Claims management mismanaged

Washington state spends approximately $10 billion each year to provide services and benefits to individuals . . . but some of the recipients are ineligible, deceased, incarcerated, or in the state illegally.

The $10 billion includes $3.5 billion in federal funds, $2.8 billion in state funds, and $3.4 billion in employer funds. Total state and federal funding for these social programs amounts to approximately 30 percent of the state's operating budget. But despite this massive sum, a recent annual state audit report reveals, yet again, that the state has no system in place to verify eligibility of recipients and no internal controls to ensure that dollars are not being wasted.

This isn't the first time these weaknesses have been highlighted. Numerous audits have pointed out that the state has problems verifying the claims handled by the Department of Social and Health Services (DSHS), the Department of Labor and Industries (L&I), the Health Care Authority (HCA) and the Employment Security Department (ESD). Services under scrutiny include Work First, food stamps, Medicaid, basic health, unemployment insurance, workers' compensation, and vocational rehabilitation.

Here are some of the previous audits:

• Washington State Claims Performance Audit, Miller & Miller, 2002

• Review of 2001 Unemployment Insurance Payments, U.S. Department of Labor, 2002

• DSHS Developmental Disabilities Division Audit, Joint Legislative Audit and Review Committee (JLARC), 2002

• Washington Single Audit Report, State Auditor, 2001

• Washington Statewide Accountability Report, State Auditor, 2001

Considering that claims on these services amount to $20 billion each budget cycle, even a five percent savings would result in reduced costs to taxpayers and employers of $1 billion. Stronger controls would also allow the state to ensure that the individuals who truly need the services are receiving them.

No eligibility verification or internal controls
As noted above, past audits have revealed that state benefits were being sent to individuals who were deceased, in prison, or in the state illegally. The state auditor's 2002 Statewide Accountability Report confirms that these problems have not been addressed, finding that:

• DSHS ignored federal warnings that invalid social security numbers were being used and did not require verification of income from claimants.

• The Department of Labor and Industries paid workers' compensation benefits to incarcerated and deceased individuals.

• In 68 percent of the payments reviewed, the Employment Securities Division did not receive verification that extended unemployment insurance claimants were actively seeking work and documenting their work search.

The audit report further revealed that L&I has been unable to reconcile a $4.7 million discrepancy in employer industrial insurance payments.

How many audits will it take?
Last year, the state auditor recommended that state officials "develop a centralized process to determine if individuals are eligible to receive benefits and to cross match information between agencies" (i.e. avoid duplicate payments, waste, fraud).

The 2002 Miller & Miller performance audit reaffirmed this recommendation, stating: "The organizational structure of the state does not promote an overall performance measure design or information sharing among the various state agencies. State agencies do attempt to share data, but we found that had certain information been readily available, benefits would not have been provided. The state's structure has been developed over a long period of time, with political interests sometimes driving design."

Serious reforms have not yet been instituted. We agree with the state auditor's recommendation that the legislature "consider requiring any person receiving state resources to be given, on first contact, an individual identifying number. From then on, individuals would be required to present this number whenever applying for any state assistance or for employment with the state. With this kind of identification, any state agency could perform data matches for any of its clients with any other state agency to determine if continuing or additional assistance is proper and necessary."

This kind of statewide database to confirm client eligibility is a tool the state must adopt (while protecting privacy). State officials owe it to the taxpayers to verify the eligibility of claimants before they put someone else's hard-earned money in the mail.

Prepared by Jason Mercier, Budget Research Analyst (360) 956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org