D.C. workers face potential firing in alleged unemployment fraud

February 6, 2012

Nearly 90 city employees were suspended Monday and face potential firing and prosecution for receiving unemployment benefits while holding their city jobs, District officials said.

In addition, about 40 former city workers cashed unemployment checks they were not entitled to and also face sanctions. In all, the city estimates it has paid out as much as $800,000 in unemployment benefits to working city employees since 2009.

“By holding people accountable, that sends a clear message we’re not tolerating this behavior,” said Lisa Mallory, director of the D.C. Department of Employment Services, which administers the jobless benefits program.

Monday’s action, which follows at least three years of scrutiny from local and federal authorities, represents an unusually broad crackdown on corruption in the District government workforce. The volume of benefits claims has soared alongside the District’s jobless rate, and investigators have taken an increasing interest in how the unemployment program guards against fraud.

D.C. Inspector General Charles J. Willoughby and Attorney General Irvin B. Nathan are involved in the investigation, and authorities anticipate referring at least some cases to federal prosecutors for criminal action. Mallory, whose office continues to review cases, also said she has worked with the U.S. Department of Labor to prevent this type of fraud.

Employees accused of wrongdoing worked in various arms of the District government, including the public schools and the D.C. Council staff, according to a high-ranking official to Mayor Vincent C. Gray (D) who was not allowed to speak publicly on the investigation. Some of the employees, Mallory said, received $20,000 or more; others received only a few hundred dollars.

The alleged fraud is not complicated, nor is it uncommon in unemployment insurance programs: Workers apply for checks and receive them legitimately for a time but fail to inform authorities when they go back to work.

“Some are people who come in and out of government and never stopped [receiving unemployment checks]. Some may have worked in parts of an agency where for the summer months you don’t work,” Mallory said. “There are no clear patterns that we can discern. It’s just a matter of certifying you aren’t receiving income when you are receiving income.”

A Gray spokesman declined to release workers’ names Monday, citing privacy restrictions.

Mallory said her department regularly passes cases of suspected “overpayments” fraud to the inspector general for investigation and potential prosecution, but Monday’s crackdown represents an unprecedented review of the city’s 33,000-strong government workforce.

“Our focus is really on trying to deter,” she said. “We want to make sure that individuals who owe this money are actually held accountable for these overpayments.”

Nathan said in a statement that the alleged fraud is “unconscionable for anyone — and particularly District of Columbia employees, who should have high ethical standards.”

Jeff Lagda, a spokesman for the Labor Department’s inspector general, cited department policy Monday in not confirming or denying any ongoing investigation.

Mallory said her office has launched a new initiative in the past year to combat this type of fraud, cross-checking lists of unemployment recipients with city payroll records and a national database of new hires. The city unemployment office does the comparisons several times a week, she said.

Neighboring states have long employed computerized safeguards to prevent overpayments.

In Maryland, employers are required to report names, Social Security numbers and wages of their workers on a quarterly basis, said David A. McGlone, deputy executive director of the state’s unemployment insurance office. That data is cross-checked to ensure that no one is collecting benefits while gainfully employed.

Government employees, McGlone said, are handled in a “very similar fashion” as those in the private sector.

William Walton, the unemployment insurance director for the Virginia Employment Commission, said the commonwealth has been checking those receiving unemployment benefits against the national new-hire directory for more than five years.

“We already had a safety net in place,’’ he said.

The District employees placed on leave Monday were informed of the allegations against them in letters delivered at least 15 days ago. “They are afforded an opportunity to provide the history of what transpired,” Mallory said. “Most of these individuals, from what we can tell, did not do that.”

The D.C. unemployment insurance office was roiled in September when the acting director, Gaby L. Fraser, was dismissed amid fraud allegations. She has not been charged with a crime. The inspector general continues to investigate the allegations, Mallory said, but she said the new cases are not related to Fraser’s dismissal. A national search to replace Fraser continues.

A financial audit of the unemployment program back to 2009, paid for by federal administrative funds, is set to get underway Monday, Mallory said.

D.C. Council Chairman Kwame R. Brown (D) said one of the employees placed on administrative leave worked for his office. Brown declined to identify the employee, except to say the person was left jobless after council member Harry Thomas Jr. resigned last month.

In an interview, Brown praised the Gray administration for uncovering the allegedly improper claims. “It’s troubling they would do it, but it’s rewarding to know the mayor and his administration are working to be proactive,” he said.

The nation’s economic turmoil has driven benefit claims higher, drawing the attention of city and federal authorities. In fiscal 2007, with the city jobless rate less than 6 percent, 17,645 residents made initial claims for unemployment checks. Two years later, joblessness had risen to about 10 percent and more than 52,000 sought checks for the first time.

In early 2009, the federal Labor Department “detailed several long-standing and serious concerns” about the unemployment insurance department in a briefing given to Joseph P. Walsh, the employment services director at the time. In December 2010, Walsh told Willoughby his department had installed a new fraud-detection system and other improvements.

In a July 2011 letter to Gray, Willoughby said that his office was conducting an “ongoing special evaluation” of the unemployment compensation office and that he expected to submit a report later in the year.

The letter accompanied a management alert that found “essential safeguards” in an agency computer system were “inappropriately turned off” from February 2009 to July 2010, allowing an unknown number of checks to be mailed to ineligible recipients. According to the letter, a city contractor told investigators that a former agency manager had ordered the safeguards to be disabled, perhaps to allow officials to more easily handle a record number of claims.

Willoughby declined to comment on the unemployment probes Monday, except to say his office “typically investigates these types of matters.” Since December 2010, it has obtained guilty pleas to felony fraud
charges in eight investigations into unemployment overpayments. One of those cases involved a former D.C. Public Schools employee who collected $4,906 in unemployment checks while employed.

Staff writers Tim Craig, Anita Kumar, Fredrick Kunkle and Miranda S. Spivack contributed to this report.

Mike DeBonis covers local politics and government for The Washington Post. He also writes a blog and a political analysis column that runs on Fridays.
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