HBA-CBW, SEP H.B. 1397 77(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1397 By: Brimer Economic Development 4/29/2001 Committee Report (Amended) BACKGROUND AND PURPOSE According to the comptroller of public accounts, in 1996 Texas paid out more in unemployment insurance (UI) benefits than all but five other states. However, the state's percentage of fraudulent overpayments, at 0.62 percent of total benefits, was well below the national average of 1.08 percent. While this could be because of a strong fraud deterrence system, a more likely reason is the inadequate detection of fraud. Texas is a leader in the automation of its UI system, but the state could do a better job of identifying and recovering fraudulent benefit overpayments by adopting a more efficient fraud detection system and specific overpayment recovery strategies proven successful in other states, such as garnishing overpayments from workers' wages or from workers' compensation benefits. House Bill 1397 requires the Texas Workforce Commission to conduct a study to determine the number of fraudulent UI claims filed and paid and to use the results of the study to develop and establish the most effective fraud detection system possible. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS House Bill 1397 amends the Labor Code to require the Texas Workforce Commission (commission) to conduct a study to determine the number of fraudulent claims filed and paid under the Texas Unemployment Compensation Act and to use the study to establish the most effective fraud detection system. The bill requires the fraud detection system to incorporate the commission's automated system for filing and paying claims. In developing the study, the bill requires the commission to use, as a model for the required study, analogous studies performed by other governmental entities that administer benefit programs, including the medical assistance program administered by the Health and Human Services Commission. The study must include thorough research on fraudulent schemes and methods of fraud detection used in other states and an analysis of businesses and industries most affected by fraud under the Texas Unemployment Compensation Act. The bill requires the commission to report the study results to the presiding officer of each house of the legislature not later than January 1, 2003. EFFECTIVE DATE On passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001. EXPLANATION OF AMENDMENTS Committee Amendment No. 1 replaces references to the Texas Workforce Commission with the Office of the State Auditor (auditor). The amendment requires the auditor to conduct the study to determine fraudulent claims under the Texas Unemployment Compensation Act and specifies that the study is also to determine the number and amount of fraudulent premium underpayments by employers. The amendment authorizes the auditor, if the auditor determines that a fraudulent claims study should be conducted in whole or in part by another entity, to contract with one or more independent, non-governmental entities to conduct part or all of the study. The amendment requires the auditor to be responsible for overseeing the study and for submitting the results. The amendment also requires the office to consider studies performed by the U.S. Department of Labor and other state employment security agencies concerning the misclassification of workers resulting in underpayments to the Unemployment Insurance Trust Fund, and to specifically evaluate the use of targeted audits to reduce misclassification.