Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

AFDC PRE-ELIGIBILIW FRAUD 

INVESTIGATIVE UNITS 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Sewices’ (HHS) 

programs as well as the health and welfare of beneficiaries served by those programs. TM 

statutory mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by three OIG operating components: the Office of Audit Services, the 

Office of Investigations, and the Office of Evaluation and Inspections. The OIG also informs 

the Secretary of HHS of program and management problems and recommends courses to 

correct them. 

The OIGS Office 

OFFICE OF AUDIT SERVICES 

of Audit Services (OAS) provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors in 

carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations in order to reduce waste, abuse, and 

mismanagement and to promote economy and efficiency throughout the Department. 

OFFICE OF INVESTIGATIONS 

The OIGS Office of Investigations (01) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of 

unjust enrichment by providers. The investigative efforts of 01 lead to criminal convictions, 

administrative sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud 

control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 

OFFICE OF EVALUATION AND INSPECTIONS 

The OIGS Office of Evaluation and Inspections (OEI) conducts short-term management and 

program evaluations (called inspections) that focus on issues of concern to the Department, 

the Congress, and the public. The findings and recommendations contained in these inspection 

reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, 

and effectiveness of departmental programs. 

OEI’S Atlanta Regional Office prepared this report under the direction of Jesse J. Flowers, 

Regional Inspector General, and Christopher Koehler, Deputy Regional Inspector General. 

Principal OEI staff included: 

Atlanta Retion Headquarters 

Peggy Daniel, Project Leader Wm. Mark Krushat, SC.D.


Betty Apt, Team Leader Ruth Folchman


Jackie Andrews Ann O’Connor


Joe Townsel


To obtain additional copies of this report, please call the Atlanta Regional Office at (404) 331-


5022.

EXECUTIVE SUMMARY


PURPOSE 

To determine whether or not local pre-eligibility fraud investigative units are effective 

in preventing inappropriate payments of Aid to Families with Dependent Children. 

BACKGROUND 

The Aid to Families with Dependent Children (AFDC) program provides financial 

assistance to families with children who are deprived of support due to death, absence, 

or disability of at least one parent. Some families with children deprived of support 

due to unemployment of the principal wage earner may also receive AFDC assistance. 

In Fiscal Year 1991, the AFDC program paid about $20.7 billion in Federal and State 

funds to about 12.5 million people. The Administration for Children and Families 

estimated that about $1 billion of those funds were inappropriate payments. 

To prevent fraud and alleviate resulting overpayments caused by incorrect applicantprovided information, some State and local AFDC offices established pre-eligibility 

fraud investigative units. The principal objective of pre-eligibility fraud investigative 

units is to prevent applicants from fraudulently obtaining AFDC benefits. They do so 

by verifying applicant-provided information before AFDC payments are made. 

Preventing inappropriate AFDC payments is more effective than trying to recover 

payments after applicants have received them. 

FINDINGS 

Be-eligibilityjiaud investigative unitsqiJective/y preventinapproptiteAIIDCpayments

Thirty-nine local offices we sumeyed reported that investigations by pre-eligibility fraud 

investigative units resulted in savings of over $41 million in program funds in 1992. 

The savings per unit ranged from a low of $1.20 per dollar of operating costs to a high 

of $104.34. The costs and savings information provided by the 39 selected offices 

showed a weighted average savings of about $8.43 for every $1.00 spent operating a 

unit. 

We were unable to compare the relative effectiveness of pre-eligibility fraud 

investigative units to that of AFDC eligibility workers. Data to make such a 

comparison was not available. Most local offices did not keep records on application 

denial rates. Therefore, we could not compare denial rates prior to establishment of 

pre-eligibility fraud investigative units to denial rates after such units were operating. 

Further, where denial rates were available, dollar savings resulting from denials by 

eligibility workers had not been computed. 

i 
However, savings resulting from pre-eligibility fraud investigative units are additional 

to any that might result from eligibility worker decisions, and investigative and 

prosecution activities of regular AFDC fraud units. AFDC eligibility workers may 

cause applicants to withdraw fraudulent applications, or the workers may deny such 

applications. To the extent that fraudulent applications are withdrawn or denied, a 

savings to AFDC occurs. Every denial or withdrawal caused by pre-eligibility fraud 

investigative units represent additional savings to that resulting from eligibility workers. 

Likewise, even when fraud is discovered later by regular fraud units, erroneous 

payments have already been made. Such payments are very difficult and certainly 

inefficient to recover. Therefore, preventing such improper payments before they 

occur is an additional savings. 

Local AFDC officials we interviewed also told us the presence of pre-eligibility fraud 

investigators in a community help deter fraud. Applicants may be less likely to 

provide false information if they know investigators will be interviewing relatives, 

neighbors, and employers to substantiate applicant-provided information. 

he-eligibility fraud investigative unitsuse basicinvestigative techniques

Staff at essentially all of the AFDC offices we inspected said they most often relied on 

basic investigative techniques. These included (1) interviews with relatives, neighbors, 

landlords, and employers, (2) unannounced visits to applicants’ homes, (3) matching 

applicant-provided financial information with Federal and State databases, and (4) 

assisting eligibility caseworkers interview applicants. None of the offices we inspected 

used sophisticated techniques such as fingerprinting and electronic surveillance. 

