[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




                   ENDING CASH FOR CONVICTS AND OTHER
                    WAYS TO IMPROVE THE INTEGRITY OF
                             THE UI PROGRAM

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                               __________

                             FIRST SESSION

                               __________

                           SEPTEMBER 11, 2013

                               __________

                          Serial No. 113-HR08

                               __________

         Printed for the use of the Committee on Ways and Means




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



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                      COMMITTEE ON WAYS AND MEANS

                      DAVE CAMP, Michigan,Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington        XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               RON KIND, Wisconsin
ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
KENNY MARCHANT, Texas                LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio

        Jennifer M. Safavian, Staff Director and General Counsel
                  Janice Mays, Minority Chief Counsel

                                 ______

                    SUBCOMMITTEE ON HUMAN RESOURCES

                DAVID G. REICHERT, Washington, Chairman

TODD YOUNG, Indiana                  LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania             JOHN LEWIS, Georgia
TIM GRIFFIN, Arkansas                JOSEPH CROWLEY, New York
JIM RENACCI, Ohio                    DANNY DAVIS, Illinois
TOM REED, New York
CHARLES W. BOUSTANY, JR., Louisiana
























                           C O N T E N T S

                               __________
                                                                   Page

Advisory of September 11, 2013 announcing the hearing............     2

                               WITNESSES

Julia Hearthway, Secretary of Labor and Industry, Pennsylvania...     7
Scott Sanders, Commissioner, Department of Workforce Development, 
  Indiana........................................................    14
Doug Holmes, President, UWC--Strategic Services on Unemployment & 
  Workers' Compensation..........................................    23
Valerie Melvin, Director, Information Management and Technology 
  Resources Issues, Government Accountability Office (GAO).......    38
Sharon Dietrich, Managing Attorney, Community Legal Services.....    52

                       SUBMISSIONS FOR THE RECORD

Appriss, statement...............................................    71
 
                  ENDING CASH FOR CONVICTS AND OTHER
                  WAYS TO IMPROVE THE INTEGRITY OF THE
                               UI PROGRAM

                              ----------                              


                     WEDNESDAY, SEPTEMBER 11, 2013

             U.S. House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Human Resources,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:16 p.m. in 
Room 1100 Longworth House Office Building, the Honorable Dave 
Reichert [chairman of the subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

  Chairman Reichert Announces Hearing on Ending Cash for Convicts and 
         Other Ways to Improve the Integrity of the UI Program

Washington, Sep 2013

    Congressman Dave Reichert (R-WA), Chairman of the Subcommittee on 
Human Resources of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on preventing the payment of 
unemployment benefits to incarcerated individuals and other ways to 
improve the integrity of the Unemployment Insurance program. The 
hearing will take place at 1:15 pm on Wednesday, September 11, 2013, in 
Room 1100 of the Longworth House Office Building.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include public and private sector unemployment insurance 
experts. However, any individual or organization not scheduled for an 
oral appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Federal-State Unemployment Insurance (UI) program, created by 
the Social Security Act of 1935, assists unemployed individuals by 
offering weekly unemployment benefit checks while they search for work. 
According to the Department of Labor (DOL), in order to be eligible for 
benefits, jobless workers must have a history of attachment to the 
workforce and must be able and available for work.
      
    As a result of a series of laws enacted since June 2008 to provide 
additional Federal extended benefits, the maximum number of weeks of 
total unemployment benefits payable per person grew to a record 99 
weeks, including up to 73 weeks of Federally-funded benefits. More 
recently, the maximum number of Federally-funded unemployment benefits 
paid in any state has declined to 47 weeks. Since mid-2008, $275 
billion in Federal extended and other unemployment benefit payments 
have been authorized, with most supported by Federal general revenues.
      
    As the number of weeks of unemployment benefits and total spending 
grew, so did total payments made in error. According to DOL, over the 
last five years, the UI program has made $58 billion in improper 
payments with an error rate consistently above 10% for both State and 
Federal UI payments. During the same period, employer taxes have also 
increased significantly, nearly doubling since the recession began, and 
18 States are still repaying Federal loans. Progress toward improving 
UI trust fund solvency and preventing further payroll tax hikes should 
be made by ensuring correct payments are made to the correct 
individuals, reducing improper payments. Recent news articles in a 
number of states suggest millions of dollars in UI benefit payments 
have been wrongly paid to individuals who are not able and available to 
work because they are behind bars.
      
    Congress included several efforts to improve UI program integrity 
through Public Law 112-40, which increases penalties on individuals who 
commit fraud in collecting UI benefits, and Public Law 112-96, The 
Middle Class Tax Relief and Job Creation Act, which requires States to 
recover prior overpayments from current UI benefits. Additionally, the 
Claims Resolution Act of 2010 (Public Law 111-291) expanded the 
authority to collect UI overpayments from federal tax refunds. As the 
UI benefit rolls return to their pre-recession levels, the 113th 
Congress looks to continue this important progress. On July 25, 2013, 
Chairman Reichert took the first step by introducing H.R. 2826, the 
Permanently Ending Receipt by Prisoners Act, also known as the PERP 
Act, to formally prevent incarcerated individuals from receiving UI 
benefits.
      
    In announcing the hearing, Chairman Reichert stated, ``Unemployment 
benefits are meant to provide needed assistance to individuals who have 
fallen on hard times, but who are able and trying to find work so they 
can provide for themselves and their families. In the case of 
incarcerated individuals, it is an injustice that the tax dollars of 
law-abiding citizens are being used to provide assistance to people who 
have broken the law and simply should not qualify for these benefits. 
We must make it very clear that unemployment benefits should go only to 
those who are eligible.''
      

FOCUS OF THE HEARING:

      
    The hearing will review possible measures to improve the program 
integrity of the UI program, including H.R. 2826, the Permanently 
Ending Receipt by Prisoners (PERP) Act.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Please click here to submit a 
statement or letter for the record.'' Once you have followed the online 
instructions, submit all requested information. Attach your submission 
as a Word document, in compliance with the formatting requirements 
listed below, by September 25, 2013. Finally, please note that due to 
the change in House mail policy, the U.S. Capitol Police will refuse 
sealed-package deliveries to all House Office Buildings. For questions, 
or if you encounter technical problems, please call (202) 225-1721 or 
(202) 225-3625. 
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
    Note: All Committee advisories and news releases are available 
online at 
http://www.waysandmeans.house.gov/.

                                 

