How to get paid for not working

As many as 25,000 able-bodied Canadians may be living moderately high on the hog while “unemployed.” Here’s how some individuals, groups - and even one entire town -struck it rich by not working

BLAIR FRASER June 1 1968

How to get paid for not working

As many as 25,000 able-bodied Canadians may be living moderately high on the hog while “unemployed.” Here’s how some individuals, groups - and even one entire town -struck it rich by not working

BLAIR FRASER June 1 1968

How to get paid for not working

As many as 25,000 able-bodied Canadians may be living moderately high on the hog while “unemployed.” Here’s how some individuals, groups - and even one entire town -struck it rich by not working


WHAT IS THE BIGGEST single swindle ever carried out in Canada? The Atlantic Acceptance collapse? The Windfall Mines downfall?

Nothing like these. The biggest fraud in Canada is a regular annual affair. It is perpetrated by thousands of people (nobody knows how many) and runs to millions of dollars (nobody knows exactly how much). The victim of this continuous con game is the Unemployment Insurance Fund, and through it the Canadian people — some five million workers and 350,000 employers who together put in 80 percent of the fund, and the rest of us who as taxpayers contribute the balance.

Estimates of the total amount thus stolen each year vary widely. The only verifiable figure is the one and a half million dollars which, in the past year, was actually established as the total of “overpayments” to people who had claimed unemployment-insurance benefits. (Some but not all of this sum was recovered.)

These overpayments are the cases that were caught. Officially, the Unemployment Insurance Commission estimates the real total at about double the established amount — Chief Commissioner J. M. DesRoches in a recent statement put it at “more than three million dollars” for 1967. But one of the senior officials in his investigation department guessed that “we don’t catch even 10 percent” of the unemployment-insurance swindlers. If he is right, Canadians are being cheated out of something more than $15 million a year.

To be fair to the UIC sleuths, one must add that they probably catch far more than a 10th of the major, deliberate frauds. The vast majority of overpayments go merely to people who let an extra week go by, after they’ve got new jobs, before notifying the commission to cut off their benefits. Usually it’s a matter of bridging the gap between starting work and getting the first pity packet.

That kind of petty leakage is probably inevitable. Perhaps the computer will plug it some day, but at present the cost of stopping it entirely would be far more than the leakage itself. The investigators concentrate instead on the deliberate fakers, some of whom are remarkably ingenious.

The most bizarre case of recent years was

at Grandes Bergeronnes on the lower St. Lawrence, near Baie Comeau, where virtually the entire local labor force was recruited for a fraudulent winter works project. Under the winter works scheme the federal and provincial governments pay half the direct labor costs of any project, and the municipality pays the other half. Here the village council put in a dozen names of men who did not work at all, collecting about $7,000 from the central treasuries for these. It also exacted a kickback of 10 percent from those who really did work. This money was used for the equipment and capital costs required to get the project going, and was further fattened by the simple device of claiming wages for several weeks before the work started and for several more after it had stopped. Altogether, the council contrived to provide a winter job for every able-bodied man in town without spending a cent of its own money.

It’s possible they might have got away with the scheme if they hadn’t gone on to put the local work force on unemployment insurance when the “winter works project” was supposedly completed. The UIC auditor in Bai'c Comeau noticed that the unemployment-insurance stamps, on which these claims were based, didn’t seem to check with the amounts of reported earnings. He went out to the village to find out why, and there discovered that the secretary-treasurer, a carpenter by trade, had prudently destroyed all the records when he heard that the auditor was coming. There ensued a long interval of patient toil whereby back records were used to reconstruct the missing time sheets, and to prepare a set of fraud charges that would stand up in court.

In the end 35 men were prosecuted, including the mayor, the secretary-treasurer (who faced 69 separate charges) and all six aldermen. They all pleaded guilty. But then a problem arose that is fairly common in UIC fraud cases.

The judge put in a long-distance call to UIC headquarters in Ottawa. “What should I do with these people?” he asked. “I can’t put them all in jail, there isn’t room, and besides they’d leave half the village destitute. I can’t give them fines as big as the fraud really warrants, because none of them could pay that much and so they’d go to jail anyway. What do you suggest?”

UIC officials were properly discreet, but they managed to intimate that if moderate fines were imposed (the highest was $310) they would not ask the Crown to appeal. The grand total of fines came to $2,285 — which, even with the recovery of the money fraudulently obtained, was a meagre return for more than two years of work on the case.

This situation is typical. For obvious reasons the great majority of culprits are desperately poor. And not infrequently, it turns out that they’re already in prison.

Recently in Kitchener, Ont., a man drawing unemployment insurance sent in a routine notice of change of address. It gave a new street and number that proved to be quite correct. The Kitchener Unemployment Insurance Commission office just didn’t realize that it was the address of the local jail.

In British Columbia’s Oakalla prison an inmate kept himself on unemployment insurance by sharing it with one of the guards, who mailed his application forms and brought back the cheques. In a small town in northern Saskatchewan a father mailed the forms to his son, who was in jail in the midwestern United States, and acted as broker for the cheques when they duly arrived. On a rather more exalted social level, a family in Timmins, Ont., was found to be acting as go-between for their son who was living it up in Italy on his unemployment benefits.

In Montreal, a routine check with the city welfare department revealed that one claimant was registered under two names and drawing benefits for both of them while he ser.ved a term in Bordeaux Jail.

