He rushed to his office, turned on his computer, pulled out his file of codes and went to work. Tracking down this beauty would be cinch, he muttered to himself, scanning in his mind the access he had as a social worker to numerous public and confidential government records. Checking out people had become a natural part of his day -- it was part of his job to separate valid welfare applicants from chislers. John pressed a few buttons on the keyboard, entered the authorizing code, hit the "execute" button, accessed files from the Department of Motor Vehicles, typed in the license tag M-I-N-E, pressed the "search" button and waited. It seemed like forever, then, filling the screen like magic was this:

License tag: MINE. Vehicle: 1984 Mercedes Benz 190e. Owner: MARCI HAMILTON. 2727 Skyline Drive. Drivers License No. 524-64-6789. Date of birth: 9-5-51. Sex: Female. Weight: 105. Height: 5-6.

John smiled. He knew from experience that the number on Marci Hamilton's license was also her Social Security number. He entered 524-64-6789 on the keyboard and told the computer to search wage records that employers are required to file every quarter with state unemployment compensation and tax offices:

524-64-6789. MARCI HAMILTON. Employer: Bivens Manufacturing Co. From: 5-26-76 to current. Position: National Sales Director. Gross pay 1985: $66,134. First Quarter earnings: $16,526.

Not bad, John thought. He typed Marci's address into the computer and told it to search the local Register of Deeds' records:

2727 Skyline Drive. Block 221, Lot 5. Land Assessed: 25,072. Improved Assessment: 65,251. Total 0.5;ld12Assessment: 90,323. Built 1980. Use: residential. Deed of Trust recorded: 11-3-81. Loan Instrument: 23489. Amount: $65,000, between Albert Jacob and Marci Hamilton Stratford, and First National Security Bank. Other personal assets: 25 foot sailboat, assessed at $15,000.

John paused. Marci Hamilton had once been Marci Stratford. He decided to check county divorce records:

Divorce 5-7-85: Marci Hamilton Stratford versus Albert Jacob Stratford. Married: 12-7-78. Number of Children: two; Andrew Thomas: born 5-5-79; Lynn Carroll Richards, born: 7-8-75. Grounds for divorce: infidelity. Divorce sought by: wife. Custody of children: wife. Race: husband; Caucasian; wife: Caucasian. Number of previous marriages: husband; none. wife: one. Date first marriage was terminated: 9-5-76. Place: Reno, Nev.

John considered linking his computer with the State Data Exchange Network, which would give him access to records in other states, such as Nevada, where Marci's divorce had been granted. Instead, he decided to search local school enrollment records for information about her children.

Student enrolled: Lynn Carroll Richards, Somerset School for the Deaf . . . Andrew "Andy" Thomas Stratford, Thomas Edison High, morning; Tri-Area School for Gifted and Talented, afternoons.

John decided to check federal records from the Internal Revenue Service next. Because IRS files are confidential, he could not connect his computer to the IRS computer in Washington. Instead, he put Marci's name on a list that was mailed by the state welfare office to the IRS the next day. A short time later, John received a computer tape from the IRS that contained tax information about Marci's unreported income:


INTEREST; $2,500 from 25,000 C.D., First National Bank; $5,000 from $50,000 C.D., First National Bank; $3,000 from $30,000 C.D., Central States Bank; $200, Landmark Bank, local Savings Acct.

DIVIDENDS: $1,500, Bevins Furniture, 5,000 shares.

CAPITAL GAINS: $12,000, sale of IBM stock.

OTHER: $7,000, rental from house at 100 Lark Avenue; $5,000 executive sales bonus from Bivens Furniture; $3,245, winnings from wagers at Highland Horse Race Track.

John reviewed what he had learned. Marci was recently divorced after a six-year marriage. She had filed for divorce after charging her husband with adultery. It was her second marriage. Her 10-year-old daughter, by her first marriage, had a hearing problem. Her 6-year-old son was above-average in school. Marci had an expensive home; secure, high-paying job; rental and stock earnings; a prestige car; and enjoyed sailing and betting on the horses.

John called Bivens Furniture.

"Good afternoon, this is Ms. Hamilton," a pleasant voice said.

"I don't want to sound too forward," John explained, "but I feel like I already know you. You see, I met some people at a party the other night and they told me all about you and your little girl Lynn, with the hearing problem, and how Andrew, I mean, Andy, is so smart in school."

"Really, who told you about us?" asked Marci.

"This is really embarrassing," replied John, "I mean really embarrassing, but I don't remember their names. It was a big party, you know. Anyway, they said we had a lot in common."

JOHN AND MARCI are not real persons: They were created to illustrate this story. But the background check that John performed on his desk-top computer is not the stuff of fantasy.

Right now, the Reagan administration is pushing state governments to computerize their records and establish programs that will allow public employes to peek into the financial and personal records of nearly every American.