    Mr. YOUNG [presiding]. I call today's hearing to order. I 
am honored to stand in for Chairman Reichert in today's 
hearing. He has been called away to a briefing on Syria. And I 
expect he is going to join us shortly.
    But before I begin, I would ask that we take a moment to 
remember a long-time Ways and Means Committee colleague, and 
former chairman of this very subcommittee, Clay Shaw, who 
passed away last night.
    Clay's legacy as a husband and father lives on through his 
wife of 53 years, Emily, and his four children and 15 
grandchildren. They are in our thoughts and prayers. Clay's 
legacy as a legislator is highlighted by the 1996 welfare 
reform law, which he authored and shepherded through this 
committee, the House, and ultimately, into law. This landmark 
law helped, literally, millions of his fellow citizens lead 
more fulfilling lives. Every time we work to improve that 
legislation, we are advancing Clay's vision for a better 
America for all of its citizens.
    We are privileged to carry on that legacy in this 
institution on this committee and on this subcommittee, all of 
which Clay loved and honored through his many years of 
dedicated service.
    I would like to yield to our ranking member, Mr. Doggett, 
for further remarks related to the passing.
    Mr. DOGGETT. Well, thank you so much. I just want to, join 
in honoring Clay and his service, and extending our condolences 
to his family. I had the good fortune to have Clay as a 
Washington neighbor over here on D Street, a couple blocks 
away. A good neighbor, a strong member of this committee who 
cared deeply about the issues that we are discussing here, and 
served honorably. And whenever we disagreed, we could always 
agree in a spirit of congeniality and collegiality. And it is a 
loss, and we join you in asking for a brief moment of silence 
in his honor.
    Mr. YOUNG. Why don't we go ahead and, on his behalf, have 
that moment of silence.
    [A moment of silence is observed.]
    Mr. YOUNG. Thank you. Today, of course, we also mark the 
twelfth anniversary of 9/11. We remember the victims of that 
tragic day and their families. We also remember those who, in 
the years since, have sacrificed so much to protect our country 
and our people. Please join me for another moment of silence on 
this count, as well.
    [A moment of silence is observed.]
    Mr. YOUNG. Thank you. Today's hearing is on ending benefits 
for incarcerated individuals, and other ways to improve the 
integrity of the unemployment insurance program.
    I would like to begin by asking unanimous consent that 
Chairman Reichert's statement be submitted into the record.
    Mr. YOUNG. Chairman Reichert, as a former sheriff, was 
shocked to read headlines about individuals in jails collecting 
unemployment benefits, what you might call Cash for Cons. In 
New Jersey, there were 20,000 inmates who collected over $24 
million. In Illinois, another $2 million was misspent this very 
same way. Millions more were wasted in South Carolina, 
Tennessee, Texas, and Wisconsin. It is an injustice that the 
tax dollars of law-abiding citizens are paying for these 
benefit checks for people who have broken the law, and simply 
should not qualify for these benefits.
    That is why Chairman Reichert introduced H.R. 2826, the 
Permanently Ending Receipts for Prisoners Act, also known as 
the PERP Act. This bill does two things. First, it makes clear 
that inmates are not allowed to collect UI benefits, in case 
there is any doubt. Second, it instructs states to use 
currently available prison data to ensure they are not paying 
benefit checks to inmates.
    I am one of several Members who have already cosponsored 
this legislation, and I know Chairman Reichert would welcome 
the support of anyone who agrees we should address this issue.
    This is only one aspect, one small aspect, of UI improper 
payments, though. It reflects an obvious area where we can and 
should make progress. We look forward to receiving valuable 
feedback on this bill from our panel today.
    Today's hearing is about a lot more than ending Cash for 
Cons, though. We also want to identify other ways we can 
improve the integrity of the overall UI program, so it can be 
there for those who are deserving of help. That is a billion-
dollar question. Or, actually, a 58 billion question. That is 
the total amount of the UI improper payments over the last five 
years. That $58 billion in improper payments is more than the 
total amount of state and federal taxes collected last year to 
support all the unemployment benefits paid across the country. 
That is a huge number, and one that deserves serious attention.
    Some of the problem involves fundamental mistakes, like 
paying UI checks to prison inmates, because UI places so much 
emphasis on getting checks out the door before verifying they 
are going to the right person. Data systems exist that can 
prevent these sorts of improper payments from being made in the 
first place. For example, involving prison inmates, deceased 
people, people who have already returned to work, and even 
people illegally applying from overseas.
    Another part of the problem involves states trying to 
recover improper UI payments after they occur. This pay-and-
chase approach is costly, time consuming, wasteful, and there 
are other challenges associated with it since, according to a 
recent report, only about half of annual improper payments are 
expected to be recovered.
    So, the far-better approach is to prevent improper payments 
before they go out the door, and ensure we have systems in 
place to do just that.
    There are many reasons to prevent improper payments, 
starting with how they are paid for. State UI benefits are 
supported directly by payroll taxes on jobs, which already have 
risen over 60 percent in the last 5 years, due to the recent 
recession. In many states, UI payroll taxes are expected to 
continue to rise into the future. These rising taxes fall 
directly on jobs, further reducing new job creation and hiring. 
That makes it especially important to prevent improper payments 
wherever possible, and recover as much of those that are made.
    Joining us today to discuss all of these issues is a 
seasoned panel of experts representing the views of various 
states, including my home state of Indiana. Also businesses and 
program experts. I look forward to hearing from our witnesses 
today about how we can improve the integrity of the UI program 
so it is there to serve those who need it to get back on their 
feet.
    Mr. Doggett, would you care to make an opening statement?
    Mr. DOGGETT. Thank you very much. Unemployment insurance 
provides critical assistance to workers who have lost their 
jobs through no fault of their own, and are actively looking 
for work. I don't know how someone who is involved in long-term 
incarceration can be actively looking for work. And to the 
extent that there are individuals who are incarcerated that are 
wrongfully receiving unemployment benefits, we do need to do 
something about it. Indeed, my question is why the Department 
of Labor has not already done something about it. So I 
certainly join with you.
    While we want to assure that ex-offenders don't become re-
offenders, and there are major problems in our society about 
the way we treat ex-offenders and integrating them back in the 
labor force, I doubt that is the source of these problems.
    The additional issues concerning ensuring that this system 
works as it is intended is important, not only to the taxpayer, 
but it is important to the legitimate folks that are out there 
that are counting on an unemployment check. Just as with any 
other federal program in the employment or social service area, 
we want to be sure these programs are run efficiently and 
without fraud.
    Over the last five years, this Congress has taken a number 
of steps to improve the integrity of our unemployment system. 
In 2008, legislation was passed to permit an individual's tax 
return to be seized if they owe unemployment compensation debt 
due to fraud. And this measure was strengthened in 2010. More 
recently, Congress has required employers to more accurately 
report new hires, and it made employers liable when they are at 
fault for overpayment.
    Finally, we have required the states to recover 100 percent 
of any erroneous unemployment benefits by reducing further 
unemployment payments. These are good steps. But, as you 
indicated, Mr. Young, to the extent that we can prevent these 
problems from occurring in the first place, we don't have to 
chase them down.
    The unemployment rolls are much higher because of the great 
recession. I believe that the studies that we will hear about 
indicate that, as to overpayments, while we need to get to them 
and prevent them, whatever the source, about a fourth are due 
to fraud, and most of the remainder are due to administrative 
errors by claimants and mistakes by employers or unemployment 
agencies.
    Second, a factor in this is that the Federal Government has 
not adequately funded the administrative costs of the 
unemployment system for many years, which has made it somewhat 
more susceptible to errors. On the whole, though, I agree fully 
with Mr. Young and Mr. Reichert in their commitment to ensuring 
that any fraudulent payment or even accidental waste of 
taxpayer dollars is avoided. And I look forward to working with 
them, with our whole committee, to help ensure that 
unemployment benefits are there for the many who count on them, 
and that we eliminate fraud and waste at every opportunity. 
Thank you.
    Mr. YOUNG. Well, thank you, Mr. Doggett. And, without 
objection, each Member will have the opportunity to submit a 
written statement and have it included in the record at this 
point.
    I want to remind our witnesses to limit their oral 
statements to five minutes. However, without objection, all the 
written testimony will be made a part of the permanent record.
    On our panel this afternoon we will be hearing from Julia 
Hearthway, Secretary of Labor and Industry, Pennsylvania; Scott 
Sanders, Commissioner, Department of Workforce Development, the 
great State of Indiana; Doug Holmes, president, UWC, Strategic 
Services on Unemployment and Workers' Compensation; Valerie 
Melvin, director, information management and technology 
resource issues, Government Accountability Office; and Sharon 
Dietrich, managing attorney, Community Legal Services.
    I understand that Mr. Kelly would like to introduce our 
first witness, who is from his home state of Pennsylvania.
    Mr. KELLY. Thank you, Chairman. It is really a pleasure for 
me that the Secretary of Labor and Industry, Julie Hearthway, 
is with us today. And she has done a marvelous job in 
Pennsylvania. Let me just give you a little bit of her 
background.
    The secretary was unanimously confirmed by the Pennsylvania 
Senate in 2011. She was recently recognized by the National 
Federation of Unemployment Compensation and Workers' 
Compensation with its integrity award. Now, this award is given 
to an individual who has demonstrated a commitment to 
preserving the integrity of the unemployment system.
    She played a vital role in restructuring Pennsylvania's 
unemployment compensation system, restoring the fund to 
solvency, and ensuring that benefits will be available for 
years to come for those who need and deserve them.
    The secretary also created the first-ever office of 
integrity within the Pennsylvania Department of Labor and 
Industry to combat fraud, waste, and abuse of Government funds. 
Working with the Pennsylvania Unemployment and Insurance 
Integrity Task Force and other state agencies, this office has 
aggressively pursued its important mission.
    Now, prior to her nomination, Secretary Hearthway spent 18 
years in the attorney general's insurance fraud section after 
working as an assistant district attorney in a private legal 
practice.
    Madam Secretary, thank you so much for being here today. 
And what you have done in Pennsylvania is absolutely 
phenomenal. And I think there are 49 other states that can 
learn from that. So thank you so much for being here.

