67 As noted consistently by officials within the Department, and the General Accounting Office, the rate of recovery for overissuances due to fraud has been very low, usually less than one percent. The Congress adopted several provisions last year and the Committee recommendations contain other provisions designed to provide more flexibility in the collection of overissuances and more incentives for States to undertake such collections by permitting them to retain a portion of the recoveries. Under existing law, the primary means of collecting overissuances are through cash repayment and benefit reduction. Benefit reduction is only effective, however, when the individual who defrauded the program is still a member of a household participating in the program or has returned to the program following a period of disqualification. Means of collecting overissuances from individuals who have left the food stamp programs have been severely limited. The Committee provision is designed to permit States wishing to establish such intercept systems for food stamp overissuances to parallel those which they have established in the AFDC program. Both the Food Stamp and Social Security Acts are amended to permit such a system. The State could recover the overissuance through entering into an agreement with an individual who has received an uncollected overissuance or by obtaining a court judgment requiring the withholding of amounts from the unemployment compensation. The State food stamp agency would reimburse the agency administering the unemployment compensation program for the administrative costs associated with repayments under the unemployment compensation program. Inasmuch as food stamp officials have reported that unreported receipt of unemployment compensation benefits is a common source of underreporting of income, States may find the intercept system useful in collecting overissuances. Only overissuances resulting from fraud or intentional misrepresentation may be collected under the intercept procedure. States would be permitted to retain 50 percent of all overissuances collected. Intercept of Federal income tax refunds (Sec. 138) The Committee adopted a provision sponsored by Chairman Helms which would permit States to establish an intercept system to recover from Federal income tax refunds overissuances caused by fraud or intentional misrepresentation. As noted earlier, collection of overissuances from individuals who are no longer on the food stamp program has proven generally ineffective. Indeed, according to the General Accounting Office, the situation is much the same in other Federal programs. The General Accounting Office noted in a March 9, 1979 report that a considerable portion of delinquent accounts in various Federal programs could be collected by reducing income tax refunds. due to the debtors. The report, "The Government Can Collect Many Delinquent Debts By Keeping Federal Tax Refunds As Offsets," noted that food stamp overissuances resulting from fraud were a source of some of the debts which could be recovered through a tax offset system. Income tax intercept usually works in the following manner: the agency to whom a debt is owed, after unsuccessful collection attempts, refers the debt to the Internal Revenue Service. If the individual is owed an income tax refund, the amount of the debt is first subtracted from the refund and paid to the appropriate agency before the remainder of the refund, if any, is sent to the individual. Last year, in the Omnibus Budget Reconciliation Act of 1981, the Congress enacted a mandatory tax refund intercept (or offset) system to recover delinquent child support payments from individuals owing such payments. States have been quite active in establishing systems to intercept State income tax refunds for debts owed to the State. Many States which have a State income tax have enacted such a system to intercept State tax refunds for delinquent child support payments. Several States have implemented such an intercept from State income tax refunds for food stamp overissuances as well. Oregon, Utah, and Montana reported such collections from 1981 tax returns, and California indicated that its intercept system would be expanded to collect food stamp overissuances beginning with tax year 1982. Several other States are considering an expansion or establishment of an intercept system for food stamp overissuances. An analysis by the General Accounting Office of the Oregon tax intercept system concluded that Oregon's program had been highly successful. The report, "Oregon's Offset Program For Collecting Delinquent Debts Has Been Highly Effective" was published July 17, 1980. However, collection from individuals who have moved across State lines is precluded when the intercept is limited to State income tax intercept systems. Additionally, some States do not have a State income tax and cannot therefore achieve collections through that means. A number of States have indicated support for an optional Federal income tax intercept system for food stamp overissuances. These States include Iowa, Utah, California, New Mexico, North Carolina, Hawaii, Ohio, Georgia, South Carolina, Missouri, Texas, Maryland, New Hampshire, Colorado, New Jersey, Oregon, Oklahoma, Mississippi, Arkansas and Indiana. The provision adopted by the Committee parallels the tax intercept system established last year in the AFDC program for delinquent child support. However, the food stamp intercept program is optional, at the discretion of the State. Under the provision, only overissuances which are the result of fraud or intentional misrepresentation could be used in the intercept system. Efforts would have had to be made to recover the overissuances through other means. The determination of the overissuance would have to be at least three months old, and the amount of the food stamp overissuance would have to be at least $100 or $100 in combination with other amounts owed under similar provisions of Federal law (such as child support). Both the Food Stamp Act and the Internal Revenue Code are amended in order to establish such an intercept system. The Secretaries of Treasury and Agriculture would be responsible for establishing regulations governing the intercept system, including the fee system to cover the Treasury's cost for applying the intercept procedure. States would be permitted to retain 50 percent of the recoveries made from the intercept system. Error rate reduction system (Sec. 140) The Committee's recommendations include amendments proposed by Senator Dole that would replace the