Appendix C to Part 614 - Standard for Fraud and Overpayment Detection
20:3.0.2.1.8.5.1.1.4 : Appendix C
Appendix C to Part 614 - Standard for Fraud and Overpayment
Detection Employment Security Manual (Part V, Sections 7510-7515)
7510-7519
Standard for Fraud and Overpayment Detection 7510
Federal Law Requirements. Section 303(a)(1) of the Social
Security Act requires that a State law include provision for:
“Such methods of administration * * * as are found by the
Secretary to be reasonably calculated to insure full payment of
unemployment compensation when due.”
Section 1603(a)(4) of the Internal Revenue Code and section
3030(a)(5) of the Social Security Act require that a State law
include provision for:
“Expenditure for all money withdrawn from an unemployment fund
of such State, in the payment of unemployment compensation * * *
”
Section 1607(h) of the Internal Revenue Code defines
“compensation” as “cash benefits payable to individuals with
respect to their unemployment.”
7511
The Secretary's Interpretation of Federal Law
Requirements. The Secretary of Labor interprets the above
sections to require that a State law include provision for such
methods of administration as are, within reason, calculated (1) to
detect benefits paid through error by the agency or through willful
misrepresentation or error by the claimant or others, and (2) to
deter claimants from obtaining benefits through willful
misrepresentation. 7513
Criteria for Review of State Conformity
With Federal Requirements. In detemining State conformity with
the above requirements of the Internal Revenue Code and the Social
Security Act, as interpreted by the Secretary of Labor, the
following criteria will be applied:
A. Are investigations required to be made after the payment
of benefits, (or, in the case of interstate claims, are
investigations made by the agent State after the processing of
claims) as to claimants' entitlement to benefits paid to them in a
sufficient proportion of cases to test the effectiveness of the
agency's procedures for the prevention of payments which are not
due? To carry out investigations, has the agency assigned to some
individual or unit, as a basic function, the responsibility of
making or functionally directing such investigations?
Explantaion: It is not feasible to prescribe the extent
to which the above activities are required; however, they should
always be carried on to such an extent that they will show whether
or not error or willful misrepresentation is increasing or
decreasing, and will reveal problem areas. The extent and nature of
the above activities should be varied according to the seriousness
of the problem in the State. The responsible individual or unit
should:
1. Check paid claims for overpayment and investigate for willful
misrepresentation or, alternatively, advise and assist the
operating units in the performance of such functions, or both;
2. Perform consultative services with respect to methods and
procedures for the prevention and detection of fraud; and
3. Perform other services which are closely related to the
above.
Although a State agency is expected to make a full-time
assignment of responsibility to a unit or individual to carry on
the functions described above, a small State agency might make
these functions a part-time responsibility of one individual. In
connection with the detection of overpayments, such a unit or
individual might, for example:
(a) Investigate information on suspected benefit fraud received
from any agency personnel, and from sources outside the agency,
including anonymous complaints;
(b) Investigate information secured from comparisons of benefit
payments with employment records to detect cases of concurrent
working (whether in covered or noncovered work) and claiming of
benefits (including benefit payments in which the agency acted as
agent for another State).
The benefit fraud referred to herein may involve employers,
agency employees, and witnesses, as well as claimants.
Comparisons of benefit payments with employment records are
commonly made either by post-audit or by industry surveys. The
so-called “post-audit” is a matching of central office wage-record
files against benefit payments for the same period. “Industry
surveys” or “mass audits” are done in some States by going directly
to employers for pay-roll information to be checked against
concurrent benefit lists. A plan
A. of investigation based on a sample post-audit will be
considered as partial fulfillment of the investigation program; it
would need to be supplemented by other methods capable of detecting
overpayments to persons who have moved into noncovered occupations
or are claiming interstate benefits.
B. Are adequate records maintained by which the results of
investigations may be evaluated? *
* Revises section 7513 as issued 5/5/50.
Explanation. To meet this criterion, the State agency
will be expected to maintain records of all its activities in the
detection of overpayments, showing whether attributable to error or
willful misrepresentation, measuring the results obtained through
various methods, and noting the remedial action taken in each case.
The adequacy and effectiveness of various methods of checking for
willful misrepresentation can be evaluated only if records are kept
of the results obtained. Internal reports on fraudulent and
erroneous overpayments are needed by State agencies for
self-evaluation. Detailed records should be maintained in order
that the State agency may determine, for example, which of several
methods of checking currently used are the most productive. Such
records also will provide the basis for drawing a clear distinction
between fraud and error.
C. Does the agency take adequate action with respect to
publicity concerning willful misrepresentation and its legal
consequences to deter fraud by claimants? *
Explanation. To meet this criterion, the State agency
must issue adequate material on claimant eligibility requirements
and must take necessary action to obtain publicity on the legal
consequences of willful misrepresentation or willful nondisclosure
of facts.
Public announcements on convictions and resulting penalties for
fraud are generally considered necessary as a deterrent to other
persons, and to inform the public that the agency is carrying on an
effective program to prevent fraud. This alone is not considered
adequate publicity. It is important that information be circulated
which will explain clearly and understandably the claimant's
rights, and the obligations which he must fulfill to be eligible
for benefits. Leaflets for distribution and posters placed in local
offices are appropriate media for such information.
7515
Evalauation of Alternative State Provisions with Respect to
Erroneous and Illegal Payments. If the methods of
administration provided for by the State law do not conform to the
suggested methods of meeting the requirements set forth in section
7511, but a State law does provide for alternative methods of
administration designed to accomplish the same results, the Bureau
of Employment Security, in collaboration with the State agency,
will study the actual or anticipated effect of the alternative
methods of administration. If the Bureau concludes that the
alternative methods satisfy the criteria in section 7513, it will
so notify the State agency. If the Bureau does not so conclude, it
will submit to the Secretary the results of the study for his
determination of whether the State's alternative methods of
administration meet the criteria. *
* Revises section 7513 as issued 5/5/50.