STATEMENT OF JULIA HEARTHWAY, SECRETARY OF LABOR AND INDUSTRY, 
                          PENNSYLVANIA

    Ms. HEARTHWAY. Thank you, Congressman Kelly, for that very 
kind introduction. Congressman Young, Ranking Member Doggett, 
Congressman Davis, and to the subcommittee, thank you very much 
for having me here today to talk about this extremely important 
issue.
    Governor Tom Corbett strongly believes that taxpayer 
dollars must be managed with the utmost integrity, and that 
appropriate safeguards must be in place so benefits go to the 
individuals who are eligible and in need. We all understand the 
value of providing a safety net to bridge the gap between 
losing a job and finding gainful employment. However, when 
cases arise where individuals fraudulently collect benefits 
they are not entitled to, the public's trust in that system is 
jeopardized. When the public constantly hears of misuse and 
management of tax dollars at all levels of government, they 
become disheartened, cynical, and ultimately, disengaged.
    To combat the loss of confidence in the integrity of 
Government programs, it is incumbent upon us, as stewards of 
the taxpayer dollars, to ensure that safeguards are in place. 
We cannot afford to leave the barn door wide open. All too 
often government programs are rushed without appropriate or 
effective checks and balances. This creates a system that is 
ripe for fraud, waste, and abuse.
    During my time as Secretary of Pennsylvania Department of 
Labor and Industry, I have had both the privilege as well as 
the challenge of working to combat fraud, waste, and abuse in 
the unemployment compensation system. To that end, one of my 
first acts when I took office was to establish the office of 
integrity within the department. The bureau director of that 
office, James Tillman, is here with us today.
    This office has spearheaded each of the programs dealing 
with fraud that I am going to elaborate on in my testimony 
today. To date, in just a little over two years, these efforts 
at addressing fraud has saved Pennsylvania citizens and 
taxpayers an estimated over $100 million.
    One of these programs was aimed at stopping the abuse of 
prisoners collecting unemployment benefits. Under existing 
technology, at minimal cost, we have been able to weed out 
fraud through a cross-match system aimed at identifying 
individuals incarcerated in the state and county prisons who 
were either collecting benefits when they entered the prison, 
or applied for benefits after they'd been incarcerated.
    The system, administered by JNET, operates in real time to 
stop payments whenever a claimant is identified as being 
incarcerated. JNET's integrated justice portal system provides 
a common online environment for authorized users to access 
public safety and criminal justice information. For the first 
quarter of 2013 incarceration stops were placed on more than 
4,000 claims. Using that number, the average claim amount in 
duration, we have made an estimate of over $100 million in just 
that time period.
    JNET is just one of the successful integrity programs 
underway. We have also blocked all foreign Internet provider 
addresses from being able to be automatically used to apply for 
benefits when one is out of the country. We have, to date, 
annually saved 9.2 million with that step.
    Additionally, we are working in partnership with the United 
States Treasury to implement the TOP program. The TOP program 
has been implemented starting in January of 2012 to August of 
2013. That stops the refund of any tax dollars where we can 
intercept those funds for existing overpayments that have been 
made. To date we have been able to collect 26 million from that 
program.
    We also implemented a three-month unemployment compensation 
amnesty program, which we believe to be first of its kind in 
the nation. The program goals were much like any other tax 
amnesty programs. Over the course of 40-plus years, labor and 
industry accumulated an exceptionally large number of cases 
involving fraud overpayments due to individuals and the non-
payment of taxes due from employers. More than 130,000 
individual claimants and nearly 50,000 employers owed money to 
the state.
    The office of integrity was looking for ways to recoup 
those lost dollars, and we implemented the amnesty program for 
that purpose. It began on June 1st and ended on August 31st.
    We have implemented a number of other amnesty integrity 
programs which we think will reap benefit to Pennsylvania 
taxpayers in the future, but those are the highlights of what 
we have done. And by far, the incarceration program has been 
our most successful.
    [The prepared statement of Ms. Hearthway follows:]
    
    
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
    

    Mr. YOUNG. Thank you very much, Secretary Hearthway. At 
this point I would like to take a point of personal privilege 
here and introduce my state's own commissioner, Commissioner 
Sanders.
    Today I have a distinct privilege of introducing, 
specifically, the commissioner of the Indiana Department of 
Workforce Development, or, as we call it, DWD, in Indiana, 
Scott Sanders. Commissioner Sanders was first appointed by 
Governor Mitch Daniels in May 2012 and is currently a member of 
the cabinet of Governor Mike Pence. He manages and implements 
training and employment programs for Hoosiers, collaborates on 
regional economic growth initiatives for Indiana, and oversees 
the unemployment insurance system.
    Commissioner Sanders brings many years of workforce 
development and financial management skills to his role at DWD. 
And prior to his appointment as commissioner, Scott served as 
the deputy commissioner of systems information and analysis, 
and was the agency's CFO.
    In his role as commissioner, Mr. Sanders' zeal for leading 
the agency and creating better outcomes for Hoosiers has helped 
pave the way for not only better, but more efficient service 
outputs, and also better quality and integrity in Indiana's 
overall workforce development system. He has been a tremendous 
asset for the State of Indiana. And I am honored to have him 
here today to testify in front of this Human Resources 
Subcommittee to present his reforms and accomplishments within 
the unemployment insurance system.
    I yield back.

