Study Finds High Rate of Welfare Fraud

SACRAMENTO —  Adding fuel to the debate over welfare reform, a controversial government study in Orange County found nearly half of a group of families on public 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 as much as $22.8 million in overpayments are being made each year to county recipients of Aid to Families With Dependent Children and food stamps.

Given 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.

The state-funded study was conducted by the Orange County Social Services Agency, the county district attorney’s office and the state Department of Social Services. When launched, it drew denunciations from civil libertarians irate over what they considered 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, only 76 were referred for criminal investigation, and just 46 of those were deemed to meet the criteria for prosecution. In 21 cases, the charges resulted in guilty pleas, while an additional 20 await court dates. Five cases were dismissed or settled with restitution payments.

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.

Administration officials declined to comment on the report on Monday.

But the study, an offshoot of a similar Orange County investigation conducted in 1993, is already under fire from advocates of 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 in court to criminal charges of fraud. Many of the others cited in the study as examples of fraud, he said, are likely individuals simply grappling to understand the byzantine rules of the welfare code.

Authorities have traditionally estimated that 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.

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

The study has been marked by controversy from the beginning. When launched, civil libertarians charged that it amounted to 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, relatives and children. In some cases, they followed the adults to see if they had jobs that weren’t reported to welfare officials. They also made surprised visits to homes, asking to search rooms for a signs that a family might have fewer children than reported.

Advocates for the poor found plenty to criticize in the study’s findings too.

McKeever suggested that the welfare staffers and fraud investigators have a vested interest in inflating numbers, thus undercutting any claim to credibility.

He also said that investigators may have determined fraud in cases where they discovered “$10 in baby-sitting money” that wasn’t reported.

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.”