Our review of the Department of Social Services' (Social Services) oversight of counties' antifraud efforts related to the California Work Opportunities and Responsibility to Kids (CalWORKs) program and the federal Supplemental Nutrition Assistance Program, known as the food stamp program in California, found the following:
The Department of Social Services (Social Services) is responsible for managing the California Work Opportunities and Responsibility to Kids (CalWORKs) program and the federal Supplemental Nutrition Assistance Program, known as the food stamp program in the State of California (State). Although these programs serve many who legitimately qualify for assistance, state and federal agencies generally recognize that some fraud exists, and federal law requires that states develop ways to detect fraud within these programs. Although Social Services manages these programs in California, the counties are ultimately responsible for determining the eligibility of those receiving assistance, as well as for detecting and investigating any fraudulent activities related to these programs. Counties divide their investigative efforts into early fraud detection activities (early fraud activities), which detect potential fraud and prevent it from occurring, and ongoing investigations, involving cases in which counties suspect ongoing fraud by persons currently receiving aid.
Although they have taken some steps, neither the counties nor Social Services has performed any meaningful analyses to determine the cost-effectiveness of their efforts to detect and deter fraud in the CalWORKs or food stamp programs. Therefore, we developed our own analysis. Our review of the cost-effectiveness of the counties' investigative efforts found that, using a three-month projection, the measurable savings resulting from early fraud activities exceed the costs of such efforts for CalWORKs and approach cost neutrality for the food stamp program assuming a three-month savings projection. In contrast, again using a three-month savings projection, we found that ongoing investigations typically are not as cost-effective. We measured cost-effectiveness by comparing the savings resulting from efforts to combat fraud in the CalWORKs and food stamp programs (welfare fraud)—including savings resulting from benefit denials, discontinuances, and reductions, as well as from overpayments identified in the course of investigations—to the counties' costs to perform these investigation activities. Based on an assumption that they would have extended over three months, the statewide projected savings derived from denials, discontinuances, and reductions in aid payments as a result of early detection showed that for every $1 spent on early fraud activities during 2008, the State saved $1.35 for CalWORKs. For the food stamp program, the 2008 return was 93 cents for every $1 spent on early fraud activities. On the other hand, the savings resulting from statewide ongoing investigations based on a three-month projection showed that these efforts were not cost-effective. Although these efforts likely help deter fraud, there is no way to measure this deterrence with any certainty, and therefore our calculations do not include the amount of any savings from such deterrence.
In large part, this difference in the cost-effectiveness of antifraud efforts is due to early fraud activities resulting in a much greater number of denials, discontinuances, and reductions of aid than ongoing investigations produce and to early fraud activities costing less. According to data that Social Services collects, the counties rejected applications for aid, or they reduced or discontinued benefits, for about 34,700 CalWORKs cases, and the counties identified overpayments of $19.6 million out of the approximately $3.1 billion in aid payments made during 2008. Further, the cost of investigating ongoing fraud is higher than the cost of performing early fraud activities due to the level of effort and evidence required for ongoing investigations. The statewide cost of ongoing investigations for CalWORKs during 2008 was $34 million, an amount that was $6 million (21 percent) more than the $28 million cost of early fraud activities.
Our review of counties' antifraud efforts found that the cost-effectiveness of these efforts varied widely among the counties. For example, in 2008 Los Angeles County saved 35 cents for every dollar it spent on early fraud activities related to the food stamp program, while Orange County saved $1.82 for every dollar it spent on these activities. County practices related to early fraud referrals might partially account for the variations in cost-effectiveness to the extent that these factors affect the number of resulting denials, discontinuances, and reductions of benefits. For example, Orange County cases represent only 3 percent of the statewide CalWORKs caseload, while Los Angeles County makes up 30 percent of the State's CalWORKs caseload; however, Orange County referred nearly as many cases for early fraud activities as did Los Angeles County. During 2008 Orange County referred all applications meeting certain criteria for fraud review, which the county asserted often resulted in detected fraud.
We also found that neither Social Services nor the six counties we visited took sufficient steps to ensure the accuracy of investigation activity reports. For example, in response to our review of their investigation activity reports submitted to Social Services, Los Angeles and Alameda counties stated that they have been unknowingly underreporting the outcomes of their investigations. Alameda County identified this problem before our review, while Los Angeles County realized the problem as a result of our inquiry. Because of a previous audit and because of its interactions with the counties, Social Services has known for several years that counties are reporting inaccurate data regarding their activities to combat welfare fraud, yet it has not taken sufficient steps to address this problem. In addition, it uses these erroneous investigation activity reports to report to the federal government and to prepare reports submitted to internal decision makers and the Legislature.
Social Services does not ensure that counties consistently follow up on information it provides that can potentially match welfare recipients to data received from various sources that might affect welfare recipients' eligibility (match lists). One of the primary tools that Social Services distributes to counties are lists of individuals' names that may match certain criteria that could make the individuals eligible for reduced aid amounts or ineligible for aid. Periodically, Social Services distributes to counties 10 match lists, which are generated by state and federal agencies. For six of the 10 match lists, federal regulations mandate that each aid recipient receive notification that an action will be taken on the information within 45 days. The remaining four match lists are not subject to a mandated deadline for this notification to take place. However, our review found that none of the counties we visited consistently followed up on all the match lists that they needed to complete within the 45-day timeline, and four counties did not follow up consistently on the lists that had no set notification time frame. Such inconsistent efforts undermine the intent of the match lists, which is to provide the counties with actionable information that can prevent fraud or the continuation of fraudulent activity.
