October 7, 2005

The general mechanics of the loophole were reviewed by SSA and GAO, and the loophole was deemed to be legal (albeit regrettable).  Effective July 1, 2004, the loophole was formally curtailed by legislation (the Social Security Protection Act of 2004). 

Last year, we contacted Congressman E. Clay Shaw, Jr. and expressed our belief that, although the loophole, per se, was judged to be legal, some school districts were bending or breaking rules in order to use that loophole.  They were merely pretending that their last-day workers were in employment qualified for Social Security coverage, when they were not.  If we were correct in our belief, the GPO loophole was not available to these workers - even though the one-day employment preceded the change of law on July 1, 2004.  We advised Congressman Shaw that this was a significant issue, for the financial implications could be enormous.

1. Texas school districts have no authority to give Social Security coverage to employees who are members of the Texas Teachers Retirement System (TRS) unless the districts are specifically given that authority by their Section 218 agreements.  (And, of course, the mandatory coverage rules don't apply to members of TRS.)  However, the Section 218 agreements of some districts do not extend Social Security coverage to workers in part-time positions.  This begged the question:  Were these one-day workers (who were all members of TRS) in full-time or part-time positions?  If they were in part-time positions, they did not qualify for Social Security coverage and, in turn, did not (and do not) qualify for the GPO loophole.
2. In many cases, the "processing fees" paid by the teachers to the hiring school districts were much larger than the expected wages.  It seemed that the fees might, in reality, constitute a return of the wages paid.  If that was, in fact, the case, the employment was not bona fide, and thus, not qualified for Social Security coverage.  Again, this would cause the GPO loophole to be inoperative.

In her response to the Congressman (which he shared with us), Commissioner Barnhart stated:

It is true that many part-time positions are not covered under Section 218 agreements in Texas.  However, it is also true that full-time positions exist that may be filled part of the time.  So, when we determine if a position is covered under a Section 218 agreement, we must look at the status of the position, not the status of the person who fills it.

The Commissioner made reference to the specific case of the Anahuac Independent School District.  Its hiring program involved using the one-day workers as substitutes for absent full-time teachers.  Therefore, she concluded that the positions were full-time, even though the employees may have worked part-time hours within those positions.  

Although we could not argue with her logic with regard to Anahuac, our concerns regarding the other school districts were unabated.  We were left to wonder how SSA could be certain that the other Texas districts used their part-time workers in full-time positions?  Our concerns grew after Freedom of Information Requests revealed that, of the dozens of school districts with one-day hiring programs, SSA had reviewed only Anahuac and Coleman.  (And, as explained later, both districts made significant misrepresentations to SSA during its reviews.)

In response to Congressman Shaw's second concern, regarding the large fees paid to the districts, the Commissioner reached the following conclusion:

The fact that these substitute teachers paid the Anahuac Independent School district a fee for processing their job applications did not change the fact that Anahuac ISD, as the employer, controlled the conditions of employment (underline added).

Based upon this reasoning, Commissioner Barnhart concluded that "an employment relationship existed."

We could understand the logic of this finding, but only if the fees were, in fact, for "processing their job applications."  What if the superintendent of a district admitted that the fees were specifically intended to recover the minimum wages and FICA taxes paid (and not the "processing"costs)?  Would the Commissioner have reached the same conclusion regarding the existence of an employment relationship?  To us, it seemed unlikely, for the following reason:  Such a finding would fly in the face of a 1976 Social Security Ruling.  That case involved a 71-year-old lady who claimed benefits on the basis of work performed for her sister.  Although she had been paid, she admitted to having subsequently paid back the wages to her sister.  In denying her claim, SSA noted:

Of particular significance to the Appeals Council and an even stronger indication that a true employment relationship did not exist was the revelation made by the claimant during the course of her appearance before the Appeals Council that she paid back to her sister whatever her sister paid to her.  In actuality, the claimant received no remuneration for the services performed for her sister (underline added)[2]

We think that the ruling, cited above, merely states the obvious:  Some expectation of compensation is always required for bona fide employment.  If a person pays for his own wages (not to mention, the employer's share of FICA taxes) he is not really an employee - whether or not his work is (supposedly) supervised by someone else.  A person who pays his own wages is, in reality, a volunteer - and doesn't qualify for Social Security coverage.

Thus, although we appreciated the logic of Commissioner Barnhart's conclusions, and we respected her authority to make such interpretations, we were not confident that her responses were applicable in relation to each and every individual school district.  We felt the need to gain more information about the individual school districts and their one-day hiring programs.  For this reason the PPTO undertook its own audit of several Texas school districts.

The PPTO audit

The Public Program Testing Organization (PPTO) conducted an audit of the one-day worker programs of several Texas school districts.  Our objective was to ensure that Social Security coverage was given only to workers in positions qualified for that coverage.  Although most audit activities took place between March and July, 2005, several audit-related inquiries were made before and after those dates.[3] 

We found no significant irregularities in the programs of several of the districts we reviewed.  They did not charge excessive fees, did not schedule scores of one-day workers on the same day, and did not violate their Section 218 agreements.  The programs of these districts met the standards set forth by SSA, as articulated by Commissioner Barnhart.  However, we identified 15 other school districts, shown in Table 1, below, that withheld FICA tax even though their one-day workers did not qualify for Social Security coverage.  The workers did not qualify because they were not in positions given Social Security coverage by the relevant Section 218 agreements, and/or because the employment was obviously not genuine. 

A few notes about Table 1

Next to each school district name, you will find the approximate student population of the district.  We have provided this information so that you can assess how large these one-day worker programs were, relative to the size of the districts.  For example, West has only 1535 students - district wide - yet it hired 1795 extra "custodians" in a 13 month time-span. 

Although $10 million is substantial, it is a mere pittance compared to the estimated damages that will be inflicted upon the Social Security trust fund.  (See Column 4.)  Assuming that the average one-day worker will collect $93,000 in spousal/survivor benefits (GAO's estimate), the trust fund will lose $2.1 billion due to the abusive conduct of these districts.  That is a truly amazing amount, particularly when it is realized that the total student population of these 15 districts - combined - is equal to only 15% of the student population of a single school district - Houston.

In the state of Texas, there is no uniform definition of "part-time."  Each district establishes its own definition.  Therefore, we asked school officials several questions designed to ascertain how their respective districts distinguish full-time from part-time employment.  Some of our questions were general ("How many hours do custodians have to work to be considered full-time?"), and some of our questions were specific to Social Security ("Do you have a policy regarding who does and doesn't get Social Security coverage?"  "Is every part-time worker in your district given Social Security coverage?").  We expected that there might be multiple definitions of "part-time," and we wanted all of the definitions used by each district. 

Further, it appears that some of the 11 districts knowingly disregarded the part-time exclusions in their agreements.  In other words, the statements made to us by district officials suggest that they knew of the part-time exclusion in their Section 218 agreements, but did not apply the restriction to the one-day workers. 

Whether the districts were acting out of ignorance or connivance, the bottom line is the same:  The one-day workers hired by these 11 districts were not, in fact, in qualified Social Security employment.  Therefore, they were not, and are not, entitled to use the GPO loophole.

