By Malcolm Maclachlan | 09/30/10 12:00 AM PST

Nearly a year after the Schwarzenegger administration awarded $26.5 million to county district attorneys to combat fraud in the state In-Home Supportive Services (IHSS) system, DAs are beginning to report some results.

However, it remains unclear whether the program will result in the $130 million in savings promised by the governor, numbers that would indicate nearly $5 in return for every dollar spent. Meanwhile, a claim of 25 percent fraud in the system – widely repeated by the Administration, DAs and Republican politicians – appears to be based on data out of San Diego that is more than a decade old and concerns welfare applications, not IHSS.

IHSS is a huge system. It employs 380,000 low-wage workers to care for about 444,000 mostly low-income elderly and disabled patients to be cared for in their homes – numbers so huge they mean that one out of every 50 Californians is either a patient or provider. In many cases, the provider is a family member or friend to the recipient. About half of its $5.4 billion annual budget comes from the federal government, with the state providing a third and counties the rest.

DAs and other authorities have uncovered scores of serious individual cases of fraud in the system. It also appears clear that case loads and spending in the IHSS have grown quickly in recent years, at a far higher rate than most other programs.

But so far neither the administration or the Department of Social Services (DSS) have any aggregate numbers on the fraud they have uncovered.

“We are working with stakeholders and counties to set up a process where counties would report to us on their fraud findings,” said spokeswoman DSS Lizelda Lopez. She said they did not yet have a date when this information might be available.

The governor and several DAs have also repeatedly referenced the idea that the IHSS system may be overpaying providers by up to 25 percent, due to a combination of lack of standardization among counties, poor oversight, fraud and other problems.

The number appears to first show up in connection to IHSS in a 2004 Department of Finance letter concerning hiring 18 new DSS staffers to investigate fraud in the IHSS system. That letter stated: “The governor’s Budget for FY 2004-05 acknowledged that up to 25 percent of the hours may be over-assessed and indicated that a proposal would be forthcoming to address the issue.” The letter goes on to cite a “more conservative” estimate of 10 percent overpayment, but doesn’t cite specific evidence for either number.

The 25 percent fraud number has appeared repeatedly. It came up three times at a July, 2009, press conference Schwarzenegger held with DAs on IHSS fraud. First, Sacramento DA Jan Scully said “a lot of us agree” that 25 percent was the right number. Then Ventura County DA Gregory Totten noted “current estimates range anywhere from on the low side, maybe 5 to 10 percent to 25 percent.” Finally, Schwarzenegger claimed “some people say there is 25 percent fraud.” None of them cited a source for the claim.

But both Totten and staffers for Scully said that number referred to a pair of projects out of Orange and San Diego Counties – mainly Project 100 Percent out of San Diego. Adopted in 1997, it called on welfare applicants to be visited by an investigator from the DA’s office within 10 days of filling out their paperwork. The goal was to prevent illegal immigrants with too much income and others who weren’t eligible from receiving benefits. It found that a quarter of applicants were not eligible to receive any welfare funds.

Yet no references to the Project 100 source of this number appear to have come up in statements by the administration and others who have used it. The number was referenced in editorials, such as a June 2009 piece on the conservative blog The Flash Report by Sen. George Runner, R-Antelope Valley. It showed up again in a July 2009 press release from the administration: “fraud exists in IHSS – estimated by some to be as much as 25 percent of all dollars expended. Even the Senate Office of Oversight and Outcomes agreed that there are significant problems validating the delivery of these services.”

However, the Senate Oversight Report, which came out the previous month, did not cite the 25 percent figure. The report did find egregious individual examples of fraud in the system, such as a pair of men in Los Angeles who used fake Social Security numbers and other scams to cheat the system out of $390,000. It also cited the Department of Health Care Services as stating: “Currently, there is no accurate means of measuring or monitoring IHSS fraud within the state.”

“I have not seen from this administration an aggregate number of actual fraud,” said Karen Keslar, executive director of the California Association of Public Authorities. She also said the initial reference to 25 percent fraud in the 2004 Dept. of Finance letter “started a bad game of telephone, like they play in kindergarten.”

According to Rachel Arrezola, chief deputy press secretary to the governor, the 25 percent number came out of a series of grand jury reports on IHSS fraud from several different counties.

But the number only appears once in a quartet of grand jury reports provided by DSS. That reference comes in a March 2009 Sacramento Grand Jury report which states: “According to a published news report an analysis by the governor’s office estimates the statewide fraud rate for IHSS at 25 percent.”

That report went on to state that “Fraud in the IHSS program is reported to be rampant and out-of-control.” But the actual numbers in the grand jury report appear to be much smaller. Out of 21,290 recipients and 19,670 providers, it found that 397 cases of alleged fraud were referred to the Sacramento DA in 2006-07 fiscal year, and 25 were prosecuted – representing a fraction of one percent of the system. The report also showed that costs in the system had been rising rapidly in recent years, but administrative costs were going up much faster than payments to providers.

But this isn’t an accurate way of looking at the percentage of fraud in the system, said Sacramento deputy DA Laura West.

“There are countless ways to commit IHSS fraud, most of which are very hard to detect,” West said. “We’re not getting a full picture.”

Because IHSS has essentially been operating on an “honor system,” she said, it can be useful to try to estimate fraud potential based on the number of people who are likely to attempt it.

The Sacramento DAs office spent $2.55 million from the state and $450,000 of their own funds combating fraud through the end of the last fiscal year at the end of June. West claimed that they are approaching the 5-to-1 return the governor hoped for on their $3 million investment. Rather than growing the normal 8 percent in the last year, she said, the program shrank by 2 percent, something she attributed to a deterrent effect, saving the county $5.1 million.

Fraud prosecutions have more than doubled, to 60, and actual fraud was discovered totaling over $500,000. There have been over 1,300 cases of potential fraud referred to the office. They discovered about $2 million in overpayments, she said, some of it unintentional.

While the Sacramento returns appear to show a payoff of over 2-to-1, Ventura DA Totten said his office could reach 5-to-1 of better when they report results in a few weeks. His county, with a fraction of the IHSS population of Sacramento, received only $87,000. But this allowed him to move an investigator onto the effort part time. They have been able to speed up death reviews – making sure providers aren’t paid when program recipients have passed away – and reviewing questionable time cards, such as those that report over 300 hours a month.

But Steve Mehlman, communications director of the UDW Homecare Providers Union, said the claims made by the administration and DAs should be viewed with skepticism. The governor has repeatedly submitted budgets that sought to cut or even eliminate IHSS. The Sacramento DAs office, meanwhile, has still only managed to document fraud in a fraction of 1 percent of cases – 19 felony cases in Sacramento, and only 210 so far statewide.

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