Office of House Bill AnalysisH.B. 1397
By: Brimer
Economic Development
Committee Report (Amended)


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.  


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. 


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. 


On passage, or if the Act does not receive the necessary vote,  the Act
takes effect September 1, 2001. 


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