With regard to all of the 15 districts in Table 1, above, we found evidence that the employment was not bona fide, for the reason already discussed:  The wages of the workers were repaid to the "employer."  That was freely admitted by officials in several districts.  However, in some cases there were additional factors indicating that the employment was not bona fide:

• The sheer number and concentration of one-day workers.  For example, one small district hired 1199 one-day "custodians" in a single month - June, 2004.  (That, of course, happened to be the last month the loophole was available.)  Another district hired 365 workers in a single day!
• The inability of some districts to identify who ran and supervised their one-day worker program.  For example, Somerville's business manager told us:  "The [one-day work] program was managed through third-party administrator, R. Martin and Company."  However, the owner of that company, Ron Martin, told us that his company had absolutely nothing to do with the management or supervision of the program.  And he added:  "All I am is an investment advisor for teachers."  Despite repeated questioning, we could find no one who took responsibility for the assignment and supervision of the Somerville workers.  It appears that they simply showed up to fill in their timecards and termination papers.

The nature of the audit evidence

In the district-by-district summaries which follow you will find the key results of our audit, including the nature of the evidence and the sources of that evidence.  You will see that one district (West ISD) had a 2-track employment scheme in regard to Social Security coverage.  It provided coverage to 1795 custodian "posers," who each worked only 6.5 hours.  At the very same time, West enforced the part-time employment restrictions in its Section 218 agreement to deny Social Security coverage to its REAL nonprofessional workers.  These lower-income employees - workers without the relatively opulent pensions of the teachers - received no Social Security coverage whatever, despite working up to 8 hours per day and up to 30 hours in a week.  In fact, to this day, these workers get no Social Security coverage from West.

Other districts also admitted to charging fees to so that they'd recoup the wages paid.  For example, the superintendent of Yoakum ISD wrote that the fees charged by the district "defrayed the cost of having to pay them a minimum wage...."  He added that there was residual fee income sufficient to "purchase everyone in the district a Christmas present."  Again, the other workers at Yoakum - i.e., the real workers - were not required to pay any fees.

These are just a few examples.  For each of the 15 districts, we have evidence that strongly suggests that the employment was not covered by the Section 218 agreement and/or the employment was not bona fide. 

Before concluding, it might be useful to put certain matters in perspective.  From my years of practice as a public CPA and auditor, I know that SSA generally tries to implement the spirit of the law, even if minor infractions of the rules must be overlooked.  For example, if we were dealing with a person who had worked for nearly 10 years in FICA employment but, due to a technicality, was one day short of the amount needed for benefits, I suspect that SSA would make every effort to find a way for that person to get his last day of covered employment and, thus, his benefits.  That would be laudable, and would probably be compatible with the intentions of Congress.   

After all, in many ways the school districts behaved like the promoters of illegal tax shelters - the only difference being that the districts sold Social Security benefits, whereas tax shelters sell tax breaks.  And, the teachers who participated in these schemes were no less culpable.  A $200-per-day teacher knows that he will not advance his career or economic position by switching to a $40-per-day janitor job - especially if he has to pay related fees of up to $750.  The teachers who played this game never sought to earn money through genuine employment.  Rather, they sought to make a windfall from the Social Security trust fund - our trust fund. The above statements notwithstanding, we pass no moral judgments here.  We just want the laws to be enforced.  Those who worked in genuine and covered employment on their last day are entitled to the benefits of the loophole.  However, those who did not meet the technical requirements of the loophole are owed nothing.

Finally, let's put the $2 billion into perspective.  It is as much as the entire 2004 United States Housland Security budget - combined - for:

• State and local law enforcement terrorism prevention initiatives,
• Grants to provided firefighters with health and safety equipment and vehicles as they prepare to respond to possible terrorist incidents,
• The U.S. entry-exit initiative that tracks both the entry and exit of visitors to the U.S., and
• Infrastructure and technology improvements

We hope that the Office of Inspector General will aggressively investigate the matters raised in this report by promptly launching its own audit of these 15 school districts.  Time is short due to the statutory time limits for correcting Social Security earnings records.  Unless an inquiry is commenced by April, 15, 2006, some losses will become inevitable.

Thank you for your attention to this important matter.

Joseph N. Fried, Director

SUMMARY OF DISTRICT BY DISTRICT AUDIT RESULTS

West ISD (1795 one-day workers)

Violation of Section 218 agreement

West is a small district with just 1535 students at all age levels,[6] yet it hired 1795 one-day workers in the span of about 13 months.[7]  Only two of the 1795 "custodial" employees worked after June 30, 2004 - the last day the GPO loophole was available.[8]  Workers who are members of the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by West's Section 218 agreement.[9]  However, West provided Social Security coverage to 1795 extra janitors who worked just one day each, and were active members of TRS.  If they were employed in part-time positions, they did not qualify for Social Security coverage.  Therefore, we tried to determine West's policy for defining full-time vs. part-time employment.

part-time custodial job, West's business manager, Peggy Kissinger e-mailed this reply to him:

We pay Social Security on paraprofessionals.  That includes maintenance, grounds, food service, secretaries, and aides.  We only pay on positions that work OVER 30 hours per week.  (The capitalization was Kissinger's.) 

We used the Texas Public Information Act to acquire corroborating evidence.  We obtained a copy of West's Section 218 agreement, directly from the Texas State Social Security Administrator, Carolyn Fry.  It includes a notation that defines part-time position:  "30 hrs wk or less."  In addition, timesheets were obtained for West's (real) part-time nonprofessional workers. [11]  An inspection of those timesheets shows that all of the employees worked hours averaging between 20 and 30 hours per week.  Despite the fact that some of the employees worked 6, 7, or even 8 hours in a single day, none received Social Security coverage.  This is additional evidence establishing  that West was and is aware of the part-time work exclusion in its Section 218 agreement, and used and uses it to deny Social Security coverage to those working 30 hours or less per week (no matter how many hours are worked in a single day). 

Finally, it should be noted that there was no expectation that this employment would last for more than one day.  The standard instructions issued by West to each worker stated:  "[T]his packet is being mailed to you in order for you to work your final day in the Texas Teacher Retirement System under the West ISD system..." (emphasis added).  Other correspondence noted that the day of work would last just 6.5 hours.[12]

Lack of bona fide employment

 Even if we were to set aside West's Section 218 violations, the one-day employees would not have qualified for Social Security coverage.  In a Social Security Ruling, it is stated that a return of the wages paid, back to the employer, is a strong indication that the employment is not bona fide.[13]  And, bona fide employment is required for Social Security coverage.  Each of West's one-day employees was paid minimum wage - $5.15 per hour, and his/her total wages for the day was just $33.48 (i.e., 6.5 hours times $5.15).  Despite the very low earnings, West required a "processing fee" of $500 (which was subsequently increased to $650, and ultimately, $750).  These fees were paid by the one-day workers, but not paid by any of West's regular employees.[14] 

Finally, it strains credulity that a school district with only 1535 students would need 1795 custodian assistants in just 13 months.  And, it is even harder to believe that the school district would need 603 of those workers in a single month.[16]  That month, coincidently, was June, 2004, the last month of the GPO loophole.[17]  This large concentration of workers in a short time span, and the virtual termination of all hiring on June 30, 2004 - the last day of the loophole, are new and compelling evidence that the employment was not bona fide.

Hudson ISD (1603 one-day workers)

Violation of Section 218 agreement

Hudson is a small district with only 5 buildings and a total of 2270 students,[18] yet it hired 1603 one-day "custodians" in a short time span, which ended on June 30, 2004 - the day the loophole expired.[19]  Workers who are members of the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Hudson's Section 218 agreement.[20]  However, Hudson provided Social Security coverage to 1603 people who worked just one day, and were active participants in TRS.  If those workers were employed in part-time positions, the workers did not qualify for Social Security coverage.  Therefore, we tried to determine how Hudson distinguishes part-time from full-time employment.

