Feds take on unemployment fund cheats, say Alabama is "swimming in a sea of fraud"

MOBILE, Al.
From his office in the back corner of the state unemployment office here, William Chappelle pores over the hundreds of names sent his way from a computer that identifies folks who are both employed and collecting unemployment.
Chappelle has toiled away for the last 12 years tracking down fraud in the program, but lately, he has been much busier. Before the economic downturn, Chappelle said, his caseload was a third to half as much as the 1,000 cases he now has at any one time.
“In my opinion, there seems to be a percentage of fraud that just follows the curve,” he said in a recent interview. “A big portion of that is individuals who don’t understand the requirements, either through ignorance of the law or listening to other people.”
Alabama borrowed money from the federal stimulus fund when its unemployment trust fund threatened to go broke. The fund dipped from $405.5 million in December 2007 to $309.7 million in December 2008 and would have run out the following year.
Because of the extra federal money, fraud in the program has drawn the interest of federal prosecutors. The U.S. Attorney’s Office has prosecuted a dozen people for unemployment fraud this fiscal year for a crime that had been rarely enforced previously.
Not that the opportunity has not been there. Assistant U.S. Attorney Andrew Sigler noted at a sentencing hearing last month that "improper payments" from unemployment insurance, the third-most abused federal program behind Social Security and Medicare, cost taxpayers $17.5 billion last year.
“The state of Alabama is swimming in a sea of fraud,” he said at the sentencing hearing.
One investigator south of Butler
And Chappelle, 60, is the only investigator south of Butler working such cases form the Department of Industrial Relations.
Unemployment fraud cases, individually, represent far less money than typical white collar crime case that federal prosecutors pursue. But U.S. Attorney Kenyen Brown said U.S. Attorney General Eric Holder has made safeguarding the program a top priority.
“It’s definitely something I’m interested in as the chief law enforcement officer in this district,” he said. “Some of these cases may not represent a large bundle of money. But it’s money that’s inappropriately appropriated. ... There’s no doubt about it: We’re trying to send a message.”
The 12 prosecutions represent a drop in the bucket, and the defendants generally have walked away with probation. But Chappelle said they have an outsized value by raising the profile of enforcement action and sending a message that cheating the system can bring serious consequences.
“It’s been extremely effective both in the level of prosecution and the level of cooperation established with the claimants that are charged,” he said.
Some unemployment fraud cases begin with anonymous tips. Many, however, come by cross-referencing the unemployment rolls with payroll reports that all businesses must file every 3 months. State officials run the computer program about 3 times a year and get lists of common Social Security numbers.
Just because someone collected unemployment during a quarter in which he was on a company payroll, though, does not mean he has committed fraud. Chappelle said the employee might have suffered a temporary furlough or been laid off and quickly rehired.
To delve deeper, Chappelle must contact employers to verify the dates that the employee worked.
“After doing this for so long, I know their phone numbers by heart. I call them up like we’re old friends,” he said.
Then, he said, he pays a visit to the person’s home and confronts him with the information.
Following ‘huge paper trail’
Many cases do not result in criminal prosecution. Sometimes, the department handles matters administratively or files civil lawsuits in an attempt to get the money back. Chappelle said he reserves criminal prosecution — which requires the most proof — for the most egregious cases.
“There’s a huge paper trail, and usually you’ve got witnesses you can call who are easily identifiable,” he said. “I feel better in court when I have wage receipts to back me up. ... Usually, when I go to court, there is no doubt in my mind. And I’m the one I have to satisfy.”
The sudden surge in unemployment fraud cases federal court has puzzled defense lawyers who have been accustomed to defending those charges in state court — often as misdemeanors. Art Powell, who represented a client in a recent federal case, said he never saw the crime prosecuted in federal court until this year.
Like many of the defendants, Powell’s client began legitimately collecting unemployment when he lost his job and continued to accept the money after finding a new job. All a recipient has to do to get another week’s check is to answer automated questions on a phone or over the Internet.
“The change that happened was when they made it easy,” Powell said. “It takes very few overt acts to find yourself in this situation.”
Chappelle agreed. “You don’t have to look somebody in the face and lie to them.”
A 31-year veteran of state government work, Chappelle is not complaining about the work. “This is the most fun job I’ve had in my life other than being chief boatswain in the United States Coast Guard Reserve,” he said. “It’s challenging and rewarding. ...
“What kills me,” he added, “is the backlog.”