Spritzophrenia

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Posts Tagged ‘welfare fraud’

Would You Report Someone For Welfare Fraud?

Posted by spritzophrenia on September 8, 2011

Lots of people are interested in my post a while back about welfare fraud in the USA. So I thought I’d do a follow up. First, I’ve got some current figures from reliable sources. Here’s part of a 2011 paper. If figures bore you, skip to the interesting stuff below:

Overseas findings
The UK Department for Work and Pensions estimated that in 2008-09, approximately 2.2 percent of all benefit expenditures, or 3b [pounds sterling], was overpaid as a result of fraud and error (DWP 2009). Half of this, about 1.1b [pounds sterling], was attributed to fraud, although this was based on a sampling procedure rather than convictions. The figure represented an increase, from a low of 0.6b [pounds sterling] in 2005-06, despite concerted efforts by the department to stop fraud (NAO 2008).

In the United States in 2008-09, the Social Security Administration Office of the Inspector General (2009) received 129,495 allegations of fraud and closed 8,065 cases, with 1,486 criminal prosecutions. These activities involved over US$2.9b in ‘questioned costs’; with US$23.3m in recoveries, US$2.8m in fines and a further US$25.5m in settlements, judgement and restitution orders.

welfare

Australian data
The following section presents data supplied by Centrelink on its compliance and fraud-related activities and outcomes. Unlike the UK Department for Work and Pensions, Centrelink does not provide estimates of fraud but reports on detected errors and fraud prosecution actions and outcomes.
Formal fraud investigations are usually initiated through compliance and eligibility reviews. Reviews occur in large numbers each year. There is a crossover of triggers and methods, including routine data-matching, random sampling, identity checks and public tip offs.

Table 1 reports on the outcomes of reviews for the three year period 2006-07 to 2008-09. Of note is the fact that typically, only 15.7 percent of reviews led to cancellations or reductions in payments. Of these, as few as 0.8 percent were referred to the Commonwealth Director of Public Prosecutions (CDPP); with 0.5 percent being prosecuted. Prosecutions resulted in a 98.8 percent conviction rate. Overall, in the three years, 0.04 percent of customers were convicted of fraud. For the same period, fraud investigations were estimated to have produced $380.6m in gross savings and amounts targeted for recovery. This compares with $1.4b in overpayments identified and debts generated from the review process. Fraud therefore accounted for approximately 26.2 percent of invalid payments. Furthermore, on average, only 15.1 percent of investigations resulted in a prosecution referral. In 2008-09, Centrelink referrals accounted for 69 percent of defendants prosecuted by the CDPP (2009: 115-116).

Table 2 provides a snapshot of fraud across the top 15 benefit types. Within this group, the Single Parenting Payment and Newstart Allowance (unemployment benefit) together accounted for 72 percent of convictions and $33.5m of debt. The Disability Support Pension and Partnered Parenting Payment together accounted for a further 14.7 percent and $7.6m of debt.
Figure 1 shows longer term trends for compliance reviews and adjustments for the 12 year period from 1997-2008 (when Centrelink was established) to 2008-09.
They show that, in terms of the number of Centrelink customers, compliance reviews increased by 54.5 percent from an average of 41.1 percent of customers up to 2001-02, to an average 63.4 percent subsequently, while cancellations or adjustments more than doubled from 4.3 percent to 10.1 percent.
Figure 2 shows that referrals to the CDPP have increased less dramatically, with prosecutions and convictions at a fairly stable rate.

Exerpt from Prenzler, Tim. “Welfare fraud in Australia: Dimensions and issues.” Trends & Issues in Crime and Criminal Justice (2011)

Be careful in how you read the figures above, as it isn’t always clear what they mean. Also, these figures don’t tell the whole story. I haven’t fully absorbed the paper, but in essence, it supports my previous claim that less than 2% of people on welfare commit fraud.

In my last post, a few people queried the definition of fraud in the comments. So here’s the definition I’m using: Fraud is knowingly accepting welfare payments that you are not legally eligible for.