The White House is doing this as part of a campaign to reduce fraud in federal welfare programs by requiring states to investigate the backgrounds of welfare applicants before adding them to federal benefit rolls. Under regulations published Feb. 28, all states must establish "income verification programs" by this fall. The programs will enable social workers to check a welfare applicant's finances by examining state unemployment insurance wage and benefit records; Social Security wage records; and some Internal Revenue Service records. This is the first time the IRS has disclosed information to the states about the individual taxpayer's unearned income from bank accounts, stocks, etc.

Technically, the federal government cannot require a state to computerize its records. But the White House's Office of Management and Budget has written its "income verification programs" so stringently that it will be difficult and expensive for states to meet the Sept. 30 deadline without using a computer.

OMB also has encouraged states to go even further, if it's legally possible -- for example, to tap into bank records, private credit-checking agencies or hospital records. States have responded enthusiastically: most have given social workers direct access to state wage information, property records, motor vehicle records and public school enrollment records. Some states are also computerizing birth, marriage, divorce and death records. The White House also has announced that it is drafting legislation that will enable states to inspect information now collected by the Immigration and Naturalization Service and the Veterans Administration. Eventually, states may be allowed to have direct access via their computers to federal records in these and other agencies.

The OMB, which is overseeing this massive state computerization and data-swapping effort, insists that the public has nothing to fear. The federal government is "not setting up one, giant computer system, but 54 state/territorial systems, each operating independently," OMB recently said in a press release.

"Pre-screening welfare applicants will reduce error rates and better target precious resources to the truly deserving," OMB Director James C. Miller Jr. explained. OMB's new verification procedures will save taxpayers $375 million next year alone.

But these 54 systems are not separate. They will be able to exchange information, and they will have access to records of all Americans, not just those who apply for welfare.

In effect, the federal goverment is creating a de facto national data bank through state governments.

"The computer is not the problem," explained David Linowes, former chairman of the now defunct Privacy Protection Study Commission, the last presidential panel appointed to investigate privacy concerns. "The problem is balancing a citizen's privacy rights with the quest for government efficiency."

Nevertheless, the federal government, under Presidents Jimmy Carter and Ronald Reagan, has spent more time devising ways to use computers to ferret out fraud, waste and abuse than it has worrying about Americans' right to privacy.

"When this administration has had to choose between government efficiency, law enforcement and protecting Americans' privacy, it always has come down on the side of efficiency and law enforcement," said Jerry Berman, director of the American Civil Liberties Union's Project on Privacy and Technology.

Robert Ellis Smith, publisher of Washington-based Privacy Journal, says the Reagan administration has paid scant attention to privacy concerns, but has "elevated" the use of computers as weapons against waste, fraud and abuse "to an art form."

In a 1983 report titled "Who Cares About Privacy?" the House Government Operations Committee reached the conclusion that no one in the federal bureaucracy really is paying much attention to the Privacy Act of 1974 -- the federal law passed after the Watergate debacle to protect Americans from unwarranted government intrusion. That law prohibited the government from collecting information about citizens without their consent. But the Carter and Reagan administrations, in their zeal to improve government efficiency and nab crooks, have weakened the law and inadvertently pushed us to the brink of an Orwellian nightmare.

BIG BROTHER WAS BORN Nov. 9, 1977. Joseph A. Califano Jr., secretary of what then was the Department of Health, Education and Welfare, made the delivery. On that date, Califano announced Project Match, an innovative way to catch welfare cheats with the aid of government computers.

Federal investigators, Califano explained, had programmed a computer to compare two huge sets of federal records. One was a list of welfare recipients in 21 states and jurisdictions where there were high numbers of either welfare recipients or federal employes (including New York City and the Washington suburbs). The other list contained information that had been supplied by all federal employes at the time they were hired. In a matter of days, the computer had pulled together the names of everyone on both lists. Obviously, Califano said, there were people gainfully employed by the federal government who were also on the welfare rolls illegally.

Califano, with much hoopla, predicted that this "computer matching" would revolutionize government investigations. But behind the scenes, some Carter administration lawyers were concerned that Project Match was illegal.

Califano today recalls that some HEW attorneys were disturbed about Project Match in its early stages, but "the lawyers ultimately okayed everything."

"I was trying to move against fraud . . . in a department that was appallingly unmodern," Califano said. In some cases financial records at HEW were kept in shoe boxes, Califano said. "Our initial idea was to run welfare records against federal tax returns," Califano recalled, "but I was told there was a law which prohibited that. I told my staff to determine what records we could use."

Internal HEW memos, first made public in 1981 by Computerworld, a computer industry newspaper, revealed that HEW attorneys had a difficult time meeting Califano's request -- at first.