current system of sanctions and incentives intended to encourage States to reduce the issuance of erroneous benefits with a new set of sanctions and incentives and new, more stringent goals for error reduction. Under the current error rate reduction system, State agency error rates (as measured by periodic quality control surveys of samples of the food stamp caseload) establish each State's "error rate" every 6 months. If a State's error rate is above the national average and if it has not reduced it by an annual rate set by the Secretary, the State is liable for the full cost of erroneously issued benefits to the extent its error rate exceeds the national average or, if higher, the error rate it would have achieved if it had met the prescribed annual rate of reduction. In addition, States with very low error rates are granted incentive payments: (1) an increase in their normal (50 percent) Federal share of administrative costs, to 65 percent, if they have an error rate below 5 percent; (2) an increase to 60 percent if their error rate is below 8 percent (or the national average, if lower than 8 percent), but above 5 percent; or (3) an increase to 55 percent if their annual rate of error reduction is 25 percent or more. In order to recieve an increased Federal share of administrative expenses, a State must also have a rate of improper denials of eligibility below the national average. However, the Committee is concerned that the existing error reduction system does not provide enough encouragement to States to lower their rates of erroneous payment. This is especially important in a program like food stamps where the States themselves have no stake in the cost of benefits, although they are responsible for day-to-day administration. Other federally assisted programs such as the aid to families with dependent children (AFDC) program have achieved significantly lower error rates than food stamps; States pay a portion of benefit costs and thus tend to concentrate their efforts on improving administration in those programs. Specific goals (or "tolerance" levels) for States to meet are not set in present law; rather, a variable "national average" goal is used. Further, the Secretary is given the authority to waive the imposition of sanctions, and, so far, has done so. The Committee recommendations would correct the flaws in the present error reduction system by setting specific goals for reduction of error and realistic penalties that are much less likely to be waived. The amendments would sanction each State that does not reduce its payment error rate (the dollar value of overissuances to eligible households plus issuances to ineligible households as compared to the value of all benefits issued in the State) to 5 percent in fiscal year 1985, in three steps. In fiscal year 1983, each State would be expected to have reduced its error rate by one-third of the difference between a 5 percent error and the rate it found in the October 1980-March 1981 reporting period. In fiscal year 1984, each State would be expected to have reduced its error rate by two-thirds of the difference. And, in fiscal year 1985 and each year thereafter, each State would be expected to have reduced its error rate to the ultimate 5 percent goal. For example, a State reporting a 14 percent error rate for the October 1980-March 1981 reporting period would be expected to reduce its error rate to at least 11 percent in fiscal year 1983, to 8 percent in fiscal year 1984, and to 5 percent in all future fiscal years. By requiring a 3-step reduction to 5 percent error, from the national average of 10.6 percent reported for the October 1980-March 1981 reporting period, the Committee has established a specific goal now lacking in the error rate reduction system. However, it should be noted that, although the Committee judges a 5 percent error rate practically achievable within 3 years and has thus established it as the goal to be met, it may be reviewed at a future date to see if a lower "tolerance" level of error should be set. Fiscal sanctions would be applied to States that do not achieve their error-rate target for a given fiscal year; each such State would lose a portion of the Federal share of its regular administrative costs (normally matched at 50 percent for that year). For each percentage point (or fraction of a percentage point) by which a State's error rate, as calculated according to procedures established by the Department, exceeds its goal for the fiscal year in question, the State would lose 5 percent of its normal Federal funding for administration. In addition, if the State's error rate misses its target by more than 3 percentage points, it would lose 10 percent of its Federal administrative cost funding for each percentage point by which it exceeds its target by more than 3 points. For example, a State that woud be expected to reduce its error rate from 14 percent to 11 percent in fiscal year 1983, but reduces it to only 13 percent, would lose 10 percent of its Federal Administrative cost funds. If its error rate were to go up in fiscal year 1983, to 15 percent, it would lose 25 percent. On the other hand, a reduction to 11 percent or below would avoid any fiscal sanction. Certain safeguards are also built into the Committee's error rate sanction system. States that achieve an error rate of 9 percent in fiscal year 1983, 7 percent in fiscal year 1984 and 5 percent in later years would not be sanctioned even if they fail to meet the required one-third reduction goal; this provision protects States that start off with relatively low error rates from sanction because lower error rates are particularly had to reduce. No State would be sanctioned more than the value of benefits issued in error above its target. States will have the benefit of administrative and judicial review of any sanction. And, the Secretary may use alternative data if a State fails to report usable error-rate statistics. In setting up a system of administrative cost penalties, the Committee has corrected the second major flaw in the existing system. The current penalty (i.e., full liability for the cost of erroneous payments above certain levels) has proven difficult to apply in practice because of the relatively large amounts involved and, as a result, the Secretary has chosen to waive its application. The sanctions established in the Committee's proposal, on the other hand, are more realistic and should not be waived except when unusual circum- Finally, the Committee's recommendations revise the current ADJUSTED PAYMENT ERROR RATES OCTOBER 1980-MARCH 1981 |