HBA-BSM S.B. 444 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 444 By: Fraser Economic Development 5/17/2001 Engrossed 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. Senate Bill 444 requires the state auditor to conduct a study to determine the number of fraudulent UI claims filed and paid and requires the Texas Workforce Commission 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 Senate Bill 444 amends the Labor Code to require the state auditor to conduct a study to determine to the fullest extent possible the number of fraudulent claims filed and paid under the Texas Unemployment Compensation Act and the number and dollar amount of fraudulent premium underpayments by employers. The Texas Workforce Commission (commission) is required to use the study to establish the most effective fraud detection system. If the state auditor determines that the study should be conducted in whole or in part by another entity, the state auditor is authorized to contract with one or more independent, nongovernmental entities to conduct all or part of the study. The bill requires the fraud detection system established as a result of the study conducted to incorporate the commission's automated system for filing and paying claims. In developing the required study, the state auditor is required to use as a model analogous studies performed by other governmental entities that administer benefit programs and to evaluate the use of targeted audits to reduce misclassification. 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 state auditor to report the results of the study 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.