    STATEMENT OF SCOTT SANDERS, COMMISSIONER, DEPARTMENT OF 
                 WORKFORCE DEVELOPMENT, INDIANA

    Mr. SANDERS. Thank you, Chairman Young, Ranking Member 
Doggett, Members of the Subcommittee. Thank you for the 
opportunity and honor to share with you some of the efforts we 
have been making in Indiana regarding the issue of unemployment 
insurance integrity, and specifically, actions we have taken to 
increase our ability to detect and prosecute UI fraud cases 
while helping unemployed Hoosiers return to work. My name is 
Scott Sanders, and I serve as the commissioner of the Indiana 
Department of Workforce Development.
    Indiana's economy is beginning to recover from the recent 
recession. However, our unemployment rate remains too high, at 
8.4 percent. Last week we had 60,000 individuals collecting 
some form of UI benefits. As long as Hoosiers rely on these 
benefits as a safety net against involuntary unemployment, 
protecting that system from misuse and corruption is a top 
priority of our department.
    In 2012, roughly a third of Indiana's estimated payments 
made in error went to individuals who had returned to work but 
continued to claim benefits to which they were not entitled. 
Obviously, working harder on the front end of the problem is a 
very important strategy, but also having plans on the back end 
to detect, investigate, and prosecute the fraud that has 
already occurred is needed, as well. Our agency has targeted UI 
fraud as a priority over the past two years. However, we had to 
overcome several challenges to combat UI fraud.
    First, the low number of actual fraud prosecutions. Last 
year only 24 percent of the UI fraud cases that were referred 
to county prosecutors had charges filed. This is due to the 
complexities of the UI system and the limited resources of 
prosecutors' offices. UI fraud cases can be very time-consuming 
and resource-intensive.
    Another challenge we faced was the issue of venue. By 
statute, generally all criminal actions are tried in the county 
where the offense was committed. This creates a challenge in 
determining which county the claim was actually filed, since 
claimants file for benefits using Internet-based online filing 
system. We determined that a partnership with the Marion County 
prosecutor's office was a solid solution. The department issued 
a grant to the prosecutor's office to help fund a dedicated 
deputy prosecutor to specifically work with our investigators 
on pursuing UI fraud cases. This solved the problem of 
resources in the prosecutor's office in handling complex UI 
fraud cases. Additionally, it solved the question of venue, 
since their office is located in Indianapolis, where all UI 
claims are processed.
    We have also launched a public awareness campaign by 
publishing all UI fraud prosecutions on our website, including 
the names and photos and specifics of those that were 
convicted. We hope this creates an environment that conveys a 
heightened certainty and severity of punishment for fraudulent 
conduct.
    Since the beginning of this year, when the partnership 
started, the number of fraud cases filed by prosecutors has 
increased by over 330 percent over the same period last year. 
So far, nearly $450,000 in fraudulent benefits and penalties 
have been ordered to be repaid, versus expenses totaling 
$64,000 for the grant. This partnership is still in its 
infancy, but already the returns are beyond original 
expectations. And we believe it will reduce the amount of UI 
fraud.
    In addition, we have put some focus on the front end of our 
cases. Earlier this year, we were able to pass a bill through 
our state legislature that we refer to as Jobs for Hoosiers. 
This provision allows the department to direct recipients of UI 
benefits to receive re-employment and eligibility assessment 
activities after they draw their fourth week of benefit, 
similar to the federal program required by Congress last year. 
The primary goal of this program is to educate unemployed 
individuals on the services, training, and assistance offered 
by our one-stop work-one centers. But, most importantly, it 
gets Hoosiers back to work as quickly as possible.
    One valuable feature of this new law is that claimants 
appearing at the work-one centers may need to provide proof of 
identification. Fraudulent claimants typically have not shown 
up to receive these services. And, subsequently, their claim 
was placed on hold. This potential stopping of benefits for 
individuals who are fraudulently claiming them will have a 
critical reduction on the amount of fraud that occurs.
    In summary, protecting our UI system from misuse and 
corruption is a top priority of our department. By establishing 
this partnership with the Marion County prosecutor's office, we 
have realized the benefits that go beyond the simple filing of 
more cases. We have fostered a greater awareness, expertise, 
and prosecution of UI fraud, increased the amount of fraudulent 
funds recovered, and have created an environment to deter 
fraud. Additionally, by adopting the Jobs for Hoosiers program, 
we will be able to get unemployed individuals back to work more 
quickly, while ensuring only those that are truly unemployed 
receive UI benefits. All of these efforts are important steps 
in improving UI program integrity.
    Thank you for the opportunity to be with you today, and for 
your interest in our UI integrity initiatives.
    [The prepared statement of Mr. Sanders follows:]
 
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    Chairman REICHERT [presiding]. Mr. Sanders, thank you so 
much for being here today, and thank you for your testimony.
    Mr. Holmes, you are recognized----
    Mr. Holmes. Thank you.
    Chairman REICHERT [continuing]. For five minutes.

STATEMENT OF DOUG HOLMES, PRESIDENT, UWC, STRATEGIC SERVICES ON 
             UNEMPLOYMENT AND WORKERS' COMPENSATION

    Mr. HOLMES. Chairman Reichert, Ranking Member Doggett, and 
Members of the Subcommittee on Human Resources, thank you for 
the opportunity to testify on the integrity of the federal and 
state unemployment insurance system. I am Doug Holmes, 
president of UWC Strategic Services on Unemployment and 
Workers' Compensation, UWC. We very much appreciate the work of 
this subcommittee in the enactment of the integrity measures in 
the Middle Class Tax Relief and Job Creation Act of 2012, and 
the attention that you have given to the integrity issues this 
year.
    We support H.R. 2826, the Permanently Ending Receipt by 
Prisoner's Act. We favor legislation and policy that addresses 
a number of key points, including; methods of administration 
should seek to reduce employer administrative burden while 
improving the efficiently and effectiveness in the exchange of 
information needed for proper administration.
    Two, employers and their representatives should be actively 
engaged by USDOL and states in the design and implementation of 
new systems.
    Public and private databases should be more actively used 
to avoid erroneous payments, and to identify fraud and 
overpayment issues.
    States should implement regular statements of charges to 
employer accounts and use the full social security number in 
the exchange of information.
    New performance measures for UI integrity should be 
developed based on return on investment to the unemployment 
trust funds.
    Additional targeted resources should be provided with 
incentive funding to states with the best performance. Clear 
direction should be provided to the states in defining the 
federal requirement that states must not pay unemployment 
compensation to individuals who have not been determined to be 
able to work, available to work, and actively seeking work.
    The need for improved integrity became evident during the 
great recession, and the lack of integrity in the system led to 
dramatic increases in benefit payments, significantly higher 
benefit payment errors, and doubling of employer taxes. The 
speed of payment, as measured by the time lapse standards 
developed by the U.S. Department of Labor, has been emphasized 
for many years over the quality of decisions in integrity of UI 
trust funds.
    Four years after the end of the recession, state and 
federal unemployment taxes in many states continue to increase, 
and 18 states have outstanding unpaid Title XII loans, totaling 
over 20 billion. Seven states have had to resort to bonds and 
borrowing in the private market to repay federal loans and 
interest, with employers paying the debt service for the next 
seven years.
    Some individuals who are claiming unemployment compensation 
unduly limit their availability as long as they continue to 
receive unemployment compensation. Individuals must be 
registered for work. A mere statement by the claimant that he 
or she is actively seeking work should not be sufficient to 
meet the actively-seeking-work requirement. Work search should 
be documented and independently verified. If not, individuals 
should not be paid.
    States should consider a variety of techniques to identify 
fraud. Is the application or claim being filed through a 
foreign IP address? Is the same IP address, phone number, and/
or address used to initiate multiple UI claims? Are there 
multiple deposits of unemployment compensation into the same or 
related bank account? Is there prior verification of a 
legitimate employer account or accounts against which benefits 
are to be charged?
    The process that is used in most states in requesting 
employers to verify wages continue to be, believe it or not, 
paper requests. A solution is needed to this earnings 
verification reporting that minimizes the general reporting 
requirements while preserving the ability to exchange 
information for effective prosecution of fraud.
    In closing, permit me to emphasize that employers recognize 
the important role of the unemployment insurance safety net 
system. Employers are willing to provide funding for the 
system. However, employers also have an expectation of good 
stewardship of the funding they provide, and in the integrity 
of the federal/state UI system. Thank you for the opportunity 
to testify.
    [The prepared statement of Mr. Holmes follows:]
   
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    Chairman REICHERT. Mr. Holmes, thank you for your 
testimony.
    And, Ms. Melvin, you are recognized for five minutes.