Note that it’s knowingly. Mistakes by the recipient, or the welfare agency are not fraud.

“Abuse of the system” is not fraud. If Bob is lazy and doesn’t want to work, but the welfare system has evaluated him fairly and allocated him funds, this is not fraud. You may wish to reform the system so that people like Bob can’t get money, but it’s not fraud. In New Zealand, where I live, it is not at all easy to get welfare, and it is not at all easy to live on welfare. It’s not a “cushy life”. Another paper I read suggests we feel more strongly about welfare fraud than we do about tax fraud or white collar fraud, arguably more serious crimes. I wonder why this is?

A few commenters assert that fraud is much more widespread than my figures show. Again, I reply: Show me the evidence.

Some commenters give anecdotal evidence, eg, “My sister has a baby and she hasn’t told them who the father is so she can get welfare, even though they are living together.” My question is, if you are so concerned about welfare fraud, why don’t you report them to the authorities? I know someone who has probably been collecting more welfare than she is entitled to for many years. Yet, if I report her, her son might suffer financially. Maybe we get the welfare system we deserve?

Would you report someone close to you for welfare fraud? If not, why not?

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Around the World on Welfare

Posted by spritzophrenia on February 12, 2011

I did some investigation a while back which shows that the rate of welfare fraud is very low. However, there will always be some exceptions and this is an amazing one, from my own country.

A Kiwi beneficiary has travelled the world funded by the dole, spending nearly two years seeing the sights of Europe, Asia and Africa without his unemployment benefit being cut off.

In an international escapade that has left Social Development Minister Paula Bennett and Work and Income fuming, Peter Freedom, 34, has admitted seeing the world at taxpayer expense.

Mr Freedom left New Zealand for Australia on April 11, 2009, expecting his benefit would be cut off two weeks later. “I was just amazed when it didn’t,” he said from Dubai.

He visited Europe, the Balkans, Britain, North Africa and Asia before his benefit was finally axed late last month.

Mr Freedom used the nearly $28,000 – $287.12 a week, which later increased to $293.04 – to see some tourist meccas. Note: NZ dollars are worth a lot less than US dollars.

Peter Freedom

Peter Freedom in front of the Pyramids of Giza.

His favourites included the Pyramids of Giza, the Taj Mahal, the Eiffel Tower and bullfighting in Spain. “The trip was funded by the benefit,” Mr Freedom said. “What started as an accident soon became an opportunity.”

He sometimes slept in a car during his travels to save money. “I would always eat at the cheapest place I could find. It wasn’t very much money.”

Mr Freedom “didn’t feel good” about spending taxpayer money but said he was happy to expose the authorities. “I guess I did rip them off but I needed something to get me on my feet again.”

Before he left New Zealand Mr Freedom had been living in Hawera, Taranaki. He said he was keen to work but when a job came up outside town and he asked Work and Income to stump up some money for transport, he was refused. “I just needed a little bit of help but I never got it.” ~Full story here.

No doubt our centre-right government will use this as an excuse to go harder on welfare payments; they’ve already been making hints about it and this provides the perfect opportunity to beat down the 98% of beneficiaries who are honest.

Peter Freedom (great name!) would have to acquire other income or savings, as there is no way one could purchase airfares on a welfare income. I don’t think we’ve yet heard the full story. Still, nice life if you can get it.

Edit: Updating the story, turns out my prediction was right and this story came to light because of a crackdown on long term beneficiaries where hundreds have had their payments axed.

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How Bad Is Welfare Fraud in the USA?

Posted by spritzophrenia on January 4, 2011

What do you see when you see someone on welfare? A lazy welfare Mom living the good life, claiming more than she is entitled to? After all, we all know that welfare fraud is rampant, right? In my previous post we’ve been having good discussions trying to identify what’s wrong with the USA, and the issue of welfare fraud came up. I was curious to find out how much of a problem it is.