About 74 percent of the local AFDC offices we surveyed required that pre-eligibility 

fraud investigations be completed within 15 days after cases are referred by eligibility 

caseworkers. A fast turnaround time is essential for investigation results to be useful 

to eligibility decisions. Caseworkers must usually determine eligibility in 30 days for 

benefit payments to be made to eligible applicants within the federally mandated 45 

day time limit. 

Mbst pre-e&ibilityjk aud investigative unitsareorganizationally independentof AFDC

benejitpayrnentssections 

About 62 percent of the sampled pre-eligibility fraud investigative units reported to


supervisors that were organizationally independent of a benefit payments (eligibility)


section. Local officials generally advised that keeping pre-eligibility fraud investigative


units organizationally independent is beneficial because the missions of benefit


payments workers and investigators differ. Eligibility workers have a social work ethic


of wanting to help people and may give eligibility to an applicant even when there is


doubt about eligibility. Conversely, investigators are interested in preventing fraud and


look for proof of eligibility. The difference in missions can create a conflict of


interest.


ii 
However, officials from all the local AFDC offices we surveyed said pre-eligibility 

fraud investigative units are most effective when physically located near eligibility staff. 

They said such a physical location helps assure (1) effective communication, (2) timely 

referrals, (3) quick feedback, and (4) accessibility to eligibility workers’ files. 

RECOMMENDATIONS 

We could not reliably project a nationwide savings, but 39 local AFDC offices claimed 

to have saved on average over $8 for every $1 spent on pre-eligibility fraud 

investigative units. We recognize that pre-eligibility fraud investigative units might not 

be appropriate in every local office. However, such units could achieve significant 

savings in a cost effective manner in many areas. States and localities might well want 

to consider the advantages of establishing such units. Therefore, we recommend that 

the Administration for Children and Families (ACF) encourage and help all States 

establish pre+ligiiility fraud investigative units. ACF can do this by: 

F	 disseminating information on pre-eligibility fraud investigative units to States 

and localities without units, and 

b	 offering technical assistance to States interested in establishing pre-eligibility 

fraud investigative units. 

AGENCY COMMENTS 

The Assistant Secretary for Children and Families commented on the report. She 

noted that we combined figures from units reporting only AFDC savings and costs 

with figures from units reporting AFDC and food stamps savings and costs. ACF also 

noted that we did not validate data States provided. We agree, and have disclosed 

our methodology in our report. We combined costs and savings in our calculation 

because some local AFDC offices could not separate AFDC and food stamp 

operations. However, we reported that 17 local AFDC offices that could separate 

AFDC and food stamps saved almost $9 million in only AFDC. Further, savings 

reported by the sampled units represented misspent Federal funds regardless of 

whether the savings came from the AFDC or food stamp program. 

ACF reported that they make information available to States about innovative 

programs, and are developing a catalogue that will make such information more 

usable for States. We support their efforts, and believe they should include 

considerable information on pre-eligibility fraud investigative units. We know States 

have an interest in this information because several States and a consultant from 

Canada have contacted the OIG for such data upon hearing about our inspection. 

... 

111 
TABLE OF CONTENTS


PAGE 

EXECUTIVE suMMARY 

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”.” .“s”1 

FINDINGS 

Pre-eligibility Fraud Investigative Units Are Effective . . . . . . . . . . . . . . . . . . . . 5


Pre-eligibility Fraud Investigative Units


Use Basic Investigative Techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...7


Most Pre-Eligibility Fraud Investigative Units


Are Organizationally Independent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...10


RECOMMENDATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...13


AGENCY COMMIWB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...14


APPENDICES


Sampled LocalAFDC Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..A-l


Methodology for Calculating Savings and Computing Cost Benefits . . . . . . . B-1


ACF Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..C-1

INTRODUCTION


PURPOSE 

To determine whether or not local pre-eligibility fraud investigative units are effective 

in preventing inappropriate payments of Aid to Families with Dependent Children. 

BACKGROUND 

Amc l%gm?n 

The Aid to Families with Dependent Children (AFDC) program provides financial 

assistance to families with children who are deprived of support due to death, absence, 

or disability of at least one parent. Some families with children deprived of support 

due to unemployment of the principal wage earner may also receive AFDC assistance. 

The Administration for Children and Families (ACF), Department of Health and 

Human Services (HHS), has Federal responsibility for AFDC. The program is 

authorized by title IV-A of the Social Security Act. States administer the program 

through local offices--either district, county, or city. Program costs are shared by 

Federal and State governments. The Federal government pays 50 percent of the 

administrative costs and a percentage of the AFDC payments. The percentage varies 

by State and is determined by a formula using Department of Commerce statistics. 

Generally, poorer States receive a larger Federal contribution than affluent States for 

AFDC payments. In some States, counties pay part of the non-Federal portion of 

AFDC payments. 

In Fiscal Year 1991, the AFDC program paid about $20.7 billion in Federal and State 

funds to about 12.5 million people. The ACF estimated that about $1 billion of those 

funds were inappropriate paymentsl. 