 STATEMENT OF VALERIE MELVIN, DIRECTOR, INFORMATION MANAGEMENT 
  AND TECHNOLOGY RESOURCES ISSUES, GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Ms. MELVIN. Good afternoon, Chairman Reichert, Ranking 
Member Doggett, and Members of the Subcommittee. Thank you for 
inviting me to today's hearing. My testimony discusses 
information technology systems supporting the unemployment 
insurance program.
    With oversight by the Department of Labor, state workforce 
agencies rely heavily on information technology systems to 
collect and process the taxes that fund the program and to 
determine eligibility and administer benefits. However, the 
majority of the states' existing systems for unemployment 
insurance operations were developed in the 1970s and 1980s. 
And, although some agencies have performed upgrades throughout 
the years, many systems are reported to be outdated, costly, 
and difficult to support, and incapable of efficiently handling 
workload demands.
    In September 2012, we reported on 9 selected states' 
efforts to modernize their unemployment insurance systems, and 
the challenges that they faced in doing so. At your request, my 
testimony today summarizes our findings regarding those 
modernization efforts and the related challenges. Our report 
noted that the selected states had made varying progress in 
modernizing their systems supporting the unemployment insurance 
programs.
    Specifically, each of three states that were part of a 
multi-state consortium established to pool resources for 
developing joint systems were in the initial phases of planning 
that included defining benefits--I am sorry, business--needs 
and requirements. Two individual states were in the development 
phase. That is, building the system based on requirements. Two 
were in a mixed phase, where part of the system was in 
development and part was in operations and maintenance. And two 
states' systems had been completed and were in operations and 
maintenance.
    The states reported that modernization efforts already 
undertaken had, among other things, helped enhance their 
unemployment insurance technology to support web-based services 
with more modern databases, and replaced outdated programming 
languages. Nevertheless, the states cited numerous challenges 
to achieving their modernized capabilities.
    For example, all nine states said limited funding and/or 
the increasing cost of unemployment insurance systems had 
impacted their planning and execution of modernization 
projects. Seven states cited a lack of staff in their 
unemployment insurance offices with the expertise necessary to 
manage IT modernization efforts. And six states said that 
continuing to operate their legacy systems while simultaneously 
implementing new systems had required them to balance scarce 
staff resources between the two major efforts.
    In addition, we noted separate and unique challenges for 
states participating in the consortiums. These included 
differences in state laws and business processes that impacted 
efforts to design and develop a common system, difficulty among 
states in reaching consensus on the best approach for 
developing and modernizing systems, and decision-making by 
consortium leadership that raised concerns about the liability 
for outcomes that could negatively affect member states.
    At the time of our study, the nine states had begun to 
address some of these challenges. They had also established 
certain IT management controls that are essential to carrying 
out successful modernization initiatives, such as incorporating 
industry-accepted program management processes and tools in 
their modernization efforts.
    We noted in our report that a comprehensive assessment of 
lessons learned from the modernization work could further 
assist states' efforts, and that the Department of Labor could 
play a vital role in supporting and advising states. 
Accordingly, we recommended that Labor perform a comprehensive 
analysis of lessons learned, and distribute this analysis to 
each state through an information-sharing platform or 
repository.
    In its response to our recommendations, Labor stated that 
it was committed to sharing the lessons learned, and we are 
continuing to follow up on the Department's actions in this 
regard.
    Mr. Chairman, this concludes my oral statement. I would be 
pleased to answer any questions that you or other members of 
the subcommittee may have.
    [The prepared statement of Ms. Melvin follows:]
    
    
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    Chairman REICHERT. Thank you, Ms. Melvin.
    Ms. Dietrich, you are recognized.

  STATEMENT OF SHARON DIETRICH, MANAGING ATTORNEY, COMMUNITY 
                         LEGAL SERVICES

    Ms. DIETRICH. Thank you, Chairman Reichert, Ranking Member 
Doggett, and Members of the Committee. My name is Sharon 
Dietrich. I am a managing attorney with Community Legal 
Services in Philadelphia. I have been a legal aid lawyer for 26 
years. During most of that time I have handled unemployment 
compensation cases on behalf of claimants. And during most of 
that time I have been the lead policy advocate for the legal 
aid community in Pennsylvania on issues involving unemployment 
insurance.
    Let me start by saying that, although I am here to 
represent the perspective of claimants, I, of course, agree 
that fraud must not be tolerated. We can all agree on that. And 
I certainly have no objection with the content of House Bill 
2826, that there be use of databases in order to make sure that 
people who are incarcerated and are not available for benefits 
are not getting them.
    I would add, from my work in the area of helping people 
with criminal records, that not all criminal databases are 
necessarily infallible. I have seen issues around accuracy, 
matching, updating. And I do hope that, as one of the 
implementation goals here, making sure that the data is 
verified is part of how the statute would be implemented.
    When discussing program integrity, I think that some 
context is important. And as Ranking Member Doggett mentioned 
earlier, fewer than one in four overpayments is a fault 
overpayment. Most overpayments in the unemployment system are 
for reasons of non-fault, either because there was agency 
error, employer error, or claimant error.
    Secondly, I want to point out that dollars are lost from 
the system on both sides. I understand from the amnesty program 
that Pennsylvania ran earlier this summer that a good deal of 
money was sought back from employers, as well as from 
employees, that 356 million was sought from employees for both 
fraud and non-fraud overpayments.
    $274 million was sought from employees who committed fraud, 
as opposed to $257 million being sought from employers for 
unpaid taxes. So, clearly, money is leaking out of the system 
from the employer side, as well.
    And third, I would note that many workers are underpaid 
unemployment benefits, or unpaid unemployment benefits. Indeed, 
more are underpaid than are getting fault overpayments. And I 
certainly agree with the idea that correct payments must be 
made. But I would urge that we consider making sure that people 
who are entitled to unemployment get paid, as well as those who 
are not and who are committing fraud.
    Now, to meet this goal of making correct payments, I urge 
Congress to look at the issue of adequate funding of the state 
administrative programs, which is a topic that I think that 
Secretary Hearthway and I can agree on. Certainly we have a 
federal source of funding for these programs, the FUTA funding 
source. But funding has been stagnant for a long time, and the 
states are starting to hurt in their administration of the UI 
programs, as a result of that.
    The Pennsylvania experience over the last year has been 
quite difficult, where there has been inadequate staff to 
answer phones and perform other work, as a result of which the 
Pennsylvania state legislature had to enact a measure to 
supplement our federal funding so that we would have adequate 
money to run our program effectively.
    You may ask, ``Why is adequate federal funding an issue of 
program integrity?'' Well, first of all, it allows the states 
to do a better job in administering the program, so that 
erroneous decisions can be avoided, and overpayments, 
therefore, avoided. But I would also urge that, with more 
staff, claimants have a better opportunity to make sure that 
they understand what the system wants them to do. In many 
cases, the difficult criteria of the program are simply not 
understood by claimants. And if they are not able to speak to 
staff, agency employees, because they are not available, then, 
unfortunately, they may get into an overpayment situation that 
they did not intend.
    Finally, a couple of preventative measures I urge 
consideration of. First of all, is better communications with 
claimants. I think if the states were to look at their notices, 
their technological interfaces, to make sure that clear 
communications are happening with claimants, there would be 
fewer overpayments. And secondly, we should incentivize 
employers to engage on claims as soon as possible.
    In summary, I urge a holistic approach to program 
integrity, and I thank you for your attention, and am happy to 
answer questions. Thank you.
    [The prepared statement of Ms. Dietrich follows:]
   
