LIRR Pension Fraud Could Happen Again
Last week, as the Metropolitan Transportation Authority (MTA) board approved a budget that funded a generous contract for Long Island Rail Road (LIRR) workers, the Government Accountability Office (GAO) released a report indicating the federal agency administering disability pensions for those workers had not done enough to prevent a repeat of a widespread fraud scheme by LIRR employees uncovered in 2008. Lack of action by that agency, the Railroad Retirement Board (RRB), could cost MTA riders and taxpayers in coming years.
Though the retired LIRR workers who committed fraud legitimately qualified for pension benefits from an MTA-sponsored plan, they falsely claimed disability benefits to supplement their pensions under a federal program administered by the RRB. From the late 1990s through 2008 as many as 1,500 retirees in conspiracy with several physicians, a union official, and a former RRB manager submitted false disability claims. Almost all of the claims were approved. If the false claims were paid in full, the estimated total RRB cost is more than $1 billion. So far those found guilty have been ordered to pay about $400 million in restitution and forfeiture. An additional 44 individuals voluntarily disclosed their involvement and agreed to terminate their RRB disability benefits.
Fraud at the RRB is expensive for the MTA not only because it helps support the disability program with payroll taxes. Fraud also adds to the MTA’s pension costs by encouraging workers to retire early and draw more expensive benefits from the MTA-sponsored pension plan, all the while generating greater turnover among workers. Additionally, fraud increases health insurance costs for unnecessary physician services.
Following the LIRR fraud revelations, the RRB developed a plan to identify fraud that focused on LIRR applicants. As part of the plan, the RRB was to order its own medical exams for all LIRR claimants, increase oversight through phone calls and quarterly visits to the Westbury, Long Island field office, and improve collection analysis of data related to claims. However, in March 2013 an RRB Office of the Inspector General report indicated that 96 percent of reviewed claims from LIRR employees were approved, a rate unchanged from before the fraud was discovered. According to the report, this “is indicative of systemic problems within the program.”
GAO’s recent audit focused on the RRB’s Temporary and Permanent Disability program. GAO reviewed internal protocols and standards for processing claims, interviewed RRB managers and staff at headquarters and in four district offices (including Westbury, Long Island, the source of the LIRR fraud claims), and audited a random sample of claims approved in fiscal year 2012.
The audit revealed two types of failure. First, RRB staff did not sufficiently verify applicants’ disabilities; they did no independent supervisory review of claim submissions to ensure sufficient supporting documentation. This violates the basic GAO guidelines for all federal agencies, Standards for Internal Control in the Federal Government. Second, the RRB has inadequate information on the earnings of those receiving disability benefits. According to federal law, disabled beneficiaries are not to earn more than $10,500 annually; however the data used by the RRB to monitor earnings was outdated by up to one year and did not cover all potential sources of income.
GAO makes five recommendations to the RRB: use better earnings data, conduct a supervisory review of all disability claims, develop a quality assurance review for the disability determination process, develop performance goals, and establish procedures to identify and to address potential fraud. Although the RRB has agreed to the recommendations, it remains to be seen whether they will be implemented or if they will be effective.
By Charles Brecher and Ashley Emerole