AFDC l%e-EligibilityFreudInv@&ative U& 

To receive AFDC benefits, applicants must complete an application. Local 

caseworkers then attempt to verify applicant-provided information to determine 

eligibility and amount of financial assistance. An inappropriate AFDC payment occurs 

when an applicant fails to accurately report facts which might affect the AFDC 

payment, and when a State fails to act properly on known information. Intentionally 

withholding or misrepresenting facts by an applicant may be considered fraud. 

lAdministration for Children and Families, Quarterly Public Assistance Statistics, Fiscal Year 

1991 

1

All States are required to identi~ alleged fraud and develop procedures for referring 

these cases to law enforcement officials. In most States, this is accomplished in ongoing fraud units. ACF shares the expense of these activities with other programs and 

the State. The AFDC share is subject to the regular 50 percent administrative cost 

matching rate. However, to prevent fraud and alleviate resulting overpayments caused 

by incorrect applicant-provided information, some State and local AFDC offices 

established pre-eligibility fraud investigative units. The principal objective of preeligibility fraud investigative units is to prevent applicants from fraudulently obtaining 

AFDC benefits. They do so by verifying applicant-provided information before AFDC 

payments are made. Preventing inappropriate AFDC payments is more effective than 

trying to recover them after applicants have received them. 

AFDC caseworkers refer applications to pre-eligibility fraud investigative units for 

investigation when a caseworker suspects an applicant has provided incomplete and 

inaccurate information to obtain benefits. Investigators then attempt to verify the 

applicant’s financial and family circumstances. They do so by comparing applicantprovided information with information obtained from (1) employers, neighbors, family, 

and friends, (2) unannounced visits to applicants’ homes to verify residence and 

household composition, and (3) computer matches with State databases, such as 

departments of labor wage files. 

In 1987, we reported that pre-eligibility fraud investigative units were effective in 

detecting fraudulent application information and preventing inappropriate AFDC 

payments in two California counties 2. In 1993, we reported that 26 States, in addition 

to California, had established pre-eligibility fraud investigative units3. 

SCOPE 

We included 11 States and 39 local welfare offices that have pre-eligibility fraud 

investigative units in our inspection. We focused our inspection on (1) whether or not 

pre-eligibility fraud investigative units were effective in preventing inappropriate 

AFDC payments, and (2) how the units were operated. 

METHODOLOGY 

We used a two-stage cluster sampling process to select States and local offices for 

inspection. First, we randomly selected 12 States from the universe of 26 States. Our 

universe included all States that had pre-eligibility fraud investigative units except 

California. Secondly, we selected 53 local offices from the 12 States. We dropped 

20ffke of Inspector General, United States Department of Health and Human Serviees. State 

Investigation of Fraud in the Aid to Families with Dependent Children (AFDC) Program. 0Al-04-86-

00066. 

30ftice of Inspector General, United States Department of Health and Human Serviees. AFDC 

Pre-Eligibi/ity Verification Measures. OEI-O4-91-OO1OO. 

2 
one State with four local offices from our sample because it no longer had preeligibility fraud investigative units as of June 1993. This reduced the sample size to 11 

States and 49 local offices. Ten of the 49 local offices did not respond to our survey-­

therefore, reducing our sample results to 39 local offices. Appendix A shows the local 

welfare offices appearing in our sample. 

We excluded California from our universe for two reasons. First, we had inspected 

and reported on local programs in that State in 1987. Second, the California program 

is atypical of most other States. California was the original pioneer to use preeligibility fraud investigative units, and their program is one of the largest in the 

United States. It is also generally more aggressive than other States in detecting 

fraud. For example, many California counties used trained peace officers rather than 

social workers for investigators. As such, California may have more advanced 

investigative techniques which could bias our sample results. We did, however, inspect 

operations of pre-eligibility fraud investigative units in five local offices in California. 

We expect to report our findings in a subsequent report. 

To obtain information on operations and results of selected pre-eligibility fraud 

investigative units, we (1) sulveyed all selected States and local offices, (2) reviewed 

pertinent documentation, and (3) interviewed appropriate officials and staff. To 

illustrate, we mailed survey questionnaires to six States and 29 local offices. Using the 

same survey instrument, we obtained information from the remaining five States and 

10 local offices through personal interviews. Further, we obtained reports and other 

documentation on estimates of savings, program evaluations, policies, and procedures. 

Finally, we interviewed staff from the United Council on Welfare Fraud. This 

organization has over 2500 agencies and individuals interested in maximizing efforts to 

prevent, detect, and eliminate welfare fraud. 

To determine the effectiveness of pre-eligibility fraud investigative units, we computed 

cost/benefits for our selected offices in 1992. We based our cost/benefit computation 

on costs and savings information provided by our sample States and local AFDC 

offices. We did not validate the accuracy of the information they provided. In 

estimating savings, States included inappropriate AFDC payments that were prevented 

due to a pre-eligibility fraud investigative unit. States also included AFDC payments 

prevented when applicants withdrew applications after a pre-eligibility fraud 

investigation was initiated. 

Eleven counties in two selected States did not provide specific costs and savings. 

However, the two State offices provided such data for all the counties in the State that 

had pre-eligibility fraud investigative units. We used the average costs and savings for 

all the counties to represent costs and savings for each of the 11 counties in our 

sample. Appendix B shows how we calculated cost/benefit ratios. 

3

We were unable to compare the relative effectiveness of pre-eligibility fraud 

investigative units to that of AFDC eligibility workers. Data to make such a 

comparison was not available. Most local offices did not keep records on application 

denial rates. Therefore, we could not compare denial rates prior to establishment of 

pre-eligibility fraud investigative units to denial rates after such units were operating. 