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    Chairman REICHERT. Well, thank you all for your testimony. 
And if you have testified before Congress, you know that the 
next phase of our hearing today is the question-and-answer 
phase. So we would like to get into that for a moment.
    But I would like to comment, first of all. I apologize, Ms. 
Hearthway, for not being here for your testimony. I appreciate 
the testimony of all the witnesses, and I just want to make a 
quick comment on Ms. Dietrich's remarks regarding inaccurate 
law enforcement or criminal records. I don't know if the panel 
is aware of it, but I was in law enforcement 33 years, starting 
from the deputy through the end of my career as the sheriff in 
King County in Seattle, Washington. I am very familiar with the 
fact that criminal records are not accurate. I think it is a 
very poignant point to make here.
    And the other point that you made, the whole effort here is 
to make sure that those people who deserve the assistance are 
paid the assistance. And I think that is really what this panel 
has come together and just some quick figures. In New Jersey, 
20,000 inmates collected over $24 million. And I could give you 
a list of some other states here, but the total cost of abuse, 
in this system, loss of dollars that could go to those folks 
that really need it, is $58 billion. That is the total amount 
of UI improper payments over the last five years.
    So, we do have a lot of work and ground to cover. And I am 
very pleased to hear that Mr. Doggett is supporting the 
legislation, as are you, Ms. Dietrich, and I think other 
members of the panel have been invited to also sign on to this 
legislation. It is common sense.
    Common sense brings me to the first question. Ms. 
Hearthway, the steps that you have taken in Pennsylvania with 
your office of integrity, the word ``remarkable'' has been 
used. And ``remarkable,'' I think it is just sort of a 
definition of what common sense is, I guess, now, in today's 
world. Because you have taken some valuable and available 
information, and you are actually putting it to use.
    So, what lessons, from what you have done in Pennsylvania, 
can we learn and apply to this piece of legislation that we are 
considering?
    Ms. HEARTHWAY. I think perhaps the most obvious is that 
there are some simple solutions to some large problems. You 
have to look for them, you have to be open to those ideas.
    We knew Pennsylvania has a JNET system that housed all 
individuals who have been incarcerated. Obviously, we had a 
database for everyone applying for unemployment. It was really, 
in all honesty, a simple step, then, to marry those two 
concepts. In doing so, we knew fraud existed. We knew the scam 
of sitting in prison and collecting an unemployment check 
existed. The sheer numbers were a little surprising to us. It 
is the kind of information--and Representative Kelly and I 
spoke about this briefly--that spreads pretty quickly through 
the prison system. So, a few individuals receive a check, a 
whole lot more know about it.
    Marrying two systems, technology allowed us to stop that 
process fairly quickly. Now, the technology was there for us to 
do it, and it was not complicated. So I think the first lesson 
is look at the fraud that is being committed and look at your 
existing systems. There could be a program to implement quickly 
to stop the bleeding.
    Chairman REICHERT. So the bill points to the Social 
Security Administration's prisoner database, but there might be 
other databases that could help states with this task, too. 
What criteria should we use to evaluate various prisoner 
databases, in ensuring that the UI benefits are not paid to 
prisoners?
    Ms. HEARTHWAY. When someone is entering prison, if you 
marry up two identifiers, social security and date of birth--it 
is not a massive database, it is a prisoner database--that will 
pretty much ensure you have the accurate person. We then match 
that with the social security number and date of birth of any 
claimant applying for unemployment. There is the opportunity, 
should a mistake happen, for that individual to say, ``No, I 
wasn't incarcerated,'' and then further checks can occur. We 
have not had that situation. We have been able to verify each 
one of the stops has been because someone was in prison at the 
time.
    Chairman REICHERT. Thank you for your answers. And we are 
going to go to three minutes a piece, because we have, I have 
been told, some votes that may be called to interrupt our day. 
So, Mr. Doggett is recognized.
    Mr. DOGGETT. Thanks to each of you for your testimony. 
Secretary Hearthway, I was particularly interested in your 
comment just now, that we can act fast and stop the bleeding, 
and that states can act fast on this, as well.
    Do you know if your counterparts in some of our other 
states have followed your example on this?
    Ms. HEARTHWAY. I know we have talked to a number of other 
states, told them about our program. Not all states have a 
similar or the same JNET-type system that we do. So each state 
could run into slightly different problems. But once you 
institute this, it is something that comes to a stop pretty 
quickly.
    I mentioned a moment ago the sort of word of mouth that 
goes through a prison when there is a benefit like this. The 
same word of mouth will go through the prison when it can't 
happen, because it would affect someone's parole, perhaps 
probation. This is a type of fix that can go a long way.
    Mr. DOGGETT. And, Ms. Dietrich, thank you for your 
comments. I gather that, while there may be some policy 
differences with the Secretary in Pennsylvania on some other 
issues, this particular program that she is testifying about 
today has not led to any negative consequences in your state.
    Ms. DIETRICH. I have not personally seen any. I would point 
out that this program has not been in effect for all that long. 
So I feel it is a little premature to say that from our 
perspective it has worked perfectly.
    I think the issue that has most concerned me as I have 
studied it is the question of whether people who are 
incarcerated pending the posting of bail are running into any 
difficulties after they are able to post bail and have made 
themselves able and available for work again.
    But, no, personally I have not seen any issues with that--
--
    Mr. DOGGETT. And the accuracy of the systems, as you 
discussed with the Chair.
    While we want to prevent even one dollar of fraud, overall 
I think your testimony is that this problem of prisoners 
getting payments to which they are not entitled is a pretty 
small part of this.
    Ms. DIETRICH. Oh, absolutely.
    Mr. DOGGETT. And as far as the integrity of the system 
generally, maybe you might just expand on your testimony as to 
where you think our focus needs to be.
    Ms. DIETRICH. Well, I do think that preventative measures 
are a great idea. And one thing that worries me about the 
increased technological way that claims-handling is being done 
these days in order to save money is that we have lost the 
opportunity for unemployed people to talk to live staff 
sometimes. And the result of that is that the sort of isolated 
unemployed person is in a position where he or she doesn't 
necessarily know what the rules are.
    My brother, for instance, was unemployed last year. He was 
a laid-off school teacher. He has a master's degree in reading 
comprehension. And he was often confused to what the rules are, 
and said to me that if he was confused, certainly somebody with 
a much lesser level of education might be confused.
    So, I do think that, from the perspective of the claimants, 
getting out better information, making available good ways of 
getting answers to questions, looking at interfaces to the 
computer systems, I commend Secretary Hearthway for having 
taken very seriously feedback that we gave the Department about 
ways that we thought the computer--the online application was 
confusing, so that people aren't answering incorrectly because 
they don't see the world quite the same way that unemployment 
insurance administrators do.
    Mr. DOGGETT. Thank you. Thank you, Mr. Chairman.
    Chairman REICHERT. Thank you, Mr. Doggett. Mr. Young, you 
are recognized for three minutes.
    Mr. YOUNG. Thank you, Mr. Chairman. The General 
Accountability Office's report on this very topic, where you 
studied IT modernization challenges for the states with respect 
to their UI programs, one of the things I find quite 
interesting is towards the end of your oral and written 
testimony. You indicate that, number one, you recommended to 