Project Match, the lawyers warned, appeared to violate the Privacy Act, which specifically prohibited federal agencies from swapping information about Americans without first obtaining their permission. The Privacy Act also said the government couldn't collect information for one reason and then use it for another.

In order for HEW to perform Project Match, the agency had to get federal personnel records from the Department of Defense and the now defunct Civil Service Commission. But both of those agencies claimed the Privacy Act prohibited them from sending the records to HEW. No federal employes had given DOD or CSC permission to send their records to HEW nor had they been told when they went to work for the government that their personnel files might be used as part of a welfare investigation.

In a 12-page memo, HEW attorneys suggested that Califano's office fall back on an old Washington standby -- bureaucratese -- to circumvent the Privacy Act restrictions. If HEW treated the record exchange "as something other than a disclosure of records" it might be able to avoid Privacy Act problems, the lawyers explained. They suggested that HEW describe its record request as interdepartmental " 'assistance' rather than as a transfer of records."

DOD and CSC refused, but both agencies eventually found "loopholes" in the Privacy Act that made it possible for them to help HEW. In effect, the government broadened the definition of "routine information": data that were previously protected by the Privacy Act suddenly could be exchanged.

Some members of Congress were becoming concerned about computer matching. But Richard Neustadt, then a Carter aide, told the White House in a 1978 memo that those members of Congress "have avoided public comment because they are reluctant to attack a procedure that identifies federal employees who are cheating the government."

Neustadt, who now owns a telecommunications company in New York City, said during an interview that the White House also was concerned about the privacy implications of matching. But, he said, "matching showed us a way to really do something about ending fraud."

The White House asked Terril Steichen, an analyst at the White House Office of Telecommunications Policy, to draft guidelines for computer matching so that it wouldn't get out of hand. Steichen's proposal contained three key safeguards. Federal agencies had to justify each match, certify that a computer match was the only way an agency could achieve its goal and prove that the match would save the government more money than it would cost.

"OMB found the guidelines too restrictive," said Steichen, now a vice president at a private telecommunications company. OMB officials "felt none of the proposed computer matches could pass the guidelines."

Steichen unsuccessfully urged for tight control of matching. "It is only a matter of time before the public begins to perceive these matching programs as the beginning of a government data bank," he warned.

Nearly one year after OMB rejected Steichen's guidelines, it released its own computer matching rules. Though they were less restrictive than Steichen's proposals, they did require computer matches to be cost effective and federal agencies had to submit a detailed description of a match to OMB and Congress 60 days before conducting it.

"We felt those requirements would protect the public," recalled Neustadt, "especially the public disclosure provision. If an agency was going to do something really dumb, they'd have to tell Congress and OMB first, which could stop them."

C OMPUTER MATCHING and Ronald Reagan were made for each other. He had campaigned on cutting federal fat and eliminating waste, and he saw matching as a way of achieving both. He also found just the right group in government to implement computer matches -- federal Inspectors General.

Carter had never liked the IGs -- independent investigators and auditors who work in most large federal agencies. But Reagan invited them to the White House, told them to be as "mean as junkyard dogs" in "digging up waste, fraud and abuse" and sent them off and running with his blessing. The IGs soon were claiming millions of dollars in taxpayer savings because of innovative computer matches.

The story of little Jose' Martinez is typical of the IGs' heavily publicized success stories. Federal welfare investigators learned about the boy when they asked a computer to compare federal Medicaid and welfare records.

Jose''s mother had been receiving financial aid for more than four years for her son, yet she had never filed a Medicaid claim on his behalf. Jose' had never visited a doctor for treatment of a virus, an earache or a broken bone.

"It just didn't seem right," said Howard Pierce, the agent who investigated the case. It wasn't. Little Jose' only existed in federal welfare records. Louis and Angela Lopez had created an entire, fictional family to qualify for higher welfare benefits, collecting $60,000 during a four-year period by using three aliases and make-believe children.

Such stories wowed the press and Congress but unsettled the ACLU and other critics of computer matching. The ACLU took a more detailed look at Project Match.

At a press conference in September 1978, Califano had released the names of 15 HEW employes who, he said, had been indicted on charges of welfare fraud based upon Project Match. None of the persons had been contacted before Califano released their names.. The ACLU decided to track down all of the 15 employes and hear their side of the story.

One woman, the ACLU discovered, quit nursing school when she was diagnosed as having cervical cancer; she began accepting welfare.. After months of cobalt treatment, she convinced her doctor to let her return to work. She notified the welfare department after she went to work for a federal agency, but the office continued to send her checks.

The woman notified the welfare office once again and told them to stop the payments. They didn't and the woman eventually used the money to pay medical bills. After Califano released her name, the woman lost her job and then was charged with fraud, the ACLU discovered. But the judge dismissed the case against her when he discovered that she had twice informed the welfare department that she had returned to work.