Further, where denial rates were available, dollar savings resulting from denials by 

eligibility workers had not been computed. 

We also did not compare the pre-eligibility ffaud investigative program of one local 

AFDC office to that of another. The structures and policies of the units were 

designed to meet the needs of specific localities. We believed it inappropriate to rate 

the units based on a written survey, and we were unable to visit each location to 

evaluate whether or not the units met the needs of specific locations. 

This inspection was conducted in accordance with the Quality Standards for Inspections 

issued by the President’s Council on Integrity and Efficiency. 

4

FINDINGS


PRM3LIGIBILITY FRAUD INVESTIGATIVE UNITS EFFECTIVELY PREVENT 

INAPPROPRIATE AFDC PAYMENTS 

All State and local AFDC officials we sampled said that pre-eligibility fraud 

investigative units are effective in preventing inappropriate AFDC payments. The 

units disclose discrepancies in applicant-provided information that result in a reduction 

or denial of AFDC assistance. Eligibility workers may not have the time or inclination 

to challenge and verify all suspicious applicant-provided information. Pre-eligibility 

fraud investigative units can validate applicant-provided information before eligibility is 

approved. Also, the presence of fraud investigative units in a community has a 

deterrent effect on fraudulent claims for AFDC assistance. 

Preventing inappropriate AFDC payments is easier than trying to recover them after 

an AFDC recipient has received and used them. The procedures required to 

document fraud are lengthy, and recovering inappropriate welfare payments is very 

difficult. Pre-eligibility fraud investigative units detect potential fraud before welfare 

payments begin. Therefore, the need to recover inappropriate payments is eliminated. 

On Averagq fie-El&ibilityFreudInvestigativeUhiksSaved Over8 llmes l’heirCos& 

The 39 local AFDC offices responding to our survey estimated that their pre-eligibility


fraud investigative units prevented about $45 million in inappropriate welfare


assistance during 1992. The $45 million included inappropriate AFDC payments, food


stamps, and general assistance payments in 22 of the 39 offices. In the other 17


offices, the savings represented only AFDC funds. The operating costs for the 39


units during 1992 was about $3.7 million. Therefore, savings attributable to the pre-


eligibility fraud investigative units of the 39 offices were about $41.3 million (prevented


inappropriate assistance minus operating costs).


The savings per pre-eligibility fraud investigative unit ranged from a low of $1.20 per


dollar of operating costs to a high of $104.34. As the chart on the next page shows,


about 56 percent of the 39 units saved between $1 and $9 for each dollar of operating


costs. About eight percent of the units saved over $50 per dollar of operating costs.


The costs and savings information provided by the 39 selected offices showed a


weighted average savings of about $8.43 for every $1.00 spent on a pre-eligibility fraud


investigative unit.


5

ESTIMATED SAVINGS PER DOLLAR OF OPERATING COST’S 

Number of Fraud Units 

25, I

I 22 

L. 3 

2 7 

o Im u —. ——. 

$1-$9 $10-$19 $20-$29 $30-$39 $40-$49 $50+ 

Dollar
 Savings


Only 17 of the 39 local offices could provide data that showed AFDC savings 

separately. In 1992, the pre-eligibility fraud investigative units of those 17 offices 

produced savings to the AFDC program of about $8.9 million after deducting 

operating expenses. 

The officials we interviewed said that pre-eligibility fraud investigative units frequently 

identify discrepancies in applications for AFDC. Once identified, the discrepancies 

either limit the amount of AFDC assistance, or disquali& an applicant for assistance. 

The officials identified the following most commonly found discrepancies. 

� Applicants underreport their income so that expenses exceed income. 

�	 Applicants incorrectly report their household composition. They may show that 

a parent is absent when in fact the parent is residing in the household with 

their children. Likewise, they may report children in the home who are not 

actually residing there. 

�	 Applicants may report incorrect addresses. They may report living at one 

address when they actually reside in another county or State and receive AFDC 

benefits there. 

� Applicants may underreport their property and assets. 

The savings resulting from pre-eligibility fraud investigative units are additional to any 

that might result from eligibility worker decisions, and investigative and prosecution 

activities of regular AFDC fraud units. AFDC eligibility workers may cause applicants 

to withdraw fraudulent applications, or the workers may deny such applications. To 

the extent that fraudulent applications are withdrawn or denied a savings to AFDC 

occurs. Every denial or withdrawal caused by pre-eligibility fraud investigative units 

6 
represent additional savings to that resulting from eligibility workers. Likewise, even 

when fraud is discovered later by regular fraud units, erroneous payments have already 

been made. Such payments are very difficult and certainly inefilcient to recover. 

Therefore, preventing such improper payments before they occur is an additional 

savings. 

I?e-E@ibility FreudInvestigativeU. Help DeterFreud�

Local AFDC officials we interviewed told us the presence of pre-eligibility fraud 

investigative units in a community helps deter fraud in three ways. 

First, the presence of fraud investigators in a community may make people more 

reluctant to provide false information to acquire AFDC eligibility. The investigative 

process of interviewing relatives, friends, neighbors, employers, landlords, and others in 

a community causes AFDC applicants to think that their applications will be 

investigated. As a result, they are less likely to submit false information. 