Labor to perform a comprehensive analysis of lessons learned, 
and they agreed with that recommendation.
    Secondarily, you recommended they distribute the analysis 
to each state through an information-sharing platform or 
repository. Say, a website. And they were silent, for some 
reason, on that recommendation. Do you have any thoughts about 
the manner, if you wish, do they intend to share best 
practices, unsuccessful practices, or so forth, absent a 
website?
    Ms. MELVIN. It is my understanding that they are in the 
process of compiling lessons learned. They have not 
communicated back with us about how they would do that, other 
than that they were putting that information together to 
disseminate----
    Mr. YOUNG. Okay.
    Ms. MELVIN [continuing]. To the state officials.
    Mr. YOUNG. I just think it is essential that we get better 
in all areas of public policy at the state level through 
talking more, and sharing best and worst practices. I 
understand there are differences across populations and 
cultures and sub-cultures and economies. But, nonetheless, we 
have to formalize these things, as I see it. And hopefully, 
Labor will be a willing and engaged partner in that regard on 
this topic.
    Commissioner Sanders, we have a great story to tell in the 
State of Indiana. I am going to give you an opportunity to 
expound upon it a little bit. But perhaps you could start just 
by indicating what motivated you and DWD and the administration 
more broadly to take up this initiative of targeting UI fraud, 
and then maybe speak to where you go from here.
    Mr. SANDERS. Well, thank you, Congressman. I think it gets 
back to really having unemployment insurance truly be a safety 
net for those that are unemployed. And I think too often we see 
the amount of waste, fraud, and abuse that goes on in the 
system. And one of the challenges we had in Indiana was getting 
local prosecutors to take up the drum and march with it. And 
obviously, as the secretary mentioned, word of mouth in 
unemployment insurance moves very quickly, whether it is those 
that are incarcerated, or those that are actually unemployed 
and that are gaming the system. So now that we have been able 
to pick up the prosecution front in Prosecutor Curry's office, 
we have been able to really move the ball forward.
    I really think the piece, though, with Jobs for Hoosiers, 
that will attack UI fraud, as well. It is similar to the 
program that the Feds started in--last year, but they brought 
individuals in at the 27th week. By that point, it is too far 
out. We are going to bring those individuals in the fourth week 
to verify that they are who they are, and then also help them 
get re-employed.
    Mr. YOUNG. Well, thank you so much for your good work. To 
the extent--for all of you--we can help remove obstacles for 
further reform and further improvement in these programs and 
how they operate, please let us know. I yield back.
    Chairman REICHERT. Thank you, Mr. Young. Mr. Kelly, you are 
recognized.
    Mr. KELLY. Thank you, Chairman. Just so we understand--and, 
Secretary Hearthway, maybe you could help us--the revenue that 
goes into unemployment insurance, where does it come from?
    Ms. HEARTHWAY. Employers, primarily. Now, Pennsylvania----
    Mr. KELLY. Thank you. Employers.
    Ms. HEARTHWAY. Yes.
    Mr. KELLY. All right. I happen to own a company. We pay 
eight percent of everybody that works for us. And I think they 
put in about 7 percent on their own. So I want to make sure we 
understand this isn't some benevolent monarch showering these 
folks with some kind of a benefit. It comes out of employers. 
It drives the cost of operation higher. And you have to be very 
careful of that.
    Pennsylvania, though--it may be early--you are estimating 
savings of $100 million.
    Ms. HEARTHWAY. Yes.
    Mr. KELLY. Well, in a time where 100 million means 
absolutely nothing. That was, last minute, what we spent in 
interest. I think it is incredibly important that everybody 
understands everybody who deserves this funding should get it. 
Those who don't should not. And why do I say that? Because it 
ruins the safety net for those who are deserving. So I am all 
on board with you.
    Let me ask you, though, to share the information--because 
there are 49 other states that could benefit from what you have 
done--is there a best business practices exchange? How do we 
share that information? How do we get it out to other people?
    Ms. HEARTHWAY. It is an excellent question, and it is 
something I wish that USDOL would work a little bit more on, in 
pushing out this information. We have contacts of--we reach out 
to our counterparts. But we do need a more easy, systematic 
system where we can exchange more detailed information. All of 
those using JNET, we can walk them through almost a 10-step 
process of how to utilize this or a system like JNET.
    That is something that I think would help tremendously. 
Perhaps a little bit more focus on that and a little bit less, 
perhaps, on the ban of imports.
    Mr. KELLY. Okay. Mr. Sanders, you want to weigh in?
    Mr. SANDERS. Yes, if I could. There is an agency, the 
National Association of State Workforce Agencies, that our 
agency belongs to. I believe the Secretary may, as well. In the 
last year, they have actually set up a best practices group for 
information technology. And it is something that is picking up 
steam. So I think it is an area where we could really get the 
word out fairly quickly on how we could take this approach.
    Mr. KELLY. Well, thanks for what you are all doing. I think 
the key to this, like in every program, it starts off with one 
mission in mind, it grows, and it gets really--it morphs into 
something different. We get the economy back on track, we get 
people going back to work and making higher wages, that 
automatically grows, it solves your insolvency problem in 
Pennsylvania.
    So, it is really not that difficult to figure out. Maybe it 
is hard to talk about, but we know the goose that lays the 
golden egg. It is the employer. It is the ability for us to 
raise our economy, get it back on its feet, that is going to 
help all these safety net programs that we have.
    So, thank you all for what you do. You are incredibly 
important to society. Thank you.
    Chairman REICHERT. Thank you, Mr. Kelly. Mr. Davis, you are 
recognized.
    Mr. DAVIS. Thank you very much, Mr. Chairman. Secretary 
Hearthway, does one have to be in active pursuit of work or a 
job to qualify for unemployment insurance?
    Ms. HEARTHWAY. You have to be ready and available to work 
in order to qualify for unemployment insurance.
    Mr. DAVIS. And individuals who are incarcerated, they--on 
the applications they indicate that they are available and 
ready to work?
    Ms. HEARTHWAY. Yes. Pennsylvania actually has a separate 
law that simply states if you are incarcerated you are not 
eligible for unemployment. There is also the broader law, that 
you must be able and available to work in order to collect 
unemployment. So there are actually two provisions in our state 
that would apply to that situation and legally prevent someone 
from collecting.
    Mr. DAVIS. Ms. Melvin, you indicated that fraud occurs 
because some of the agencies are using outdated computer 
equipment and don't have the accuracy of their data systems 
What would you think some of the barriers are as to why they 
don't have this equipment that they need?
    Ms. MELVIN. We found that the states, first of all, were in 
very mixed states of implementing modernized capabilities, but 
they were facing a number of challenges, and those challenges 
ranged from inconsistencies in the funding that they received 
that they were relying on to actually implement some of the 
capabilities. Often times with information technology, 
modernization efforts, it can take a long time for some 
programs to be designed and actually executed. So the time 
frame for getting money across the time that they would 
actually be doing that could be problematic.
    We also saw a lot of problems with the skills, the staff 
skills that were involved. In many cases, the states reported 
to us that they did not have the appropriate skills, in terms 
of IT staff, who could actually carry out these particular 
projects for them.
    So there were a number of complicating factors that 
impacted whether they, in fact, could get modernization efforts 
in place.
    Mr. DAVIS. So in some instances inadequate funding and 
inadequate skill is actually costing money, rather than saving 
money.
    Ms. MELVIN. Unfortunately, if you were trying to tie it to 
the improper payments, that potentially could be a factor.