We also determined that Social Services is missing opportunities to improve the counties' follow-up efforts on the match lists because it has not reviewed antifraud activities at 25 of the 58 counties during the three-year period from August 2006 to August 2009. Among the counties not reviewed is Los Angeles, which helps to administer approximately 30 percent of the State's CalWORKs cases and which Social Services last reviewed in 2005, and five small counties that Social Services' records show have not been visited since 1995. Although Social Services indicates that it has had ongoing communications with Los Angeles County, the communications were limited to follow-up on problems that Social Services observed in 2005 related to backlogs associated with the county's overpayment collection efforts. These Income and Eligibility Verification System (IEVS) reviews are intended to be part of Social Services' oversight of counties' efforts to investigate welfare fraud. According to federal regulations, Social Services is ultimately responsible for processing matches consistently and in a timely manner. Because Social Services has not maintained adequate oversight of the counties, which conduct these efforts on its behalf, Social Services is failing to ensure that it complies with the regulations. The need for the IEVS reviews is evident, particularly because noncompliance was extensive among the counties we visited.
Although Social Services asserts that the Statewide Fingerprint Imaging System (SFIS) is an important tool to deter welfare fraud, it has not adequately determined the cost-effectiveness of SFIS because it believes there is no way of measuring the deterrence effect of the system. Since its implementation in 2000, counties have used SFIS to identify a total of 845 instances of fraud, of which 54 cases were identified in 2008. However, counties have a large, ongoing historical backlogs of SFIS results awaiting resolution. Indeed, as of July 31, 2009, the statewide backlog consisted of more than 13,700 unresolved cases that counties had not reviewed for more than 60 days. The backlog ranged from no cases for several counties to more than 3,600 unresolved cases for San Bernardino County. Social Services indicated that it does not follow up on counties' reviews of SFIS cases because state laws or regulations do not mandate deadlines for such reviews. We contacted the counties we visited, as well as the counties with the highest backlogs, and several stated that they were unaware of the size of their respective backlogs. Most of the counties we contacted indicated that they did not identify fraud by using SFIS, but they indicated that they believe that SFIS is—in concept—a useful fraud deterrent. Regardless, if counties do not review their backlogs of cases, they cannot ascertain whether potential fraud is present within the backlogs.
In addition, Social Services has been delayed in taking the necessary steps to allocate $17.2 million to the United States Department of Agriculture (USDA) and to claim its $12.5 million share of the $42.1 million in food stamp program overpayments that the counties have collected. Because counties currently hold these overpayments, neither the federal government nor Social Services have had access to the funds, resulting in an estimated $1.1 million in lost interest earnings to the State on its share of these funds. Moreover, the USDA has expressed long-standing concerns about the accuracy of the information on overpayment collections reported by the counties, which Social Services does not review for this purpose.
Lastly, county size, demographics, and county department staffing necessitate different approaches to investigating and prosecuting welfare fraud. In response to workload and staffing issues, counties have developed thresholds below which their district attorneys' offices will generally not accept cases referred for prosecution. Of the more than 13,200 cases referred for prosecution that were available for counties to pursue during 2008, the counties acted on a total of 5,074, prosecuting 3,164 cases and deciding not to prosecute 1,910. Due to the low number of prosecutions, the counties' backlog of nearly 6,400 prosecution referrals statewide at the beginning of 2008 had decreased by a mere 12 percent by the end of the year.
To ensure that all counties consistently gauge the cost-effectiveness of their early fraud and ongoing investigation efforts for the CalWORKs and food stamp programs, Social Services should work with the counties to develop a formula to perform cost-effectiveness analyses using information that the counties currently submit.
To make certain that counties receive the greatest benefit from the resources they spend on antifraud efforts related to CalWORKs and food stamp cases, Social Services should do the following:
To ensure the accuracy and consistency of the information on welfare fraud activities that counties report and that it subsequently submits to the federal government, the Legislature, and internal users, Social Services should take the following steps:
To ensure that counties are following up consistently on all match lists, Social Services should do the following:
Recognizing that the deterrence effect of SFIS is difficult to measure, Social Services should develop a method that allows it to measure the benefits of this system and compare them to the cost of maintaining the system. Social Services should include in its cost calculations the administrative costs that counties incur for using SFIS. Based on its results, Social Services should determine whether the continued use of SFIS is justified.
Social Services should continue to work with the USDA and make taking the steps necessary to distribute to the appropriate entities the $42.1 million in food stamp overpayment collections a priority.
Social Services should track how counties determine prosecution thresholds and determine the effects of these thresholds on counties' decisions to investigate potential fraud, with a focus on determining best practices and cost-effective methods. It should then work with counties to implement the consistent use of these cost-effective methods.
In its response, Social Services generally agreed with the recommendations and provided additional perspective and information related to our findings. However, Social Services did not always agree with our conclusions.