Legislature(2005 - 2006)CAPITOL 106

04/05/2005 08:00 AM STATE AFFAIRS

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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                                                               
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                                                               
8:10:47 AM                                                                                                                    
REPRESENTATIVE ELKINS asked for an example major fraud.                                                                         
8:11:04 AM                                                                                                                    
SENATOR  SEEKINS   deferred  to   the  Permanent   Fund  Dividend                                                               
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                                                               
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                                                               
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                                                               
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                                                               

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