ACS/Xerox Contract Worker Exploited Loophole In Private Contractor's System To Fraudulently Receive $34,000 In Child Support Payments

A fraudulent scheme devised by an employee of ACS/Xerox, the private contractor hired by the state's Family & Social Services Administration to manage welfare services, has resulted in charges against the employee and three other persons. According to the Star's Michael Boren, Michelle Milbourn, 40-year old employee of ACS/Xerox, overheard a supervisor discussing a loophole in the private contractor's system for processing child support payments that could be exploited to fraudulently receive payments. Milbourn, a mother of four children, found friends who aided her in receiving about $34,000 in fraudulent payments through her own child support account over a one-year period beginning in December, 2011. Boren's story describes the scheme:

The loophole was rather simple: The Kid Star system could accept checks for less than $5,000 and pay them into a child support account — even before the check was cleared by a bank. That essentially means someone could still get the money from a bad check, so long as there were no other issues with it. Only checks for more than $5,000 would cause the Kid Star system to wait for bank clearance.

Milbourn first tested the loophole in December 2011, when she asked Tessa Rooney, a 22-year-old friend of her oldest child, to provide checks for the scheme, according to the affidavit. Milbourn allegedly filled out two checks, each for $3,150, and then had Rooney, of Mooresville, sign them, the affidavit said. The checks were posted in Milbourn’s child support accounts before the bank could bounce them.

For the next year, Milbourn allegedly used a similar check scheme — soon involving her friend, Andrea Brown, 35, Indianapolis — to eventually receive $34,824 in false child support funds, according to the affidavit. She paid those involved up to $500 for the checks, which were always made for less than $5,000 so they could fall through the loophole.

Boren says officials for the private contractor did not discover Milbourn's scheme until April of this year after noticing on spreadsheets that a number of payments had been paid through Milbourn's account involving payments where the checks had been returned for non-sufficient funds. The private contractor fired Milbourn on May 3. Boren says that a fourth person, Kathleen White, has also been charged in the scheme, along with Milbourn, Tessa Rooney and Andrea Brown. They face felony charges of theft, forgery and conspiracy. I found this comment from Inspector General David Thomas interesting:

Inspector General David Thomas said his office is working with DCS to determine whether DCS officials could have identified the problem sooner. They also are working to determine whether the system that allowed Milbourn to collect the money — despite the fact that checks deposited into her account later bounced — needs improvement.

“It’s definitely not a good thing that a system allowed the checks to come in and then bounce,” Thomas said. “But that’s why crimes are crimes because people always try to find ways to get around any system.”

If child support payments were being paid out for which there were no funds to cover, then who was covering the shortfall in the account. Boren's story answers that question. "DCS officials said the money came from its contractor, Xerox, not taxpayers," Boren writes. "Xerox reimbursed the state for the stolen funds, according to the affidavit." How would DCS even know there was a problem if the private contractor was fronting the payments for non-sufficient funds to cover accounting discrepancies?