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One bad apple shouldn't spoil the bunch

October 8, 2015

A decade ago, a City Journal writer offered a pithy solution to stopping Medicaid fraud around the country: “For starters, states should try.” Medicaid fraud was costing taxpayers some $30 billion each year at that time. 

Examples from places like Texas, where lawmakers recovered some $441 million between 2003 and 2004, gave state policymakers ideas for how to limit misuse. The solution was not just to hire more staff but also to have practitioners (nurses and pharmacists, for example) scrutinize patient records and doctor bills. States like Kansas and Ohio quickly followed Texas’ lead.

Every program involving taxpayer money to provide a service is vulnerable to fraud. Even programs that some depend on like food stamps and public schooling can be subject to financial misuse. Arizona’s Auditor General, for example, reports on the misuse of taxpayer money in everything from school districts to an instance where a public employee stole $84,193 from county parks.

Arizona took a leadership role among states by enacting the nation’s first education savings accounts (called Empowerment Scholarship Accounts in our state). Today, some 2,400 Arizona children use the accounts for a quality education. Parents can buy textbooks, pay tuition for an online class, save for college, and pay for private school tuition with an account—to name just a few possible uses. 

As Goldwater Institute and Friedman Foundation research has found, parents using the accounts to help their children are consistently satisfied with their child’s education.

However, just as individuals can steal money in Medicaid and other taxpayer-funded programs, the potential for fraud exists with Arizona’s accounts. The Goldwater Institute strongly condemns any misuse of an account and the monies meant to help children find an excellent education. We applaud Arizona Attorney General Mark Brnovich and the Arizona Department of Education for discovering misuse, closing accounts when fraud is discovered, and referring matters for criminal prosecution when appropriate. 

It is deplorable for a parent to take money meant for the benefit of their child’s education and future quality of life and use it for personal gain or selfish activities. 

Since the accounts’ inception, the Institute has recommended ways to prevent fraud and even recover taxpayer funds. In order for Arizona policymakers to stop misuse of the accounts, two critical ideas must be acted on immediately: 

  • First, the Arizona Department of Education and the state treasurer should work with Bank of America to tighten protections on what can be purchased with the cards, not just where the cards can be used. Accountholders should not be able to use their child’s account to buy a TV, even if they can buy school books at the same store.

Various administrative restrictions have prevented the agencies from enacting such reforms to date. Department of education and treasury officials must explain to the bank the imminent risk to students and taxpayers if this change is not adopted.

  • Second, state agencies, including the department of education and auditor general, should act on the provisions already in law to stop account misuse. For example, agencies can already create anonymous fraud reporting systems like 1-800 numbers and online portals.

In addition, Arizona can enact a surety bond system modeled after the bond program in place for notary publics around the country. Public notaries pay a small fee (sometimes as low as $26) and the state is insured against misuse. These funds can help state auditors recover money if funds are misspent.

The Arizona Department of Education reports just 5 instances of criminal misuse of education savings accounts since 2011, while at least some 3,000 accounts have been opened during this period. Meanwhile, student lives are being changed. From students with autism learning to talk to a visually impaired student finishing high school and enrolling in college (while in his own time climbing Mt. Kilimanjaro and swimming across the San Francisco Bay to Alcatraz), education savings accounts are helping children in Arizona, as well as Florida and soon Nevada, Tennessee, and Mississippi have a chance at the American Dream.  



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