'In another double-identity case, also in Montreal, the owner of a small business that was heading for bankruptcy had the foresight to put his name on his own payroll not once but twice—same surname, two different Christian names. After the bankruptcy he applied for unemployment insurance under both of them. Identical twins, he explained to the UIC inspector who looked into the case; for some time he was able to keep up the pretense by dashing back and forth between the two addresses he had given, and at each one posing as a different “twin.”

But even these outright criminals are mostly poor people, and severe punishment doesn’t do much good. Much easier, cheaper and more effective is to impose a penalty under the Unemployment Insurance Act itself, a penalty that does not require prosecution and therefore needs a much lighter burden of proof. The penalty consists merely of a loss of benefits for a stated number of weeks, and therefore is automatically collected the next time a culprit applies for unemployment insurance. (He has the right to appeal, but few do.)

Three or four such penalties are imposed for every one actually prosecuted, though the

incidence of prosecution has been rising lately with the stepping up of action against unemployment frauds. In 1964 only 1,246 fraud charges were laid and resulted in convictions; the total for the year just past, when figures are complete, will be about 2,400, or double the 1964 record.

The increase is due not to the use of computers (the UIC hasn’t got any yet, though it hopes to buy time on one soon), but to a more systematic use of the available information. Inquiries now focus on the “vulnerable areas” — the young married women who, by remarkable coincidence, tend to become “unemployed” three months before a child is born; the young, able-bodied men who are strangely and repeatedly “unemployed” in regions where jobs are plentiful; the elderly folk who are “unemployed” for the last few months before they retire on pension.

Another new technique is the “saturation check” of districts where irregularities are suspected. Inspectors visit not just a sampling but every single claimant of unemployment-insurance benefits in the suspect area — and the fraudulent claims they find in this way are a significantly higher proportion of the total than any small spot check has ever revealed. Obviously, these methods require more men on the investigating staff. The field force has been increased in the past year by nearly 20 percent, but this is only

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Who are the cheaters? “Honest” people

a beginning — when the civil-service establishment is released from the “freeze” imposed by the government’s strict economy campaign, enlargement of the UlC’s investigation force will be much more substantial and detection of frauds will rise accordingly.

“You give us 500 men, we've got work for 500,” says a regional director. “Give us 50, and we’ll have work for 50.”

Stricter enforcement will not necessarily mean heavier punishment. Of the 2,500 men and women prosecuted and convicted in the past year, only 17 have gone to jail, and the fines levied on the remainder averaged only $56.84 apiece. Enforcement officers are not at all unhappy about this leniency. It's detection, not punishment, that has the deterrent effect, they say, and in unemployment-insurance frauds the deterrent effect of being caught is very high.

“We used to keep a separate file for those who had been caught cheating,” says an Ottawa official, “but we gave it up as not worthwhile. The repeaters don’t run higher than one percent of all cases. For the other 99 percent, being caught once is enough.”

One reason for this is that those who cheat the unemployment - insurance fund are not, as a rule, criminals or habitual law evaders. An astonishing number of intelligent, otherwise honest people have the illusion that the UIC “owes” them the money they have paid as premiums, and that in drawing benefits they are merely “getting their money back.” In fact, of course, each insured employee pays only 40 cents of each dollar contributed in premiums, with his employer and the taxpayer putting up the rest; moreover, the benefits paid during unemployment are vastly higher than the premium paid by, or on behalf of, any individual. That’s why periods of heavy unemployment exhaust the entire fund, as happened in 1961 when the government had to make special advances, directly from the federal treasury, to a fund that in four years had been reduced from $921 millions to zero.

What does discourage the UlC’s enforcement staff (though as good civil servants they can't say so in public) is the variety of legal loopholes in the unemployment - insurance act. They calculate that “misuse” of unemployment insurance (i.e claims that are not justifiable in terms of need or common sense, but are perfectly legal) costs far more than the

“abuse” by unlawful claimants. The reason for these gaps in the law is the failure to distinguish between an insurable risk and a welfare payment.

For seasonal workers, some period of unemployment each year is not a risk, it’s a certainty. Lumberjacks and gardeners, Great Lakes sailors and highway laborers all know their jobs will end before Christmas each year; some are paid accordingly high wages, to tide them over the slack times. Yet all these job categories have, from the beginning, been “insured” against the “risk” of unemployment on the same basis as those that are continuous the year round.

This anomaly was aggravated when, 11 years ago, the government decided to admit self-employed fishermen to the “insurable” categories, and it was further aggravated last year by the addition of farm workers. In both cases the intention was worthy enough — it was to help relieve the desperate poverty that is commonplace in Newfoundland outports. Apparently the government did not realize that in providing “insurance” for these welfare cases, they were also “insuring” the prosperous fishermen of British Columbia, for whom the annual winter break is a pleasant vacation, and whose unemployment-insurance cheques cover only a fraction of their bar bills.

Even in Newfoundland and other areas where the poverty is all too real, the enforcement of regulations is almost impossible. In one recent case, the UIC had to fly a whole court into a Newfoundland outport to conduct 22 prosecutions for unemployment-insurance fraud. All 22 accused were convicted, but the operation was neither palatable nor profitable to anyone concerned.

There is only one way to remove this difficulty: rewrite the law to put welfare cases into one category, insurable employment into another. Assess employers according to the amount of unemployment they create each year — e.g., the annual shutdowns in the automobile industry for changing of jigs and dies — instead of letting them charge a big fraction of their true labor cost to the government and the general public.

How much hope there is of such a fundamental change is a matter of speculation. But if the new government is looking for ways to demonstrate its resolution to reappraise and rethink policies, this might be a good place to start. ★