    Mr. DAVIS. And finally, Ms. Dietrich, you mentioned that 
some employers defraud the unemployment insurance system by 
falsely claiming that individuals are independent contractors.
    Ms. DIETRICH. Yes.
    Mr. DAVIS. What difference does that make?
    Ms. DIETRICH. Well, the difference is that if you are an 
independent contractor, the employer is not going to pay those 
taxes that have been discussed previously. And that also leads 
to the underfunding of the system, resulting in other employers 
having to pick up the slack.
    Mr. DAVIS. Thank you very much. Thank you, Mr. Chairman.
    Chairman REICHERT. Thank you, Mr. Davis. Mr. Renacci, you 
are recognized for three minutes.
    Mr. RENACCI. Thank you, Mr. Chairman, and I want to thank 
Chairman Reichert for his introduction of H.R. 2826 and for 
holding this hearing today, so we can better understand the 
issues states are facing us when it comes to preventing UI 
fraud. And I want to thank the witnesses for being here.
    In my home state of Ohio, the UI administrators serve 
approximately 225,000 active Ohio employers, and process 1 
billion of tax revenues per year. Those tax revenues, as we 
heard earlier, are coming from businesses. The UI program has 
made 58 billion in improper payments over the last 5 years. And 
as a small business owner, I understand the impact these errors 
can have on businesses. But I also understand the importance of 
the safety net for individuals, who through no fault of their 
own, have lost their job. And I think that is important. But we 
must ensure, as Mr. Kelly said, that taxpayer dollars are spent 
wisely, and not on individuals that do not qualify.
    In the last 12 months I know the Ohio benefit payment 
control division identified more than 34 billion in fraudulent 
overpaid benefits. Mr. Sanders, you mentioned in your testimony 
that the benefit payment control division in your state 
encountered some challenges when investigating fraud and 
improper payments. Can you expand a little on those challenges?
    Mr. SANDERS. Sure, absolutely. When our investigators first 
believe there is somebody that is committing fraud, it takes 
some time and process to then go out and investigate those. In 
addition, we weren't getting a lot of cooperation from law 
enforcement agencies. Through our partnership now with Marion 
County, it has the ability to pull in, whether it is state 
police, the county sheriff, or even local individuals to 
actually have that subpoena power and do those investigations 
and pull that information in.
    That was, I think, one of the biggest barriers that has now 
been opened up for us to be able to investigate these fraud 
cases.
    Mr. RENACCI. And overall for the panel, the status of UI 
error rates, do you think they are getting worse, better, or 
generally unchanged?
    Mr. SANDERS. I can speak for our state. I haven't studied 
the other states, but our state continues to improve. Probably 
over the last year we have cut that number in half. But we are 
still too high, personally. And I think we really need to 
continue to improve that and drive that number down, probably 
into the three to five percent range.
    Mr. RENACCI. Any others?
    Ms. HEARTHWAY. If I could just add, I mean, Pennsylvania is 
improving slightly. But if I could make one point here. The 
benefits error, BAM, program would not have taken into account 
the prison cross-match that we just instituted. They look at 
your processes and procedures and see if you are following 
them, and they extrapolate your error rate based on that.
    We have a fairly solid estimate of $100 million, and that 
would not show up, either as an error previously or as a 
benefit now unless you happened upon a case that you knew 
someone was incarcerated. It wouldn't show those kinds of 
numbers. And so, I think there is a portion of this that we may 
be emphasizing form over some substance.
    Mr. RENACCI. I am running out of time, and I yield back.
    Chairman REICHERT. Thank you. Mr. Griffin, you are 
recognized for three minutes.
    Mr. GRIFFIN. Thank you, Mr. Chairman. In my home state of 
Arkansas I have got some of the most recent figures. In 2012 it 
looks like we had about $46 million in improper payments. And 
for a state with only three million people, that is a lot of 
money.
    I want to ask you, Mr. Sanders if you would tell me, first 
of all, how are the prosecutors organized in Indiana? In 
Arkansas, they are not under the attorney general, for 
example.They are independently elected. And so, there is a 
prosecutor coordinator that can help get those elected 
officials on the same page with regard to the push to prosecute 
fraud. But could you tell me a little bit about how you got 
things moving in Indiana? And have you gotten things moving on 
a statewide scale, or is it very targeted?
    Mr. SANDERS. That is the specific issue we had in Indiana, 
as well, where each of our county prosecutors is independently 
elected into the position.
    First of all, I don't think they have the staff or the 
resources to go after unemployment insurance fraud, nor do they 
have the expertise. It is such a unique field. And the fact 
that we utilized where our computer server--where all the 
claims are processed is based in Marion County--that actually 
created the venue issue, which then gave the Marion County 
prosecutor the ability to prosecute in every county in the 
state. It is no different than, I think, under federal law. We 
could charge those individuals with wire fraud because we use 
the Internet to actually then make payments, as well.
    So that is really what was the lynch pin that then opened 
up the gates. Now we also see our county prosecutors wanting to 
jump in and help out. Obviously, it helps them, as well. So I 
think that was really the key----
    Mr. GRIFFIN. So that is Indianapolis, is that right?
    Mr. SANDERS. And Marion County, yes.
    Mr. GRIFFIN. Right. And so I represent all of Pulaski 
County, which is Little Rock. And so you would be sort of an 
analogous situation there, potentially.
    Real quickly I want to ask you. You may be familiar that in 
the federal system there is something called qui tam actions, 
where people can report fraud and get it--basically get a cut 
of it. Are there incentives in Indiana to--for people to report 
fraud? And is there a way for some of these prosecutors to get 
a cut of some of these cases? Are there mechanisms like that 
that could help sustain?
    Because you mentioned the lack of resources. If you get a 
system where people are getting a cut to report it, and 
prosecutors are getting a cut to prosecute it, then you can 
incentivize that behavior that is otherwise hard to incentivize 
without money and resources and what have you.
    Do you have any comment on that?
    Mr. SANDERS. Yes, I would. In Indiana there, obviously, is 
not an incentive to get a cut of what is collected back. We do 
have an anonymous website. But the piece that is unique, I 
believe--in most states there is what is called the penalty and 
interest fund, which means if you find someone that has 
committed fraud, you can not only charge them with the return 
of the benefits that go back into the trust fund, but you can 
also hit them with a penalty and interest on top of that 
amount, so those funds can then be turned back in to help 
prosecutors for whatever else you may have going on.
    Mr. GRIFFIN. Any--well, it looks like I am out of time. So 
thank you.
    Chairman REICHERT. Yes, sir, Mr. Griffin, you are out of 
time.
    I want to thank all of the panel for being here, and all of 
our witnesses for being here today. We all recognize the need 
to make corrections within the system. And I think that we are 
all in agreement this is at least one small step, this is a 
small piece of the pie, as was mentioned by Ms. Dietrich and 
others. But it is an obvious area where we can make progress.
    And you have shared some information with us today, some of 
the areas that we need to focus on, where we need help in 
technology, information sharing, and lack of resources. Those 
are things we can make progress on and we can maybe have an 
impact on making sure that the money our taxpayers put forward 
go to the people who really need it. So thank you all for your 
time.
    One last comment. If Members have additional questions for 
the witnesses, they will submit them to you in writing. And we 
would appreciate receiving your responses for the record within 
two weeks. This committee stands adjourned.
    [Whereupon, at 2:21 p.m., the subcommittee was adjourned.]
    [Submissions for the record follow:]

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