Second, the presence of an investigator in a community allows easy access for people 

to provide information on defrauders. To illustrate, a friend or neighbor who is 

temporarily angry with a defrauder may provide information to an investigator who is 

readily available in the community. However, such associates are less likely to actively 

seek out a welfare office to inform on a defrauder--particularly after their anger has 

subsided. Likewise, neighbors, friends, and relatives may know of welfare fraud and 

resent it, but they are not likely to go to a welfare office to inform on a defrauder. 

Often, however, they will divulge information to an investigator who is readily available 

in the community. 

Third, through continuous presence in a community, an investigator may develop 

networks of people who can provide information on fraudulent activities. To illustrate, 

investigators in one county told us they have established networks of “snitches” akin to 

those used in police work. Through such networks, investigators discover locations of 

mail-drops used to falsely establish a residency. Likewise, they discover residences 

where groups of defrauders live and assist each other in deceit and cover-up. Such 

information typically leads to closing on-going AFDC grants and preventing new 

improper AFDC grants. 

PRE-ELIGIBIIII’Y FRAUD INVESTIGATIVE UNITS USE BASIC 

INVESTIGATIVE TECHNIQUES 

Most Commonly UsedInvestigativeTechn@es�

Pre-eligibility fraud investigative units used basic investigative techniques to prevent 

inappropriate AFDC payments and deter fraud. Staff at essentially all of the AFDC 

7

offices we inspected said they most often relied on the following techniques. 

�	 Collateral intetiews with relatives, friends, neighbors, landlords, employers, and 

others 

� Personal visits to an AFDC applicant’s home 

� Surveillance of an AFDC applicant’s home 

�	 Matching financial and personal information provided by applicants with 

Federal and State computer databases 

� Assisting eligibility caseworkers interview applicants 

None of the offices we inspected used sophisticated techniques such as fingerprinting, 

searching criminal information files, and electronic surveillance. 

Eligibility caseworkers refer applicants for investigation when they have reason to 

suspect fraud. The specific investigative technique used depends largely on the 

particular questions eligibility workers have about an applicant’s application. For 

example, if an applicant says she is not working but the eligibility caseworker suspects 

that the applicant is working, the investigator would likely interview the applicant’s 

neighbors and household members. In such instances, investigators might also cross 

match applicant-provided information with Federal or State wage records. 

Likewise, investigators may assist eligibility caseworkers in interviewing applicants who 

are suspected of providing incorrect information. Some eligibility caseworkers told us 

that investigators often help prevent fraud by assisting them in interviewing applicants. 

To illustrate, eligibility workers often do not have time, and may not have an 

inclination, to challenge and veri~ applicant-provided information. As a result, 

applicants may take a chance and provide false information to an eligibility worker. 

However, eligibility workers who are suspicious about applicant-provided information 

may ask an investigator to assist in jointly interviewing the applicant. In such 

instances, applicants who intended to falsify their application are reluctant to do so. 

Because of an investigator’s presence in an interview, such applicants often correct 

information they previously provided or withdraw an incorrect application. 

AFDC O@es Requirellmely tie-eligibilityFraudInvestigations�

The AFDC offices we surveyed had local policies specifying the length of time for 

conducting a pre-eligibility fraud investigation. As illustrated by the table on the next 

page, about 51 percent of the local AFDC offices we surveyed required that preeligibility fraud investigations be completed within 5 days after a case is referred. 

About 74 percent of the offices required that cases be investigated within 15 days after 

referral. Only about 5 percent of our sampled 39 offices allowed more than 30 days 

for conducting a pre-eligibility fraud investigation. 

8 
LOCAL AFDC OFFICE POLICY 

OF PRIM3LIGIBILJTY FRAUD 

‘*@q& *::: 

: y 

Within 5 days 

6-10days 

11-15 days 

16-20 days 

21-30 days 

More than 30 days 

r

II TOTAL I 

ON TIMEIJNESS 

INVESTIGATIONS 

MA ixl$@iw ,. ,.

20 

4 

5 

o 

8 

2 

39 II 

A fast turnaround time on cases referred for pre-eligibility fraud investigation is 

essential. Caseworkers must determine eligibility in sufficient time for benefit 

payments to be made within a federally mandated 45 day time limit. Therefore, if 

investigation results are to be useful to eligibility decisions, they must be completed in 

time for eligibility workers to correct erroneous information and process an application 

for payment. Most eligibility workers told us they need to finalize the eligibility 

decision within 30 days in order to meet the 45 day time limit. 

InvestigatorAre UsedFor Both ~e-eligibilityand On-goingxU?DC Cases�

Most pre-eligibility fraud investigative units investigate both pre-eligibility applications 

and potential fraud in on-going AFDC grants. Investigators in 27 of the 39 (about 69 

percent) AFDC offices we surveyed said they do both pre-eligibility and on-going 

investigations. Investigators in 23 of the 27 offices establish both the existence and 

extent of fraud. Investigators in 4 of the 27 offices only establish the existence of 

fraud. Thereafter, the four units refer cases to a separate unit to document the extent 

of fraud. Investigators in the remaining 12 AFDC offices (31 percent) we surveyed 

said they investigate only pre-eligibility AFDC applicants. 

A potential benefit of having investigators do both pre-eligibility and on-going fraud 

cases is that techniques learned for on-going fraud investigations can be used for preeligibility fraud investigations. However, some officials said requiring investigators to 

work both pre-eligibility and on-going fraud cases is ineffective. 