Clearly, the 1603 one-day custodians hired by Hudson worked part-time hours.  However, is it possible that they were substituting in full-time positions?  No.  Mary Ann Whiteker, Superintendent, and Julie Kimble, Payroll Accountant stated (in writing) that the one-day workers were doing "short-term jobs/tasks," and that "0%" did work that was normally done by workers in full-time positions.  In addition, when asked whether usage of the one-day workers resulted in layoffs or work reductions among full-time employees, they replied, "no."

Lack of bona fide employment

Even if we were to set aside Hudson's Section 218 agreement violations, the one-day "jani-teachers" did not qualify for Social Security coverage.  A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[21]  And, bona fide employment is required for Social Security coverage.  Each of Hudson's one-day employees was paid total wages of no more than $41.20, yet paid a fee, back to Hudson, of about $300.[22]  This fee was paid only by the one-day workers - not by any other workers.

A fee was charged to defray the following costs...employee wages, FICA taxes (emphasis added)

Finally, it strains credulity that a district with only 30 regular custodians would need 1603 extra "custodians" - 1199 of which worked exclusively in the month of June, 2004 (the month before the loophole expired).  These numbers, and the fact that the hiring stopped on June 30, 2004, are compelling evidence that the employment was not bona fide.

Lindale ISD (3800 one-day workers)

Violation of Section 218 agreement

Lindale is a small school district, with 7 buildings and 2892 students, in total, yet it hired about 3800 extra workers in a short time span.[23]  Workers who are members of the Texas Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Lindale's Section 218 agreement.[24]  However, Lindale provided Social Security coverage to 3800 extra "custodians" who worked just one day each, and were active participants in TRS.  If the extra workers were employed in part-time positions, they did not qualify for coverage.  Therefore, one of our audit objectives was to determine how Lindale defines "part-time" employment. 

We have 9 cafeteria workers who work less than 20 hours per week, and are, therefore, considered part-time.[25] 

Clearly, Lindale's 3800 one-day employees were "part-time" (because they all worked less than 20 hours).  However, is it possible that they were substituting in full-time positions?  No.  In a written statement, Beck stated that the one-day workers were not substituting for full-time workers, and the usage of the one-day workers did not cause the layoff or work reduction of full-time workers.  He added:

This program was an accommodation.  We simply created a one-day position as a ‘custodian assistant' to help in whatever areas that needed attention that day.  Quite frankly, by the time we processed these people for payroll and provided a short orientation, there was only 4 or 5 hours to actually perform the custodial tasks (emphasis added).  

No matter how they're viewed, Lindale's 3800 one-day workers were not qualified for Social Security coverage, and the district knew it.  They worked part-time hours, and in part-time positions.  Therefore, they were excluded from coverage by Lindale's Section 218 agreement.  Without that coverage, the GPO loophole can not be used.

Even if we set aside Lindale's Section 218 agreement violations, the one-day "jani-teachers" were not qualified for Social Security coverage.  A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[27]  And, bona fide employment is required for Social Security coverage.  Lindale paid only $41.20 for the day of work, yet charged fees ranging from $200 to $500.[28]  These fees were paid by the one-day workers, but not by any other Lindale employee. 

Fee was charged according to market conditions ...Costs that were defrayed were the salaries paid to participants... (emphasis added)

Beyond this, consider the large number of people hired by this small district in a very short time span - one which ended on June 30, 2004 - the day the loophole expired.  

• 5/28/04 - 192
• 6/01/04 - 108
• 6/02/04 - 112
• 6/04/04 - 110
• 6/08/04 - 113
• 6/10/04 - 103
• 6/11/04 - 104
• 6/15/04 - 123
• etc.

Given the large and selectively-charged fees, the admission by the CFO that the fees defrayed "salaries paid to participants," the extremely large numbers of workers on single days, and the near-cessation of all hiring after the GPO loophole expired, we can conclude that this employment was not bona fide and, therefore, not qualified for Social Security coverage.  Without that coverage, the loophole can not be used.

Premont ISD (2287 one-day workers)

Violation of Section 218 agreement

Premont is a very small district, with just 962 students, in total, and 3 buildings; [30] yet the district hired 2287 one-day retiring teachers in less than 2 years.[31]  All hiring stopped on June 30, 2004 - the last day of the GPO loophole.  Workers who are members of the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Premont's Section 218 agreement. [32]  However, Premont provided Social Security coverage to 2287 people who worked just one day, and were active participants in TRS.  If these ex-teachers were employed in part-time positions, they did not qualify for Social Security coverage.  Therefore, our objective was to determine Premont's policy for classifying full-time vs. part-time employment.

Is it possible that Premont's part-time workers were working in full-time positions?  No.  As noted, Premont's business manager admitted that they were in part-time positions.  And, in a written statement she said:  "In all instances these workers were in addition to our full time employees."  She also responded, "no," when asked whether usage of the one-day workers resulted in layoffs or work reductions for the full-time employees.   In addition, the district's superintendent, David Garza, stated (in a telephone call) that, for the most part, "whatever came up" was given as work. 

Lack of bona fide employment

Even if we were to set aside Premont's Section 218 agreement violations, the one-day workers did not qualify for Social Security coverage.  A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[33]  And, bona fide employment is required for Social Security coverage.  Carlile represented to us that each one-day worker earned a total of $40 for his day of work, and paid a $500 fee back to Premont.  No other employees paid this fee.  She didn't have an exact figure, but estimated that it took about 3 hours for Premont to process each application.  Obviously, 3 hours of payroll processing time did not cost Premont $500 in labor costs, so most of the $500 fee exceeded the cost of processing.  Was this excess in fees (over processing costs) an offset to the wages paid to one-day workers?  To Carlile it was, apparently.  When asked:  "How much fee income was collected from temporary workers by Premont," Carlile wrote down amounts that, we later learned, were net of wages paid.  In other words, she regarded the wages as an expense related to the revenue raising, rather than as an expense of normal school operations. 

Finally, Premont hired very large numbers of one-day workers in very short time-spans.  Although Carlile did not provide specific details, we were able to estimate the number of one-day workers in 2003 and 2004, by using the fee income information given to us.[34]  In 2004, alone, there were an estimated 1670 one-day workers, a number that is equal to over 173% of the entire student population (1670/962 equals 173%).  In addition, Carlile told us (on the telephone) that there were individual days in May and June, 2004, where Premont employed "over 200 workers."  Yet, according to Carlile, there was no more hiring after June 30, 2004 - the last day the loophole was available.  For a tiny district, with just 962 students at all age levels, these high employment concentrations, and the sudden termination of the program, are compelling evidence which indicate a lack of bona fide employment.

Coleman ISD (3659 one-day workers)

Coleman's misrepresentations to SSA

Coleman is a tiny district with 4 schools and a total of just 1019 students (at all age levels),[35] yet it hired 3659 one-day aides, food service workers, and custodians.[36]  Coleman was a pioneer, so to speak, in the one-day worker scam.  In 2001, it hired a couple of law firms to set up its one-day worker program, and it sought SSA's blessing for that program.  Using FOIR, we obtained the file from SSA, and reviewed the statements made by Coleman.  SSA gave Coleman its blessing, but it was based on many Coleman misrepresentations - if not outright lies:

• Coleman stated that the one-day jobs were not "part-time" because employees "will work a full work-day...6-8 hours."  That misleading answer is not supported by a single Coleman policy document.  In addition, that answer contradicts statements made to us by Coleman employees, and contradicts notations directly on Coleman's Section 218 agreement.  This is discussed in more detail, later. 
• When asked (by SSA) how the days and hours of work would be determined for the retiring teachers, Coleman replied:  "The school district department supervisor who will be supervising the employee determines the days and hours of employment based on the needs of the district..."  The implication was that the jobs would vary in terms of hours or days.  The reality was that all of the 3659 retiring teachers were pre-scheduled to work just one standard day.
• When asked by SSA, "how was the position created," Coleman replied:  "The district has employed employees on a temporary basis during the summer months for many years."  That may have been true, but it was very misleading.  In 1999, before the retiring teacher program started, there were just 18 temporary workers at Coleman.  By 2002, there were over 1069 temporary workers.[37]  How were the many additional positions created, and what were they needed for?  Those questions were never answered.
• And, Coleman was asked about its processing fee.  It indicated that the fee would be $100.  That didn't sound too unreasonable, since SSA was given the impression that employees might work several days, and earn much more than $100.  However, as noted, everyone worked for just one day - earning about $40 or less, each.  And, within a few months of getting SSA program approval, Coleman doubled its "processing" fee.  Later, it tripled the fee.[38]

Violation of Section 218 agreement

Workers who are members of the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Coleman's Section 218 agreement. [39]  However, Coleman provided Social Security coverage to 3659 one-day "custodians," who were active members of TRS.[40]  If they were employed in part-time positions, they did not qualify for that coverage.  Therefore, we tried to determine Coleman's policy for defining full-time vs. part-time employment.

We already knew, however, that Coleman's general definition of a full-time position was one requiring work of more than 20 hours in a week.  In 2003, PPTO director Joseph Fried called Coleman's business manager, Judith Wilkinson, and pretended to be polling Texas school districts on how they define part-time vs. full-time employment.  Was it based on hours worked in a day, or in a week?  How many hours?  She replied that hours in a day didn't matter.  At Coleman, full-time employment, for nonprofessionals, meant over 20 hours in a week. 

In addition, we were able to obtain strong documentary evidence, supporting the over 20-hour-per-week definition of full-time employment.  We obtained a copy of Coleman's Section 218 agreement (the most recent on file) from the Texas State Social Security Administrator.  It includes a notation defining part-time position as "20 hrs or less per week." 

And, finally, did Coleman or its one-day workers expect the work to last longer than one day?  No.  The standard correspondence issued to the workers indicated that the work would only last one day.[42]

Lack of bona fide employment

Even if we were to set aside Coleman's Section 218 agreement violations, the one-day "jani-teachers" did not qualify for Social Security coverage.  A Social Security Ruling states that a return of the wages, back to the employer, is strong evidence that employment is not bona fide.[43]  Coleman paid each one-day worker $38.63, yet charged fees ranging from $100 to $300.[44]  Although the district did not have a breakdown of actual processing costs, it estimated that it cost over $180 to process each one-day worker.[45]  If we accept this to be a reasonable estimate (although it seems very high), it would imply that a worker who paid a $200 fee, returned part of his wages, and a worker who paid a $300 fee, returned all of his wages.[46]

The concentration of workers within a short time span is another indication that the work was not bona fide.  There were 660 one-day workers, just within the month of June, 2004.[48]  Yet, school was not in session, the cafeteria was closed, and there was no summer school.[49]  These numbers, and the fact that the hiring virtually stopped after June 30, 2004 - the last day of the loophole - are new and compelling evidence that the employment was not bona fide. 

[1] As these were mostly tiny school districts, with small staffs, most of the participants in the one-day hiring programs were retiring teachers from larger school districts.

[2] Social Security Ruling SSR 76-13a [online] (Social Security Administration, 1976- [cited 14 May 2003]); available from http://www.ssa.gov/OP_Home/rulings/oasi/43/SSR76-13-oasi-43.html.

[3] This was not a formal audit in accordance with generally accepted auditing standards or governmental auditing standards, as we did not have access to all documents and other resources needed for such audits.  However, we were able to gather and synthesize substantial amounts of evidence, and have identified several potential irregularities that warrant further investigation by the OIG.

[4] Per GAO-03-498T, the estimated cost of the spousal/survivor benefits will be, on average, $93,000 per one-day worker.

[5] Anahuac gave coverage to 176 one-day workers, of whom 22 were not covered by its Section 218 agreement.

[6] The estimated student population is per "DistrictBug.org," a free Web site directory of unknown accuracy.  Access Web site at http://www.districtbug.org/state-TX.html.. 

[7] West's business manager sent us a 2-column listing of employment dates and employee names.  There were 1795 names on that listing.

[8] A few people were "grandfathered" from the changes to the law, and this may explain why two people worked after June 30.

[9] Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[10] Fried talked with Amy Podsednik, an employee in the business office.  She was the contact person at West for the one-day hiring program, according to a teachers' union Web site.

[11] These were documents obtained from West's business manager.

[12] The instructions and the other correspondence were documents obtained from West's business manager.

[13] Social Security Ruling SSR 76-13a [online] (Social Security Administration, 1976- [cited 3 October 2005]); available from http://www.ssa.gov/OP_Home/rulings/oasi/43/SSR76-13-oasi-43.html.

[14] This information was received from West's business manager.

[15] We suspect that an examination of West's general ledger of accounts would definitively show that most of the fee revenue went into "fund balance" (i.e., profits).

[16] This information was received from West's business manager.

[17] Effective 7/1/04, the Social Security Protection Act of 2004 ended (in most cases) use of the GPO loophole.

[18] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html. 

[19] Hudson's payroll accountant sent us a listing of employment dates and employee names.  We counted 1603 names on that listing.

[20] Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[21] Ibid., Social Security Ruling SSR 76-13a

[22] The per-unit fee amount was estimated by dividing total fee income by the total number of one day workers.  This information, and the wage amount ("minimum wage"), were provided by Hudson's superintendent and payroll accountant.

[23] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html.  The 3800 worker figure was obtained in the form of typed statements Lindale's Chief Financial Officer (CFO).  NOTE: THE CFO IS NOT ENTIRELY SURE OF THE NUMBER OF ONE-DAY WORKERS.  IT COULD BE AS LOW AS 3480, OR AS HIGH AS 4137.  THE 3800 AMOUNT IS AN AVERAGE.

[24] Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[25] Beck made reference to part-time cafeteria workers because Lindale has no part-time custodial workers, at the moment.

[26] Nevertheless, most part-time employees at Lindale do get Social Security coverage under the mandatory coverage rules, because most of the (real) part-time workers are not in a government pension plan (TRS).  Those who are in TRS (such as the 3800 retiring teachers who each worked a day) do not qualify for Social Security coverage under Lindale's Section 218 agreement, and are not subject to the mandatory coverage rules.  In other words, there is no lawful basis for extending Social Security coverage to Lindale's part-time workers who are TRS members.

[27]Ibid., Social Security Ruling SSR 76-13a.

[28] This information was provided in the form of a written statement from Beck.

[29] The amounts were hand-written by Lindale's CFO, in answer to one of our information requests.    

[30] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html. 

[31] The number of workers was estimated from information provided to us in written statements made by the district's business manager.  

[32] Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[33] Ibid., Social Security Ruling SSR 76-13a

[34] Estimated by dividing the total net fee income for the year by the per unit net fee (i.e., by $500 fee - $40 wage)

[35] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html. 

[36] This information was obtained from documents provided by Coleman's superintendent.

[37] This information was obtained from documents provided by Coleman's superintendent.

[38] This information was obtained from documents provided by Coleman's superintendent.

[39] Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[40] This information was obtained from documents provided by Coleman's superintendent.

[41] Although we were unable to established the number of full-time custodians at Coleman, it is likely to be a very small number, as this is a tiny district with only 1019 students, in total.  It doesn't seem possible that the regular custodians could require 1000 or more substitutes per year.

[42] This information was obtained from documents provided by Coleman's superintendent.

[43] Ibid., Social Security Ruling SSR 76-13a

[44] The $38.63 amount was calculated by multiplying 7.5 hours (per document given by Coleman) times minimum wage.

[45] This information was obtained from documents provided by Coleman's superintendent.

[46] Of course, whether the fee was for processing or not, the employee lost money by working.  This, in itself, means the employment was not bona fide.

[47] This information was obtained from documents provided by Coleman's superintendent.

[48] This information was obtained from documents provided by Coleman's superintendent. 

[49] Ascertained by calling school district and asking receptionist for normal schedule of district.

Hidalgo ISD (488 one-day workers)

Violation of Section 218 agreement

Hidalgo has only 6 buildings and 2930 students, [1] yet it hired 488 additional clerks in less than 3.5 months in mid-2004.[2]  All hiring of one-day workers ended on June 30, 2004 - the last day of the GPO loophole.  Workers who are members of the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Hidalgo's Section 218 agreement.[3]  However, Hidalgo provided Social Security coverage to 488 clerks who worked just one day each, and were active participants in TRS.  If these workers were employed in part-time positions, they did not qualify for that Social Security coverage.  Therefore, we tried to determine Hidalgo's policy for defining full-time vs. part-time employment.

However, is it possible that these part-time workers were substituting in full-time positions?  No.  Alvarez said, in a written statement: "[T]he ‘new' employees did work needed by the various district departments on a short-term basis" (emphasis added).  And, in response to the question, "were any existing full-time positions eliminated, reduced, or split-up in order to accommodate the temporary workers," Alvarez responded, "no."  In addition, it is important to note that, since there are only a handful of full-time secretaries at Hidalgo, it would not be possible for that many people (224 on a single day) to substitute for them.  (Remember, Hidalgo's one-day workers were used in a clerical capacity.)

No matter how they are viewed, Hidalgo's 488 one-day clerks did not qualify for Social Security coverage.  They worked part-time hours, in part-time positions, and were excluded from Social Security coverage by the district's Section 218 agreement.  Without that coverage, they do not qualify to use the loophole. 

Lack of bona fide employment

Even if we were to set aside Hidalgo's Section 218 agreement violations, its one-day employees were not qualified for Social Security coverage.  A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[4]  And, bona fide employment is required for Social Security coverage.  Hidalgo paid only $41.20 for the day of work, yet it charged a $500 fee.[5]  The fee was not paid by other Hidalgo employees.  The following admission, made by Hidalgo's Human Resources Director, Juan Alvarez, proves that this fee was a return of the wages paid:

Fee paid for (a) each employee's one-day of work; (b) help defray cost for scheduling of employees, processing of applications, and other clerical duties and (c) scholarships for graduating seniors (sic) (emphasis added).

Finally, the concentration of large numbers of workers, just before the GPO loophole expired, is additional evidence that the work was manufactured, and not bona fide.  As noted, 224 of the one-day employees worked on a single Saturday - mostly to do "clerical" work.[6]  Since clerical workers generally need training and equipment in order to work (desks, chairs, typewriters, computers, etc.), it is hard to believe that 224 new clerical workers could work productively in one 8-hour period.  The high concentration of workers on a single day, and the fact that hiring stopped on June 30, 2004, are compelling evidence that the work was not bona fide.

Yoakum ISD (83 one-day workers)

Violation of Section 218 agreement

Yoakum is a small district with 1533 students, in total, and 5 schools.[7]  It hired 83 one-day workers, mostly in 2004.[8]  Workers who are members of the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Yoakum's Section 218 agreement.[9]   However, Yoakum provided Social Security coverage to 83 people who worked just one day, and were active participants in TRS.  If these ex-teachers were employed in part-time positions, they did not qualify for Social Security coverage.  Therefore, our objective was to determine Yoakum's policy for classifying full-time vs. part-time employment.

No matter how they're viewed, Yoakum's one-day workers were not qualified for Social Security coverage.  They worked part-time hours, in part-time positions, and should have been excluded from coverage by Yoakum's Section 218 agreement.  Without that coverage, the loophole can not be used.

Lack of bona fide employment

Even if we were to set aside Yoakum's Section 218 agreement violations, the one-day workers did not qualify for Social Security coverage.  In a Social Security Ruling, it is stated that a return of the wages, back to the employer, is a strong indication that the employment is not bona fide.[12]  And, bona fide employment is required for Social Security coverage.  The workers, who were "80% custodial [and] 20% clerical," earned minimum wage ($41.20), yet paid Yoakum fees averaging about $550.  According to Poynor, the fees "defrayed the cost of having to pay them a minimum wage...."  In other words, the employees paid the cost of their own wages.  In addition, he stated that there was residual fee income sufficient to "purchase everyone in the district a Christmas present."[13]  Clearly, the fees constituted a return of the wages paid, and more.  Since the wages were recovered by the fees, we can conclude that the employment was not bona fide.

Given the large fees relative to the earnings, the admission by the superintendent that those fees "defrayed the cost of having to pay [one-day workers] a minimum wage," the large concentration of workers in a short time span, and the admission that the program was ended shortly after the loophole expired, we can conclude that this employment was not bona fide and, therefore, not qualified for Social Security coverage.  Without that coverage, the loophole can not be used.

Iraan-Sheffield ISD (827 one-day workers)

Violation of Section 218 agreement

Iraan-Sheffield is a tiny district, with 4 buildings and 520 students in total;[14] yet it hired 827 one-day workers to do "custodial, maintenance, cafeteria and clerical" chores.[15]  Of the 827 workers, only 3 worked after June 30, 2004 - the last day of the GPO loophole.  Workers who are members of the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Iraan-Sheffield's Section 218 agreement.  However, Iraan-Sheffield provided Social Security coverage to 827 people who worked just one day, and were active participants in TRS.  If these ex-teachers were employed in part-time positions, they did not qualify for Social Security coverage.  Therefore, our objective was to determine Iraan-Sheffield's policy for classifying full-time vs. part-time employment.

We then asked Dodds to distinguish between full-time and part-time employment.  He responded by sending a one-page excerpt from the Teachers Retirement System Handbook, indicating that 20 hours or more was required for pension eligibility.  In a statement accompanying the excerpt, Dodds wrote:  "Enclosed please find a copy of our policy relating to what qualifies as a full-time employee and, thus, eligible for fringe benefits."  There is a different definition notated directly on the district's Section 218 agreement (received from the Texas State Social Security Administrator):  "1040 hrs. or less a year."  Using either standard, it is clear that the one-day employees (who only worked 6 hours each) were part-time workers. 

No matter how they're viewed, Iraan-Sheffield's 827 one-day workers were not qualified for Social Security coverage.  They worked part-time hours, in part-time positions, and were excluded from Social Security coverage by the district's Section 218 agreement.  Without that coverage, the GPO loophole can not be used.  It is also clear that the district's policy for providing Social Security coverage, as stated by Dobbs, shows an ignorance, or disregard for the requirements of Iraan-Sheffield's Section 218 agreement.

Lack of bona fide employment

Even if we were to disregard Iraan-Sheffield's Section 218 violations, the one-day employees were not qualified for Social Security coverage.  A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[16]  And, bona fide employment is required for Social Security coverage.  Each employee was paid $42 for his 6-hour stint, yet he paid a fee of $475 back to Iraan-Sheffield.  Dobbs described this as a "processing fee."  However, when was asked to provide documentation supporting this high amount of processing cost, he replied, "none available."  It seems likely that the $475 fee was, in part, a return of the wages paid.[17]  This is additional evidence that the employment was not bona fide.

Hunt ISD (537 one-day workers)

Violation of Section 218 agreement

Hunt is the tiniest of districts, with only 205 students at all age levels. [19]  Yet, it had at least 537 one-day workers in a very short time span.[20]  All hiring stopped on June 30, 2004, the day the GPO loophole expired.  Employees who are participants in the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Hunt's Section 218 agreement.[21]  However, Hunt provided Social Security coverage to 537 people who worked just one day each, and were members of TRS.  If these ex-teachers were employed in part-time positions, they did not qualify for Social Security coverage.  Therefore, our objective was to determine Hunt's policy for classifying full-time vs. part-time employment.

Clearly, Hunt's 537 one-day employees worked part-time hours.  However, is it possible that they were substituting in full-time positions? (If so, they would qualify for Social Security coverage, despite working part-time hours.)  No.  In a written statement directed to me, Sieverson stated that the retiring teachers were "doing whatever short-term jobs and tasks determined on or before work day" (sic).  When asked if usage of the one-day workers resulted in layoffs or work reductions for full-time workers, she answered, "no."  And, when asked how many temporary workers did work that normally would have been done by workers in full-time positions, Sieverson replied, "none."

Lack of bona fide employment

Even if we were to disregard Hunt's Section 218 agreement violations, the one-day employees were not qualified for Social Security coverage.  A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[22]  And, bona fide employment is required for Social Security coverage.  Each of Hunt's one-day employees was paid total wages of no more than $48, yet paid a fee, back to Hunt, of $300 to $500.[23]  This fee was paid only by the one-day workers - not by any other workers.

Finally, it should be noted that Hunt is incredibly small, with just 205 students at all age levels.  Yet, it had at least 537 one-day workers, of which 248 worked one single month - June, 2004 - while school was in summer recess.  These numbers, and the fact that all hiring stopped on June 30, 2004 - the last day of the GPO loophole - are compelling evidence that the employment was not bona fide.

Ft. Davis ISD (691 one-day workers)

Violation of Section 218 agreement

This is a tiny district, with just 330 students (at all age levels) and 3 buildings.[24]  It has only 6 clerical workers, and 8 custodians, yet Ft. Davis hired 691 extra custodial and clerical workers, of which 213 worked in one single month (June, 2004, the final month of the loophole).[25]  Workers who participate in the Teachers Retirement System (TRS), and are in part-time positions, are excluded from the Social Security coverage provided by Ft. Davis' Section 218 agreement.[26]  However, Ft. Davis provided Social Security coverage to 691 people who worked just one day, and were active participants in TRS.  If they were employed in part-time positions, they did not qualify for Social Security coverage.  Therefore, our objective was to determine Ft. Davis' policy for classifying full-time vs. part-time employment.

All full-time custodial and clerical workers receive life and health coverage....The minimum number of hours that must be worked to get the benefits is 20 hours per week.  The one-day workers only worked 8 hours and therefore were not qualified to receive fringe benefits. 

The part-time status of these workers was confirmed by reviewing the district's Section 218 agreement (obtained directly from the Texas State Social Security Administrator).  It states that part-time positions are those with less than 260 hours per quarter, or 1040 hours per year. 

No matter how they're viewed, the 691 one-day workers were not qualified for Social Security coverage.  They worked part-time hours, in part-time positions, and should have been excluded from Social Security coverage by Ft. Davis' Section 218 agreement.  Without that coverage, the loophole fails.[27]

Lack of bona fide employment

Even if we were to disregard Ft. Davis' Section 218 agreement violations, the one-day employees were not qualified for Social Security coverage.  A Social Security Ruling asserts that a return of the wages paid, back to the employer, is strong evidence that the employment is not bona fide.[28]  And, bona fide employment is required for Social Security coverage.  Ft. Davis paid only $48 for the day of work, yet required a "donation" of $500.  This donation was not required from other Ft. Davis employees.  In its checklist of "items that must be returned...," Ft. Davis listed "$500 donation," and stated:

The majority of the proceeds will be given to a scholarship foundation for the students of Fort Davis ISD.  The remainder of the donation will help defray administration costs.[29] 

There is another way we can tell that this employment was not genuine.  According to Maline, 85% of the one-day workers did janitorial tasks, while 15% did clerical tasks.  This implies that, in June, 2004, the 8 regular custodians were assisted by 181 one-day assistants (85% times 213 = 181).  That is simply not credible. 

Anahuac ISD (176 one-day workers)

Lack of bona fide employment

This small district (1390 students and 7 schools) is quite unique, and a bit confusing.[30]  Most of the districts near Anahuac have not signed Section 218 agreements, so they can not legally provide Social Security coverage to any workers - full-time or part-time.  On the other hand, Anahuac did execute a Section 218 agreement, and it enables Anahuac to provide Social Security coverage to full-time workers.[31]  The teachers in the nearby districts wanted to get Social Security coverage via Anahuac's Section 218 agreement, but they didn't want the hassle, apparently, of posing as one-day Anahuac janitors.  To accommodate these teachers, Anahuac executed "Interlocal Cooperation Agreements" with 6 of its neighboring school districts.[32] 

For example, if the retiring teacher normally taught 10^th grade English in the High Island Independent School District, and was planning to retire on a Friday, he would teach that very same class (at High Island) on Friday, but, ostensibly, as an Anahuac substitute teacher.  Anahuac would withhold FICA tax, to ensure that the teacher qualified for the loophole, and High Island would then reimburse Anahuac for that FICA, as well as the wages themselves.

Unfortunately, SSA's 2003 evaluation of the Anahuac program was based, in part, on a key misstatement by Anahuac.  In an "Employment Relationship Questionnaire," completed by Anahuac, and submitted to SSA on 6/17/03, Anahuac was asked to justify why it should be regarded as the employer: "Explain in detail why you believe the worker was an employee of the firm ...."  Anahuac's answer was:

The workers are employed by Anahuac ISD to perform the duties of a substitute teacher as directed, assigned and paid for by Anahuac ISD (emphasis added).[34]

Regarding your letter of March 25, 2005, AISD [Anahuac] has no documents that show who at AISD was responsible for the direction and assignment of workers who were substituting for the other 6 school district (emphasis added).

No one at Anahuac directed or assigned substitutes at the six other school districts.  Once the substitute's application was accepted by Anahuac ISD, the other school districts were notified and it was their responsibility to call the individual into work (underline added). 

In other words, Anahuac accepted applications from the would-be substitutes, and entered them into its payroll processing system, but later, when it was time to actually place the substitutes in teaching positions, Anahuac did nothing.  It never engaged in its primary duty under the agreements:  the assignment and direction of substitutes.[36]  

We believe that these findings constitute compelling evidence, establishing that the Anahuac programs were shams.  However, there is additional evidence. 

When we asked Walker how Anahuac decided on a $500 fee, he wrote:

We simply came up with the $500 amount by learning what other school districts were charging and charging a similar amount.  At the time the fee amount was set, we felt that our payroll clerk would probably need two hours per substitute employed to process the required paperwork.  At no time did we actually keep up with the actual time the payroll clerk spent on these workers.

Violation of Section 218 agreement

Anahuac's Section 218 agreement bars the provision of Social Security coverage to workers in part-time positions.  However, the Anahuac agreements generally involved the placement of one-day workers within full-time positions (substituting for full-time teachers).  In most cases, therefore, violations of Anahuac's Section 218 agreement did not occur.  Nevertheless, Anahuac did violate its Section 218 agreement with regard to its dealings with Barbers Hill ISD (one of the 6 districts that signed an agreement with Anahuac). 

Barbers Hill only had 22 one-day workers (out of a total of 176 hired by Anahuac); however, they worked part-time hours, in part-time positions, and did not qualify for Social Security coverage under Anahuac's Section 218 agreement. (And, Barbers Hill doesn't have its own Section 218 agreement.)[40] 

Port Arthur ISD (49 one-day workers)

Lack of bona fide employment

The Social Security coverage given to one-day workers by Port Arthur was not excluded by its Section 218 agreement, so that is not an issue.   However, there is very strong evidence suggesting that the work was not bona fide. 

In accordance with a signed agreement between Port Arthur and JR3, it was determined that JR3 would:

1. Accept applications and screen New Hire applicants
2. Conduct background checks
3. Recommend to the District qualified new applicants
4. Provide the District with daily assignment rosters for placement of New Hires in the District
5. Prepare and complete all employment forms
6. Provide the District with documentation of the hours worked
7. Provide daily supervision of the New Hires

A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[42]  And, bona fide employment is required for Social Security coverage.  Although he/she only earned about $26 total compensation ($5.15 times 5 hours), each worker paid a $700 fee to Port Arthur. By agreement, the District kept $400 of the fee, plus the compensation and taxes paid.  The balance went to JR3.[43]   This meant that the District was guaranteed to recover, from each employee, every bit of the compensation paid to that employee - plus a nice profit.  Put another way, each one-day worker paid his own salary, plus $400.  This is strong evidence that the employment was not bona fide.

Somerville ISD (434 one-day workers)

Lack of bona fide employment

Somerville is a tiny district with a total of just 757 students and 4 schools,[44] yet it hired 434 "custodial/clerical" workers in a very short time span.[45]

This district is a little different.  It's Section 218 agreement extends Social Security coverage to one-day workers, so that is not an issue.  However, Somerville set up a highly bogus hiring program at the instigation of Ron Martin, a Houston-area annuity salesman.[46]  On February 11, 2004, Martin gave a presentation to Somerville's Board of Trustees.  According to the minutes of the meeting:

Mr. Martin began by stating that he has been the third party administrator for Sweeney ISD and would like to set up this same arrangement with Somerville ISD.  He advised the Board that the government will soon close the loop-hole allowing retiring teachers to work for one day in a district paying social security benefits .... 

Each participant was paid $41.20 for his day of work, and was required to pay a $200 "processing fee" to R. Martin & Company, plus a $500 "donation" to the Somerville Improvement Fund.[47]  The $500 "donation" was not optional, and was considered to be a fee by Somerville's management.  In fact, in a letter to me, Somerville's business manager, Jean Ann McCarthy, referred to the amount as a "fee" and as a "requirement."  And, in the minutes to the February 11, 2004 Board meeting, it was stated:

Mr. Martin's company will be the contact for the teachers and a fee of $500 payable to the Somerville ISD Improvement Fund and an administration fee to R. Martin & Company of $200 will be charged.  The teacher will pay this amount before they are scheduled to work and will be employed by Somerville ISD at minimum wage.  (underline added).

Donations reported net of wages paid

A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[48]  And, bona fide employment is required for Social Security coverage.  It is clear that the "donations" paid to Somerville recouped the wages paid to the one-day workers, and were intended to do so.  Since a separate $200 check was required to cover the processing costs, we can deduce that the $500 required "donation" was not earmarked for processing costs:  It had to be a return of the wages paid (ten times over).   This is clear from the minutes of another Board of Trustees' meeting, held on June 16, 2004:

"Presently, about $188,000 [from the one-day worker program] has been received.  The following areas were discussed for use of these funds:

• Roofing Concerns
• Parking lot for Students/Basebal field
• Parking lot for Elementary staff
• etc."[49]

Donations                     $217,500.00

Actual costs                  - 29,649.08

Balance of donations     $187,850.92

We know, therefore, that the donations were really fees, that they were required, and that they were not for processing costs.  Rather, they constituted a reimbursement of the wages paid to the one-day workers.  And, beyond this reimbursement, the district made a tremendous "profit," so to speak, that went into its improvement fund.  This is additional evidence that the employment was not bona fide. 

There is more evidence of the sham.  In response to a question, Somerville's business manager stated:  "The [one-day work] program was managed through third-party administrator, R. Martin and Company." We followed-up with a question:  "[W]as that supervision handled exclusively by R. Martin & Company?"  McCarthy responded (in a written statement):  "The supervision was handled through R. Martin & Company."  And, when we asked how we could get "specific information regarding the actual work done...," McCarthy replied:  "Contact R. Martin & Company to obtain more specific information regarding the work done."

R. Martin & Company will set up the work schedule and provide a person to be in the district on the day the temporary workers are scheduled.

However, R. Martin & Company's role as a manager and/or supervisor and/or "third-party administrator" was denied by the company's owner, Ron Martin, in a lengthy telephone conversation.  He told us emphatically, that he had absolutely nothing to do with the management and supervision of the program, that "the work days were scheduled by the school district," that the school district decided what work to do, and it supervised that work.  And he added:  "All I am is an investment advisor for teachers." 

High concentration of workers

Somerville's entire program lasted just over one month (5/24 to 6/30/04),[51] yet this tiny district (757 total students) had 434 "custodial/clerical" one-day workers in that brief, 37-day period. [52] [53]   These numbers, and the fact that the program concluded on June 30, 2004 - the day the GPO loophole expired - are more evidence suggesting that the program was not bona fide.

Sweeny ISD (2811 one-day workers)

Lack of bona fide employment

Sweeny is a small district with 2174 students and just 4 schools,[54] yet it hired 2811 one-day workers in a short time span.[55]  Sweeny's program was another Ron Martin creation - and was the model upon which Somerville (discussed above) was based.  We had a difficult time getting information from Sweeny's business manager, Allen E. Schoppe.  In response to our request for "documentation that shows the name of the person (or names of the people) who managed the [one-day worker] program," Schoppe simply replied that Sweeny's superintendent "is the manager of our personnel department."  And, when we asked various questions regarding fees charged to one-day workers, Schoppe wrote, six times using identical language, "No fees were received by Sweeny ISD." 

Schoppe's responses to our first two requests included no mention of R. Martin & Company, even though he was the "third-party administrator" of the program.  In addition, Schoppe did not mention required fees or donations of any type.  However, under persistent questioning, the business manager and Sweeny's superintendent, Randy Miksch, finally acknowledged a program that was virtually identical to Somerville's - but larger.  Again, there was a required $200 processing fee to Martin, and a required $500 "donation" to the "Sweeny ISD Education Foundation."  No other Sweeny employees were required to make these payments.  The same Ron Martin instruction sheet, used for Somerville, was used for Sweeny. 

Schoppe eventually sent us a copy of minutes from a meeting of Sweeny's Board of Trustees.[57]  This meeting, held on November 12, 2002, included the following item of business: "Consider Social Security Proposal."  These are the notes, in total, reflecting that item of business, which established Sweeny's one-day worker program:

BACKGROUND INFORMATION

The government Pension Offset (GPO) eliminates or reduces the spousal Social Security benefits by two-thirds the value of a teacher's retirement benefit.  This reduction occurs whether the Social Security receiving spouse is alive, deceased, or divorced.

ITEM ADDRESSED

The GPO can be eliminated if the affected spouse works their last day of employment before retirement in a Social Security district.

