Legislature(2005 - 2006)CAPITOL 106
04/05/2005 08:00 AM STATE AFFAIRS
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* first hearing in first committee of referral
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SB 104-PERMANENT FUND DIVIDEND FRAUD [Contains discussion of HB 127.] 8:03:12 AM CHAIR SEATON announced that the first order of business was CS FOR SENATE BILL NO. 104(JUD), "An Act relating to the crimes of unsworn falsification in the first and second degrees and false information or report; requiring the establishment of a permanent fund dividend fraud investigation unit in the Department of Revenue; and providing for an effective date." 8:03:32 AM SENATOR RALPH SEEKINS, Alaska State Legislature, presented SB 104 as sponsor. He said the bill would strengthen the Department of Revenue's ability to investigate fraud associated with making false applications for the Alaska permanent fund dividends (PFDs). Under the proposed bill, the submission of a fraudulent PFD application would become a Class C felony. He reported that in 2004, the Department of Revenue examined over 1,600 fraud tips and audited over 1,700 PFD applications suspected of being fraudulent, which resulted in $1.4 million in denied or assessed dividends. Furthermore, there were three federal indictments and one conviction for crimes involving PFD fraud. SENATOR SEEKINS said currently, under state law, Alaska cannot prosecute for fraud, but the federal government can. Senator Seekins revealed that the most common fraud offense involves persons who forge the signature of another on the PFD application or related documents with the intent of receiving a dividend to which they are not entitled. He noted that the bill is not intended to capture cases, for example, where husbands and wives sign for each other; the provision of SB 104 would apply in cases where the individual is attempting to steal from another person or from the state. 8:05:26 AM SENATOR SEEKINS discussed categories of offenses. He reiterated that the bill would make unsworn falsification, as it relates to a person making an application for a permanent fund dividend, a violation in the first degree punishable as a Class C felony. 8:06:51 AM SENATOR SEEKINS said he introduced the bill because he thinks "we all" know people who are trying to tap into the PFD illegally. The bill would codify in statute a fraud investigation unit within the department. He anticipated that by having the unit in statute, it will be possible to access the national crime computer system in order to find people who may be trying to hide. 8:07:35 AM SENATOR SEEKINS, in response to a question from Representative Lynn, said the current fraud unit does not have the necessary statutory authority to be able to [access the national crime computer system] and would have to "apply to do so." 8:08:02 AM REPRESENTATIVE GARDNER noted that the House just passed HB 127, which will allow Peace Corps Volunteers to receive the PFD. One of the provisions of the bill reduced the fine for fraudulent claims from $5,000 to $3,000. She offered her understanding that "it had to do with our ability to actually collect on that." She observed that SB 104 "addresses that in a much more severe way." 8:08:49 AM SENATOR SEEKINS responded that it is a stronger way. He said he applauds any effort to collect; however, in this case, "it's not a collection issue; it's a felony." 8:09:07 AM CHAIR SEATON clarified that the idea behind lowering the fine [in HB 127] was not to lessen the impact, but to make it so that it was worth enforcing, because at the higher amount a public offender had to be provided, which was not always cost effective for the state. He added that lowering the fine also made prosecution more likely. 8:10:20 AM SENATOR SEEKINS said the intention of the bill is to be able to go after the most serious offenders. He said a warning would be clearly printed on the application. He stated, "A felony conviction has a whole lot more ramifications than a misdemeanor conviction." 8:10:47 AM REPRESENTATIVE ELKINS asked for an example major fraud. 8:11:04 AM SENATOR SEEKINS deferred to the Permanent Fund Dividend Division. 8:11:19 AM SHARON BARTON, Director, Permanent Fund Dividend Division, Department of Revenue, testifying on behalf of the division, stated that the PFD program is particularly vulnerable to fraud. She said there are 635,000 applications "to shove through the pipe in just a few months of considerations." She noted that the division began "beefing up" its investigations of fraud two years ago, and last year the legislature authorized subpoena powers for the division, which has helped substantially with audits. 