% of cases in Riverside County and 14% of cases in Orange County.

If Los Angeles County were to investigate cases at a rate matching the state average of 7.9%, it could recover more than $40 million, according to the report.

Investigations have been stalled by a backlog of cases. The grand jury found that the median amount of time between the date a high-priority fraud referral was received by the department’s fraud unit and the date an investigation was assigned was over a year.

Missing documents resulted in 15% of cases being suspended, the study found.

The county department’s director, Lynn Bayer, said that cracking down on fraud has been a top priority since she took over the job in 1996. Bayer said she had yet to see the report, but emphasized that the department has stepped up enforcement.

She acknowledged, however, that “more can and will be done to protect the integrity of our programs.”

When it does investigate a client, the audit found, Los Angeles County is also less likely to find fraud and cut off benefits. In Los Angeles, 34% of investigations result in denial of benefits, compared with a denial rate of 71% in Orange County.

The department has overpaid welfare clients by more than $325 million, according to the report, and about $225 million of that is not believed to be collectible.

The report also found that the department has been weak in cracking down on embezzlement and fraud by members of its own staff.

The report criticized the department’s internal investigations process for being passive and ill-equipped. With four investigators and one supervisor for 10,000 employees, the department has far fewer internal investigators than smaller agencies such as San Diego’s, the report said.

Until recently, internal investigations were passive, begun only in response to referrals. The report said that investigators lacked information that would allow them to spot suspicious behavior among employees.

The report cited the case of Jennifer Castillo, a caseworker now serving prison time for bilking the system out of $700,000. Investigators were tipped off by an informant to Castillo’s fraud. “Had the tip not been provided, it is possible that . . . this worker could have continued to commit fraud, bypassing department controls,” the report said, adding that fraud by other employees could be going undetected.

The grand jury called for an overhaul of department practices, with a total of 24 recommendations, some of which have already been adopted by the department.

The recommendations include starting a pilot program to visit aid applicants in person, which would enable welfare officials to deny aid before benefits are paid.

Stephen L. Cooley, head of the district attorney’s welfare fraud division, endorsed that approach to stemming client fraud. “We think it is probably the very best tool to prevent welfare fraud at the earliest stages,” he said.

To crack down on employee fraud, the audit recommended that managers be trained in employee fraud detection and that the internal investigations staff be expanded if referrals rise.

Finally, the grand jury urged the Board of Supervisors to retain an outside manager to oversee its recommendations. The report specified that the manager must not be from within the county work force, and would report only to the supervisors.