What I discovered is that accurate figures are hard to come by; worse, grossly inflated figures are sometimes quoted. For example, a 2003 allegation claims child care fraud was found in 69% of the investigations conducted (the original link is broken and I can’t check if anyone challenged the figure). However, the speaker was at the time the head of a collective of profit-making fraud investigators. It would be in their interests to inflate fraud figures.

Check out my follow-up article with more statistics on welfare fraud

The Los Angeles Times reported in 2010 that 24% of new welfare applications in San Diego County contain some form of fraud. However, this statistic was misreported and the actual figure is probably considerably lower. The figure “includes both intentional misrepresentations and unintentional errors, such as information being taken down incorrectly by the county.”

By comparison, two years ago in the UK 56,493 people were caught defrauding the benefit system. This sounds like a lot, but if we consider that in in 2009 5.8 million were on the unemployment benefit alone, this means that less than 1% of all beneficiaries committed fraud.

welfare kids

Well, maybe they don’t find all the fraud. This is certainly true, but if a full-time staff of 3,000 fraud investigators cannot find it then maybe there isn’t much more to find? It’s hard to compare the UK with the US– the American system might be much easier to rort. However, this seems unlikely. If nothing else, at least the UK example shows that is is possible to have a welfare system where almost no fraud occurs.

I’d also like to see good numbers on the seriousness of the crime. Someone who is getting an extra $2 per week they are not entitled to is not exactly high rolling, yet it would still be counted as fraud. Sure, there have been a few notable cases but my point is that these are extremely rare.

The most accurate figure I’ve found for the US is from a 2002 report by The US Department of Labor which says that 1.9% of the total Unemployment Insurance payments for 2001 were attributable to fraud or abuse within the UI program.

For accuracy, we should note a couple of things: This figure only reflects unemployment insurance. It’s conceivable that other types of welfare could have different fraud rates. Secondly, this figure concerns the amount defrauded, not the number of people guilty. Unlike the UK figure it doesn’t tell us how many people took the money. But it’s not hard to do some simple math. In 2001, $580 million in overpayments were identified as fraud. At the time there were 2.38 million US people receiving unemployment insurance. If every one of them was defrauding the system, they’d get an extra $243 in their pocket that year. They won’t exactly be living the high life on that. Even assuming 1% of these people were fraudsters, each of them got $2436 extra that year. That’s a significant, but not extreme amount. The math shows the more people who defrauded the system, the lower the payback. The penalties are high, and the Government has full-time fraud investigators hunting the bad guys. Fraud is only worth considering if you can make serious money. Therefore it seems intuitively right that the percentage of people committing welfare fraud is low.

So, until someone can show me better numbers I’m going to put this out there:

Less than 2% of all people on welfare in the USA commit fraud.

“The myth of the Cadillac-driving welfare queen who defrauds the system lingers even though there’s no proof of it”, said Erin O’Brien, a poverty expert at the University of Massachusetts, Boston.

In fact, welfare fraud among Philadelphia’s 95,456 recipients is “minute,” according to Peter Berson, assistant chief of the government fraud unit in the Philadelphia District Attorney’s Office.

The 200 to 400 cases of welfare fraud in the city each year – down 50% since 2002 because of better enforcement and fewer recipients – are not nonworking women having babies to game the government, but working women receiving welfare and working at other jobs without reporting the income, Berson said.

In conclusion, the rate of welfare fraud is so low as to almost not be worth mentioning. The next time you hear an allegation of welfare fraud, ask to see the hard facts. Anecdotes are just that, and urban myths develop quickly. In hard times, Americans blame the poor.

The facts tell me that 98 out of 100 people on welfare are not defrauding the system. Ninety-eight out of one hundred welfare recipients you meet are honest people who are struggling. Isn’t it time we dropped the stigma?

Edits: April 2012. There have a been some good comments below, including discussion about the “definition of fraud”. And there have been some, let us say, more ignorant comments.

Check out my follow-up article with more statistics on welfare fraud.

April 2012: A really good NY Times article Welfare Limits Left Poor Adrift.

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