Investigators who do on-going fraud investigations in addition to pre-eligibility may 

find that on-going fraud cases require so much time, they do not have sufficient time 

to conduct thorough pre-eligibility fraud investigations. In most of the AFDC offices 

where investigators w-ork both pre-eligibility and on-going cases, investigators must 

take whatever action is needed to prosecute fraud cases. For example, they document 

9

fraudulent actions by AFDC recipients, determine overpayment amounts, and may


prepare cases for legal prosecution. This is a very time-consuming process, and many


AFDC officials stated that their investigators’ time could be used more effectively on


pre-eligibility fraud investigations. This isthereason that four of thelocal~C


oftlces that investigate both pre-eligibility and on-going cases refer fraud cases to a


separate unit for the fraud work-up. Pre-eligibility fraud investigations are generally


perceived to be more effective than fraud investigations of on-going cases because it is


easier to stop a fraudulent payment before it occurs than it is to recover


overpayments.


MOST PRE-ELIGIBIIJTY FRAUD INVESTIGATIVE UNITS ARE


ORGANIZATIONALLY INDEPENDENT OF AFDC BENEFIT PAYMENT


SECTIONS


About 62 percent (24 of 39) of the pre-eligibility fraud investigative units we surveyed


reported to supervisors that were independent of a benefit payments section4. The


remaining 15 units (38 percent) reported to supervisors that were organizationally a


part of a benefit payments section.


The organizational location of pre-eligibility fraud investigative units varied


considerably among the 39 local offices we surveyed. As shown by the chart on the


following page, 15 (or about 38 percent) of the independent local pre-eligibility fraud


investigative units reported directly to the welfare agency director. At one local office,


the pre-eligibility fraud investigative unit reported to the welfare agency director


through the staff attorney. The pre-eligibility fraud investigative unit of another local


office reported to the county welfare director through the administrative office.


Another 7 (about 18 percent) of the organizationally independent units reported to a


State AFDC agency. None of the local offices we surveyed had organizationally


placed the pre-eligibility fraud investigative unit within Social Services.


4Benefit payment sections generally determine eligibility for AFDC, food stamps, and Medicaid 

assistance. 

10 
ORGANIZATIONAL I.X)CATION OF 

PIUM3LIGIBILJTY FRAUD INVESTIGATIVE UNITS


STlfl”E


AFDCAGENCY


(7UNITS]


GiiiGl 

lJuEJ”.\\\ 

v

COUNTY FRAUD ‘\\ WELFAREDIR
 INVESTIGATION 

(I3 UNITS) 

BENEFIT ADMINISTRATION


PAYMENTS
EC.


(15
UNITS) [1UNIT)


S’lXFF 

AT’10RNEY 

[1 UNIT) 

SOCIAL


SERVICES


[0UNITS)


We did not survey local AFDC officials to determine whether or not organizational 

independence from benefit payment sections is more or less beneficial for preeligibility fraud investigative units. Therefore, the advantages and disadvantages of 

different organizational alignments are not clear. However, several local AFDC 

officials provided anecdotal information on the benefits of organizational placement of 

pre-eligibility fraud investigative units. 

_ of watih~~ Ihdependknt~e-eli’ility FraudInvestigate U& 

Some local officials told us that keeping pre-eligibility fraud investigative units 

organizationally independent of benefit payment sections is beneficial. Their general 

argument for organization independence focused largely on a difference in missions of 

benefit payment sections and investigators. They explained that benefit payment 

eligibility workers are interested in processing applications and benefit payments 

quickly. They said most eligibility workers have a social work ethic of wanting to help 

people. Therefore, their focus is to get assistance in the hands of people who need it. 

Because of this orientation, eligibility workers may give eligibility to an applicant even 

when there is doubt about eligibility. 

Conversely, investigators are interested in catching fraud. The objective of 

investigators is to prevent fraud and give AFDC assistance only to those who can 

prove they qualify. In instances where doubt exists, they look for proof, using such 

techniques as unannounced home visits, surveillance, collateral interviews, and cross 

matching of government data records. 

11

According to one county manager, the difference in missions of benefit payment 

sections and investigators creates a conflict of interest. Benefit payment section staff 

sometimes object to investigator mission and techniques and attempt to influence the 

results. To illustrate, one investigator advised us of an instance where his supervisor 

told him to “back off” when he interviewed an applicant’s neighbors to obtain reliable 

eligibility information on earnings and family. The county manager said the preeligibility fraud investigative unit needs to be a neutral activity. 

Two local welfare offices we surveyed recently reorganized to remove their 

investigative staff from the benefit payment sections. They said the pre-eligibility 

fraud investigative units are more effective when organizationally located outside of 

the benefit payment section. 

_ of Phytial Localbn of I?e-eligibi.lilyFreudInves.@ations 

Some local staffs told us that organizing pre-eligibility fraud investigative units as part 

of benefit payment sections is beneficial. However, they did not provide us with any 

illustrations of the benefits. Advantages they cited related to physical location rather 

than organizational location. 

Officials from all the local AFDC offices we surveyed said investigative units are most 

effective when physically located near the benefit payment eligibility staffs. They said 

such a physical location helps assure 

� effective communication between investigators and eligibility workers, 

� timely referrals of cases from eligibility worker to investigator, 

� speedy resolution of cases, 

� feedback on cases, and 

� accessibility to eligibility worker’s case files. 

