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Experts say fraud rampant in federal worker disability program

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Watchdog,Mark Flatten,Watchdog Blog,Free Ride Feds,Waste and Fraud

First of a three-part series

A postal worker who ran marathons found her race times improved after she began drawing federal disability checks for an alleged back injury.

Another disabled federal employee went scuba diving, skied in Switzerland and did flips on a trapeze. She spent part of her $193,000 in disability payments on a boat named "Free Ride" before she was caught.

A Justice Department lawyer collected $90,000 in annual disability checks after claiming the stress of his job kept him off the job. Apparently the cable TV show he began hosting while drawing disability pay wasn't so stressful.

Then there was the civilian Navy employee who owned and operated a "gentleman's club" while on disability.

Those people were caught scamming the system and cheating taxpayers. Most scammers are not.

Rooting out fraud by federal workers who claim disabilities due to work-related injuries is a low priority at most agencies, according to years of probes by government investigators.

Federal employee disability compensation is highly vulnerable to abuse by people who exaggerate injuries they claim keep them from returning to work, investigators found.

The Federal Employees' Compensation Act (FECA) disability fund created nearly a century ago costs taxpayers more than $3 billion per year, including about $2.1 billion in direct payments for lost wages and the rest for things like medical treatment and death benefits.

No one knows how much fraud is occurring. The Department of Labor, which administers FECA for 70 federal entities, doesn't track fraud referrals and convictions, which can be pursued through DOL or by agencies on their own.

Still, DOL claims improper payments are extremely rare, less than half a percent of all costs. But DOL's Inspector General discounts that estimate, saying in a recent report to Congress that levels of fraud it finds indicate otherwise:

"OIG investigations continue to identify high amounts of FECA compensation and medical fraud, which appears to surpass the Department's improper payments estimates."

Similarly, the Government Accountability Office has regularly found since 2008 that DOL lacked an effective strategy to identify improper payments and made fraud prevention a low priority.

Part of the problem is there is no incentive for federal agencies like DOL to prevent disability fraud, said David Williams, U.S. Postal Service Inspector-General. The postal service paid more than $1.3 billion on FECA claims last year, the most of any federal entity.

The generous benefits and lack of aggressive oversight make FECA vulnerable to scammers, he said.

"The risk is just through the ceiling," Williams said. "The system has almost inadvertently created a mutating virus for making claims. You can make as many claims as you want.

"If your claim is baseless and fraudulent, you can just go again. Even if your previous claim was fraudulent, you are not banned from the program. You just learn and adapt."

The postal service accounts for more than 40 percent of all FECA expenses, and has a unique incentive to investigate fraud.

At other agencies, FECA costs are automatically included in appropriations and the money is passed through to DOL, leaving little reason to police fraud, Williams said. Multiple IGs at other agencies agree with Williams.

But the postal service, which lost almost $16 billion last year, is supposed to operate like a private company, so FECA payments come out of its bottom line.

Gary Steinberg, acting director of the DOL FECA office, disagrees with the finding that fraud rates are much higher than claimed.

"We take our stewardship very seriously, performing accountability reviews of our program on an ongoing basis," Steinberg said.

"When fraud is suspected we have always and will continue to refer those cases to the proper authorities. We consider any amount of fraud or improper payments to be unacceptable."

Other flaws make FECA vulnerable to fraud, according to investigators.

People claiming workplace injuries can pick the diagnosing doctor, then change their stories as needed to be awarded claims. Only DOL -- not the employing agency -- can order second opinions from approved doctors.

Injured workers are mostly trusted to provide accurate information on things like dependents and outside income.

Labor investigators lack access to payroll databases from the Social Security Administration or the National Directory of New Hires, which could show whether someone is working an unreported side job while collecting disability benefits.

There also is no clear division of responsibility for investigating fraud between DOL and agencies paying into the fund. Both can investigate fraudulent claims, but only DOL can cut off benefits.

DOL's lax fraud enforcement is not unique.

An IG investigation of Customs and Border Protection cases in 2012 questioned whether the agency can verify any of its employee disability claims because of missing documents and an excess of processing errors.

A Department of Justice IG investigation in 2009 found DOJ "lacks effective controls to reduce risk for waste, fraud, and abuse in its FECA program."

In fact, some Justice entities, including DEA and the U.S. Marshal's service weren't pursuing potential fraud cases.

DOJ administrators told the IG they doubted that any fraud existed there "because the integrity of the personnel and desire to return to work minimizes the risk for fraudulent claims."

The DOJ IG wasn't impressed: "We conclude it is not sufficient to rely on the integrity of all personnel to prevent any abuse."

DOJ spokesman Peter Carr said the department changed its procedures as suggested by its IG and aggressively pursues potential employee fraud.

Go here for Part Two of this three-part Washington Examiner Watchdog series. Part three will appear Wednesday. And don't miss Fox News Correspondent Doug McKelway's joint report on fraud in the federal employees disability program.

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