8:13:05 AM DANIEL J. BOONE, Investigator III, Permanent Fund Dividend Division, Department of Revenue, testifying on behalf of the division, stated that the division is encouraging the public to file online applications, use an electronic signature - for those who have "been in the system," and receive a direct deposit. When everything is done electronically, he said, it makes it difficult to identify someone who has moved out of the state. He reported that the division is currently working on new technology that will help in identifying outside "IP" [Internet Protocol] addresses in order to tell if the person is actually in the state. The focus, he indicated, is to work to find the individuals who are "going after one PFD after another, year after year ...." He offered examples. 8:16:24 AM MR. BOONE said the current fine is not a deterrent. The subpoena power is a help. He stated that approximately 64 percent of the fraud cases are related to dealing with individuals out of the state. He offered more examples. He said, "There is no forgery, per se - ... as far as a [PFD} application - that puts teeth in anything." He said the same applies to criminal impersonation. He said, "With the [attorney generals (AGs)] and everything that they're under, it's really been difficult ... for them to take a Class A misdemeanor versus a felony case." 8:18:10 AM CHAIR SEATON noted that the committee is currently considering another bill which would allow the use of a power of attorney to submit the [PFD] application. He said, "Under a power of attorney you can't really tell somebody's intent to return to Alaska and, therefore, ... basically the intent to return to Alaska provision is made void by the use of a power of attorney." He asked if the unsworn falsifications being discussed under SB 104 often relate to the intent to return to Alaska, or if that is a totally separate issue. 8:19:12 AM MR. BOONE answered that that's a totally separate issue. He said he deals with individuals who have deliberately and recklessly disregarded material facts pertaining to their eligibility or the eligibility of others for whom they are applying. He offered examples. He said, "The ... way we pursue our cases criminally ... [is] definitely more cut and dry than in intent, which is a lot of grey area ...." 8:20:10 AM REPRESENTATIVE GRUENBERG stated his concerned about a possible constitutional challenge on the basis of equal protection regarding setting up "this particular type of fraud as a felony." He stated his strong support of the bill and explained that he wants to protect it against such a challenge. He asked, "Is there specific legislative history explaining why this is a felony and other types of unsworn falsification for similar types of benefits are only Class A misdemeanors?" 8:22:00 AM SHARON BARTON recommended asking that question of Chris Poag. 8:22:16 AM REPRESENTATIVE GRUENBERG directed attention to page 4, [lines 4- 5], which read: (2) on a form bearing notice, authorized by law, that false statements made in it are punishable. REPRESENTATIVE GRUENBERG asked if the language would be changed so that it would apply to all PFD applications and would be "punishable as unsworn falsification in the first degree." He explained, "Because an argument could be made if you don't that it would only be [a] misdemeanor." 8:23:10 AM MS. BARTON said that the division has not drafted that language but would certainly take it under advisement. 8:23:25 AM CHAIR SEATON noted that the bill would be heard by the House Judiciary Standing Committee; therefore, he said he would like most of those [kinds of questions] asked at that time. 8:23:40 AM REPRESENTATIVE GRUENBERG asked if the attorney general would testify. 8:23:57 AM CHAIR SEATON answered yes. 8:24:01 AM REPRESENTATIVE GRUENBERG recommended inserting some findings in the bill. He talked about the federal implications and mentioned the unlawful flight to avoid prosecution (UFAP). He asked Ms. Barton if one of her intentions was to be able to "get federal assistance in the enforcement of this." 8:25:37 AM MS. BARTON said most of the cases have not "flown before they've perpetrated the crime," but rather have moved out of state first. In response to a question from Representative Gardner, she said the division's approach generally has been conservative; it imposed fines just this year and the five-year forfeiture for the first time only a year ago. She said the division proceeded carefully with the first cases to determine where it was appropriate to apply the civil penalties. She said, "Now that we are looking at a Class C felony, we will certainly consult with our good [attorney general (AG)] support before we ... proceed with any ... action." She offered further details. 8:27:23 AM REPRESENTATIVE LYNN moved to report CSSB 104(JUD) out of committee with individual recommendations and the accompanying fiscal notes. 8:27:55 AM REPRESENTATIVE ELKINS interjected that he has first-hand knowledge of fraud regarding dividends and there is a surprising amount of money involved. He offered examples. 8:28:43 AM CHAIR SEATON stated that, there being no objections, CSSB 104(JUD) moved out of the House State Affairs Standing Committee.