The ACLU learned that of the 15 cases, five were dismissed, four persons pleaded guilty to misdemeanors (theft under $50) and six pleaded guilty to felonies. Federal judges, unimpressed with the government's "best cases," ordered a total repayment of less than $2,000 and refused to levy any prison sentences.

The ACLU continued its study and reviewed all Project Match cases. HEW had found 638 federal employes on welfare rolls but only 55 of those cases were ever prosecuted. The ACLU and others soon claimed that computer matching cost more than it saved.

The White House moved quickly to silence such criticism. On May 11, 1982, OMB announced new guidelines for computer matching. The rules no longer required federal agencies to show that their matches were cost effective. The Carter administration had issued its guidelines after a seven-month period of public notice, debate, and comment. The Reagan administration announced its revisions without any formal notice outside the government.

The new guidelines also said that agencies no longer had to provide Congress or OMB with detailed explanations about matches.

Gone now was any remnant of the Privacy Act safeguards.

In December 1982, the White House ordered the Internal Revenue Service to use its tax records to help the U.S. Selective Service track down young men who the government believed had not registered for the draft -- a computer match that wouldn't have had a chance in the early '70s slipped past Congress with barely a murmur.

C OMPUTER MATCHING was about to enter a new phase, technically called "front-end verification." Rather than catching crooks after they were on welfare, why not use computer matches to determine whether an applicant was qualifed to receive welfare in the first place.

The Grace commission, a group of private businessmen appointed by President Reagan to study federal benefit programs, liked the idea. It is "inconsistent," the commission said, for the government to say that only poor people can receive welfare and then make no effort to "verify the applicant's assertions." With that in mind, it recommended that states be required to perform vigorous background investigations before allowing anyone to receive welfare.

To help the states do this, the federal government had to open up Social Security Administration wage records and some Internal Revenue Service files to the states, the Grace commission said.

In addition, it said, welfare applicants should be required to obtain Social Security numbers and also to submit their federal income tax returns to the government when they applied for benefits.

The commission concluded that states had to computerize, centralize and standardize their records. "A uniform data gathering and entering process makes possible an intrajurisdictional records search," the task force explained. "The past history of each individual will be stored in the computer."

The White House sent theGrace commission's extensive recommendations to Congress, where they were automatically added to the massive Deficit Reduction Act of 1984 by the Republican staff of the House Ways and Means Committee. There was some concern among committee members about the recommendations, a staff attorney recalled, but "no one wanted to be against a program that would help catch people who were cheating the government."

Only Sen. William S. Cohen (R-Maine), chairman of a Senate subcommittee on oversight of government management, raised any questions about the "income verification procedures," by then hidden in the major $50 billion tax bill. Cohen made the procedures more palatable by adding a clause that prohibited welfare agencies from denying anyone welfare benefits based solely on a computer match. Welfare workers had to give the applicant a chance to explain his case in person.

OMB pushed to get its new procedures in place. The rules were published on Feb. 28 of this year and the states were given until May 29 to comply. After a number of states objected to the deadline, OMB agreed to give states until Sept. 30 to comply if they needed extra time.

OMB is so sure that its income verification is a good idea that it already is drafting legislation to expand the program. Families whose children apply for low-interest college loans from the government, veterans who check in at VA hospitals, retired coal miners who request black lung benefits and young families who ask the Farmers Home Loan Administration for a mortgage -- all will soon have to undergo the same computer checks as welfare applicants if OMB gets its way.

LINDA C. CONNELLY began as a social worker in North Carolina 16 years ago, moving up the hierarchy to her current job as quality assurance chief of Medicaid. North Carolina already has a State Information Process Center where an IBM 3090 mainframe keeps tabs on 80 percent of all state records.

Within a few minutes, Connelly can use a computer terminal to review any North Carolinian's motor vehicle records and state wage records, which employers must file. She also has access to information sent to the state from the Social Security Administration.

North Carolina has a privacy law that prohibits social workers from disclosing information from welfare records to outsiders. The state also has programmed its computer so that social workers can only look at the specific information that they need. For example, social workers do not have access to motor vehicle records that identify drivers with outstanding tickets. Connelly acknowledged,, however, that the state currently could not tell if a social worker in a county office typed his neighbor's name into the state computer out of curiosity.

"We can't say for sure that a social worker isn't abusing the system," she said. "But we hope that they aren't, and if we catch them, they will be in trouble."

Connelly said that she really isn't worried that state employes in North Carolina might misuse the state computer network either now or when it soon begins receiving federal records.

What worries her more, she said, is an apparent shift in the attitude of the federal government toward states. The emphasis from Washington used to be on making sure that states were getting help to the needy as quickly as possible. Now, the emphasis is on "making sure states are complying exactly with the wording of various regulations."

The shift is subtle. It has moved from concern about people to concern about regulations and, in the process, Linda Connelly said, her job sometimes isn't as much fun as it once was.