12

RECOMMENDATIONS


The States we surveyed showed a savings-to-costs ratio of over $8 to $1 from use of 

pre-eligibility fraud investigative units. We did not project a nationwide savings 

because of extreme variations in State AFDC organizations, and a lack of sufficient 

data to make a statistically valid estimate. Nevertheless, savings by our sample States 

indicate significant potential for nationwide savings if all States used such units. In 

addition to potential savings, State officials said the presence of pre-eligibility fraud 

investigative units in a community helps to deter fraud. 

While our inspection focused primarily on AFDC, the pre-eligibility fraud investigative 

units also produced savings in food stamps, general welfare assistance, and potentially 

in Medicaid. 

We recognize that pre-eligibility fraud investigative units might not be appropriate in 

every local AFDC office, such as in rural communities. However, the AFDC offices 

we inspected provide sufficient indication that significant savings can be achieved in a 

cost effective manner in many locations. State and local governments might well wish 

to experiment with pre-eligibility fraud investigative units. In fact, some States are 

interested in forming such units. For example, one State that currently does not have 

a pre-eligibility fraud investigative unit learned of our study and contacted us to obtain 

information on the benefits of such units. Therefore, we believe 

ACF should actively promote the establishment of pre-eligibility fkaud investigative 

units in those States without such units. 

ACF can assist States in developing pre-eligibility fraud investigative units by 

b	 disseminating information on pre-eligibility fraud investigative units to States 

and localities without such units, and 

b	 offering technical assistance to States interested in establishing pre-eligibility 

fraud investigative units. 

Such activities are compatible with objectives of the Administration’s proposed Work 

and Responsibility Act of 1994. The objective of improving government assistance 

calls for a central Federal role for interstate coordination of welfare program integrity. 

The Federal coordination activities should focus on detection and prevention of fraud 

in income support programs and assuring welfare payment accuracy. 

13

AGENCY COMMENTS


The Assistant Secretary for Children and Families commented on the report. She 

noted that we combined figures from units reporting only AFDC savings and costs 

with figures from units reporting AFDC and food stamps savings and costs. ACF also 

noted that we did not validate data States provided. We agree, and have disclosed 

our methodology in our report. We combined costs and savings in our calculation 

because some local AFDC offices could not separate AFDC and food stamp 

operations. However, we reported that 17 local AFDC offices that could separate 

AFDC and foodstamps saved almost $9 million in only AFDC. Further, savings 

reported by the sampled units represented misspent Federal funds regardless of 

whether the savings came from the AFDC or food stamp program. 

ACF reported that they make information available to States about innovative 

programs, and are developing a catalogue that will make such information more 

usable for States. We support their efforts, and believe they should include 

considerable information on pre-eligibility fraud investigative units. We know States 

have an interest in this information because several States and a consultant from 

Canada have contacted the OIG for such data upon hearing about our inspection. 

Appendix C shows the full text of the comments provided by ACF. 

14

APPENDIX A


SAMPLED LOCAL AFDC OFFICES 

ANCHORAGE 

PULASKI (NORTH) 

PULASKI (SOUTH) 

SEBASTIAN 

WASHINGTON 

UNION 

HINDs 

HARRISON 

MERCER 

BURLINGTON 

CAMDEN 

PASSAIC 

SUFFOLK 

ERIE


HERKIMER


ROCKLAND


WESTCHESTER


HAMILTON


PIKE


BUTLER


ROSS


PHILADELPHIA


ALLEGHENY (SOUTH)


ALLEGHENY (EAST)


BUCKS


ANCHORAGE 

NORTH IXIT’LE ROCK 

\IXIIZEROCK 

IFr. sMrrH 

I FAYETI’EVILLE IAR II 

) EL DORADO 

JACKSON MS 

GULFPORT MS 

ITRENTON I NJ II 

IMT. HOLLY I NJ II 

ICAMDEN I NJ II 

I PATI’ERSON I NJ II 

I HAUPPAUGE INY II 

HERKIMER 

POMONA 

WHITE PLAINS 

CINCINNATI OH 

WAVERLY OH 

HAMILTON OH 

ICHnLocoTHE 

I PHILADELPHIA I PA II 

I PHT’SBURGH I PA II 

P1’ITSBURGH PA 

BRISTOL PA 

A-1

PENNINGTON 

NEWPORT NEWS 

BRUNSWICK 

CHARM)TI’E 

HALIFAX 

IIYORK 

IISHEBOYGAN 

KENOSHA 

ST. CROIX 

RICHLAND 

j	 SIOUX FALLS


RAPID CITY SD


NEWPORT NEWS VA


LAWRENCEVILI.J3 VA


~TI’E COURTHOUSE VA


IHALE-AX I VA II


\ YoRKTowN


I MADISON


ISHEBOYGAN I w-I II


I KENOSHA bvrll


I NEW RICHMOND I WI II


IRICHLAND CENTER I WI II


A-2 

II
APPENDIX B


METHOIXXX)GY FOR CAU!ULATING SAVINGS 

AND COMPUTING COST BENEFITS 

To determine effectiveness of pre-eligibility fraud investigative units, we compared 

their operating costs to the program savings resulting from their investigations. We 

used costs and savings figures provided by local and State agencies. We did not 

validate the accuracy of the information they reported. 

