control, and governance
January 14, 2014
U.S. federal prosecutors in New York have arrested more than 100 retired city police officers, corrections officers, and fire fighters, alleging they had wrongly received federal disability benefits, according to an Associated Press report. Four men pleaded not guilty in a Manhattan court to grand larceny charges of helping retired police and fire department employees obtain disability benefits, with payouts as high as US $500,000. Prosecutors say the men coached benefit seekers to fake depression and other mental health problems — some claiming that their conditions stemmed from activities following the Sept. 11, 2001 terrorist attacks. Although attorneys for the accused say the officers all qualified for city disability payments, federal prosecutors say there is a greater standard for obtaining Social Security disability benefits.
This story provides an excellent opportunity for internal auditors to appreciate the role of strong controls in effective and efficient program delivery — and conversely what can happen when they are weakened. Fraud related to disability benefits has a material impact. By the end of 2011, there were 10.6 million U.S. citizens collecting Social Security Disability Insurance (SSDI) benefits, up from 7.2 million in 2002; about a 50 percent increase. The share of the U.S. population receiving SSDI benefits has risen rapidly over the past two decades, from 2.2 percent to 4.1 percent of adults age 25 to 64 in 2005. Wide-scale fraud also seems to be increasing, as represented not only by this story, but others such as the arrest of several Long Island Rail Road employees for stealing federal disability benefits.
One can speculate about the various reasons for this increase in fraudulent activity. Noteworthy for auditors, audits and studies conducted by and for the U.S. government point to two key factors contributing to successes by fraudsters and more generally to the significant increases in access to SSDI benefits: the loosening of controls within the disability screening process that took place in the mid-1980s and a related strengthening of and emphasis on appeal processes available to initially disqualified applicants.
These lessons are not intended to be construed as taking any particular policy position on the merits of SSDI entitlement or appeals criteria; rather they should be seen as an opportunity for internal auditors to reflect on the influence of the design of program and management controls as they go about their audit planning and engagement work. At the same time, these lessons suggest potential measures for policy-makers to consider to counter such fraudulent activity — without the need to return to the strict eligibility criteria of the past — including: