AFDC and Food Stamp Fraud in Orange County, California

A recently released study of the AFDC population in Orange County, California found 45 percent of the AFDC households in that county guilty of fraud. The investigation, which was carried on from August 1994 to October 1995, divided the Orange County AFDC population into three groups: no fraud, fraud but no overpayment, and fraud leading to overpayment.

With almost half of the households engaging in fraud, these fraudulent AFDC and food stamp payments amounted to 9.3 percent of the total cost of AFDC and food stamps to households on AFDC. Among the 30 percent of cases with overpayments due to fraud, the average extra cost per household was $216 per month.

Several different types of fraud wee identified. These included unreported property, false addresses, and misinformation on household composition--such as an unreported step-parent, unrelated adult male, or a child living out of the home. The most common form of fraud by far, however, was an unreported income, which accounted for over half of the 201 cases. The source of 81 percent of the unreported income was not able to be detected by the automated Earnings Clearance System--a system that provides computer matches of earned income as reported to the Social Services Agency by the client and the Employment Development Department by the employer.

Another component of the study as an investigation of the relationship between fraud and the length of time a household was receiving aid. The largest percentage of the incidences of fraud occurred in the first year of aid. County officials determined, after examining the data, that the majority of their resources should be directed toward the prevention of fraudulent benefits before they are ever received.

The results of the California study have important implications for welfare reform across the country. If what is true in Orange County is representative of AFDC populations nationally, the incidence of fraud will drop, along with the caseload, with the implementation of one simple reform: work. Requiring welfare recipients to work for their benefits will reduce fraud in two fundamental ways. First, it will cut down on new AFDC households--the ones that are most likely to receive fraudulent payments. Second, when recipients are required to appear regularly on an assigned job site, it is less likely that they will have the opportunity to earn additional, unreported income.

One of the first challenges in welfare reform is to separate those who truly need assistance from those who have other means but are willing to take a handout if one is being offered. The study of Orange County AFDC households indicates that those who fall into the latter category may be a larger percentage than previously thought. Real work requirements have already proven successful in reducing AFDC caseloads. In addition, this California study seems to indicate that those who have left the welfare rolls may not have been so needy. Eliminating welfare fraud is an important step in reforming the system and helping those who are truly in need to achieve self-sufficiency.

Robert Rector is a welfare expert at The Heritage Foundation.