Generally, selected local and State AFDC offices considered a savings to be the 

difference between the benefits, if any, an applicant received after an investigation and 

what the applicant would have received without an investigation. The difference 

typically represents a one month savings. However, most AFDC recipients receive 

benefits for more than one month. Therefore, to project the savings, local offices 

typically multiply the one month savings by the number of months that AFDC 

recipients usually remain on their rolls. 

To illustrate, in 1992 one local office pre-eligibility fraud investigative unit prevented 

$S9,000 in erroneous benefits from being paid. The investigators found 111 applicants 

had provided incorrect information. Once the correct information was found, the 

potential benefits for the 111 applicants were either reduced or denied. To determine 

the potential savings of the investigative unit for the 111 applicants, the local office 

multiplied the $59,000 by 12 months. The 12 months was based on State records 

which showed that most AFDC recipients in that State typically receive benefits for at 

least 12 months. Therefore, the estimated savings was $708,000--the $59,000 monthly 

savings x 12 months average benefit period. -

To compute costs/benefits of pre-eligibility fraud investigative units, we did the 

following analyses. 

Firs~ we determined the monthly savings. In instances where an AFDC office had 

projected its savings to several months, we reduced the estimate to one month by 

dividing the reported savings by the number of months used in the projection. For 

example, if a local office reported 12 months savings of $708,000, we divided by 12 to 

get a one month savings of $59,000. 

$780,000112 = $59,000 Monthly Savings 

B-1

Sea@ we projected the monthly savings over a six month period. We used six 

months for our projection because AFDC cases are usually reviewed every six months 

to reestablish eligibility. Therefore, if a fraudulent application had been approved, it 

is possible that the error would have been identified and corrected during the six 

month review. 

$59,000 x 6 = $354,000 l+ojected Savings 

Finally, we computed cost/benefit ratios. We divided projected savings by operating 

costs. The cost/benefit ratio shows potential savings for every dollar spent on preeligibility fraud investigative units. Since most operating costs such as salaries, space, 

and equipment are fixed, we used annual cost figures provided by local agencies. We 

realize this procedure may understate the actual expected savings, however we 

believed a more conservative estimate of savings was appropriate. 

$354,000 / $50,000 = $7.08 Costlbenejit Ratio 

Our example shows that the pre-eligibility fraud investigative unit saved $7.08 in 

program funds for every $1.00 of operating costs. 

B-2

APPENDIX C 

ACF COMMENTS 

c-1 
Page 2 - June Gibbs Brown 

The OIG is aware of ACF Regional office workplan items to 

conduct and provide follow-up review of State overpayments, 

fraud, and other early fraud detection program activities. 

We appreciate the opportunity to review and comment on this draft 

report . If you have any comments or wish to discuss this 

response further, please contact Robert Laue (401-5040) or Robert 

Shelbourne (401-5150). 
�,; d 1.:+, 

O+ % 

: 

8

%‘+.e,.,o 4 ADMINISTRATION FOR CHILDREN AND FAMILIES 

Office of the Assistant Secreta~Suite 60~ 

370 L’Enfant Promenade, S.W. SAIG 

Washington, D.C.20447 PIXG — 

DATE : January 11, 1995 

DEPARTMENT OF HEALTH & HUMAN SERVICES 

;

* — 

TO:
 June Gibbs Brown E1~.~[ 

Inspector General M(3-CFAA _ 

fiYG-MP FROM : Mary Jo Bane 

Assistant Secretary >7- s~ cYGc/IG

for Children & Families XSEC 

DATESENT&

SUBJECT : OIG Draft Report: “AFDC Pre-Eligibility Fraud 

Investigative Units,” OEI-O4-91-OO1O1 

We have reviewed the OIG draft report on AFDC Pre-Eligibility 

Fraud Investigative Units and provide the following comments: 

It appears that the data used to develop the weighted 

average ($8.00 savings for $1.00 of cost) comes from a mix 

of data - separated AFDC costs from other program costs, as 

well as non-separated costs that include Medicaid and Food 

Stamps. With the exception of personal statements by 

State/local staff as to the effectiveness of pre-eligibility 

fraud investigative units, the draft report is vague 

regarding specific data sources. Also, data accuracy was 

not validated. 

The report recommends that ACF actively promote the 

establishment of pre-eligibility fraud investigative units 

by disseminating information about the units and offering 

technical assistance to States interested in establishing 

such units. Though not specific to pre-eligibility fraud 

investigative units, ACF has made and continues to make such 

information available to the States. One example is an 

issuance of an Information Memorandum regarding Minnesota’s 

llFrau~prevention Programl “ demonstrating effective methods 

for cutting red-tape and empowering employees to obtain 

results. In addition, ACF is in the process of developing a 

system we refer to as SWAP (Sharing Workable Achievements 

and Practices) to provide States with an up-to-date, easyto-use, catalogue of information that will enable States to 

develop contacts with other State agencies who have 

undertaken innovative program improvements and/or 

procedures. These would not be the usual “best practices. ” 

The SWAP system will include operational processes States 

have implemented that hd~c~- d,o,llarsavings, as well as 

add to the effectiv%%ie%%’~~ -~~ 61program administration. 

00’5 v ZI I’MM!