RECOMMENDED ACTION

Motion to allow district administration to proceed with a plan to allow one-day employment in the Sweeny ISD for spousal benefit purposes. (emphasis added)

Despite being a small district, Sweeny hired a huge number of one-day workers in very short time spans.  Of the 2811 one-day workers hired, 1349 were in the month of June, 2004 - the final month before the loophole was legislatively terminated.  And, on a single day (December 20, 2003) Sweeny had 365 one-day workers.[58]  The program virtually ended on June 30, 2004 - the last day of the GPO loophole.  Only 6 of the 2811 one-day workers were employed after that date.  The very high concentration of workers in the month of June, and the virtual cessation of hiring after the loophole ended, are compelling evidence that the employment was not bona fide.

Given the large and selectively-charged "donations" (which were additional to the separately-charged processing fees), the confusion regarding who managed the program, the large concentration of one-day workers in very short time spans, the photo-duplicated time sheets, and the cessation of hiring after June 30, 2004, we can conclude that this employment was not bona fide and, therefore, not qualified for Social Security coverage.  Without that coverage, the loophole can not be used.

Kilgore ISD (3155 one-day workers)

Lack of bona fide employment

Kilgore's Section 218 agreement extends Social Security coverage to part-time workers, so that is not an issue.  However, there is evidence suggesting that the work was not bona fide. 

In addition, there is reason to believe that the fees charged under the program constituted a return of the very small wages paid.  A Social Security Ruling asserts that a return of the wages, back to the employer, is strong evidence that the employment is not bona fide.[61]  And, bona fide employment is required for Social Security coverage.  Kilgore paid each one-day janitor $41.20, yet charged fees of $350, initially, and $500 in the month of June (which, as noted, was the last month the loophole was available).[62]  No other Kilgore employees paid these fees.  When asked about the fees, Pfeffer acknowledged that "no calculation was ever conducted to calculate the actual cost of the program."  This lack of cost information didn't, however, stop Kilgore from adding the extra $150 to the fees when the "large demand" for the loophole materialized.[63] 

Given the large and selectively-charged fees, and the large concentration of workers in very short time-spans, we can conclude that this employment was not bona fide, and therefore, not qualified for Social Security coverage.  Without that coverage, the loophole can not be used.

[1] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html.

[2] The 488 worker figure was obtained by dividing total fee income by per-worker fee income (amounts provided by Hidalgo's human resource director). 

[3] Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[4] Ibid., Social Security Ruling SSR 76-13a.

[5] This information was received in the form of written statements from Hidalgo's human resources director.

[6] This information was received in the form of written statements from Hidalgo's human resources director.

[7] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html.    

[8] This information was received in the form of written statements from Yoakum's superintendent.

[9] Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[10] Per copy of Section 218 agreement received from the Texas State Social Security Administrator.

[11] This information was received in the form of written statements from Yoakum's superintendent.

[12] Social Security Ruling SSR 76-13a [online] (Social Security Administration, 1976- [cited 14 May 2003]); available from http://www.ssa.gov/OP_Home/rulings/oasi/43/SSR76-13-oasi-43.html.

[13] This information was received in the form of written statements from Yoakum's superintendent. 

[14] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html.

[15] This information was received in the form of written statements from Iraan-Sheffield's business manager.

[16] Ibid., Social Security Ruling SSR 76-13a.

[17] The 6-hour workday was ascertained by reference to sample time sheets.  The $475 fee was in the instructions given to program participants.  This information was provided by the district's business manager.

[18] Per a typed listing, prepared by the business manager at our request.

[19] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html. 

[20] This information was found in a document provided by Hunt's business manager. 

[21]  Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[22] Ibid., Social Security Ruling SSR 76-13a

[23] Per a written statement to us from the business manager.

[24] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html. 

[25] This information was received in the form of written statements from Fort Davis' business manager. 

[26] The Section 218 agreement was provided by the district's business manager.

[27] It appears that Ft. Davis is unaware of or intentionally disregards the part-time exclusion in its Section 218 agreement.  The business manager, Bill Maline, stated:  "[A]ll Fort Davis regular professional and non-professional staff pay into the Social Security system.  This includes full-time and part-time employees."

[28] Ibid., Social Security Ruling SSR 76-13a.

[29] Per a document received from the district's business manager.

[30] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html. 

[31] Per inspection of the Section 218 agreement between Texas and the school district, and inspection of the relevant modification to the original Section 218 agreement between Texas and HEW.

[32] Interlocal Cooperation Agreements were received from SSA via a FOIR.

[33] One of the 6 contracts (the Klein contract) required a minimum of 10 days of work.  (That was the only contract reviewed by SSA.)  All other agreements required only one day of work.

[34] The Employment Relationship Questionnaire was obtained from SSA pursuant to a FOIR.

[35] This information was received in written statements from officials at the other districts.

[36] One might argue that Anahuac had the legal right to assign and direct substitutes, even if it chose not to do so.  However, Anahuac's legal right was a hollow one.  None of the districts even told Anahuac when there was the need for a substitute assignment; therefore, Anahuac had no real ability to make assignments, and even less ability to direct assignments.

[37] The fee amounts were listed in the Interlocal Cooperation Agreements, which were obtained from SSA pursuant to a FOIR.

[38] Ibid., Social Security Ruling SSR 76-13a

[39] Rotan's comments were made in the form of written answers to our questions.

[40] It appears that Anahuac is unaware of or intentionally disregards the part-time exclusion in its Section 218 agreement.  The business manager, Dick Walker, stated:  "Anyone paid by [Anahuac's] payroll department had FICA deducted from their checks in all years listed in your letter."

[41] Per a copy of the JR3Education Associates agreement, sent to us by Donna McCauly, Port Arthur's payroll/benefits supervisor. 

[42] Ibid., Social Security Ruling SSR 76-13a

[43] Wage rate, hours to work, and fee arrangement, as stated in JR3 agreement

[44] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html.

[45] This information was found in a letter from Somerville's business manager.

[46] This information was found in a letter from Somerville's business manager.

[47] Regarding the amount of wages, the district's business manager wrote: "All employees worked an 8 hour day at a rate of $5.15 per hour."  The $500 "donation" and the $200 processing fee were found in a document given to us by the district's business manager.

[48] Ibid., Social Security Ruling SSR 76-13a.

[49] Minutes were provided by Somerville's business manager.

[50] The "Social Security Alert" was provided to us by Somerville's business manager.

[51] This information was revealed in a letter to me, from Somerville's business manager, Jean Ann McCarthy.

[52] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html.

[53] The number of one-day workers (434) was revealed in a letter from Somerville's business manager, Jean Ann McCarthy.

[54] Ibid., DistrictBug.org @ http://www.districtbug.org/state-TX.html. 

[55] The number of one-day workers (2811) was found in a listing of dates and workers, prepared for us by Sweeny's business manager, Allen Schoppe.  The list has 2 columns showing dates, and the total number of workers on each date.

[56] The "Social Security Alert" was a document provided to us by Somerville ISD - not Sweeny.

[57] Per document from district's business manager.

[58] The number of one-day workers, in total and on any given day, was found in a listing of dates and workers, prepared for us by Sweeny's business manager, Allen Schoppe.  The list has 2 columns showing dates, and the total number of workers on each date.  

[59] Ibid., "DistrictBug.org" @ http://www.districtbug.org/state-TX.html.

[60] The number of one-day workers was estimated by dividing total wages paid by the district to one-day workers by the per-worker wage amount.  This information was provided by the district's business manager.

[61] Ibid., Social Security Ruling SSR 76-13a.

[62] Fee information was provided to us in letter from business manager.

[63] In a separate letter, the business manager explained:  "Kilgore ISD's increased fee for the temporary work program was a result of the expected large demand caused by the closing of the federal loophole..."