(Return to Texas Social Security Scam)

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.

In response to a question ("What is the difference, in terms of hours, between a full-time position and a part-time position?), the district's Human Resources Director, Juan  Alvarez, said: "More than 20 hours per week constitutes full time."  He added that the retiring teachers "all worked one eight hour day therefore not considered full time" (sic).  A slightly different definition of full-time hours is implied by the district's Section 218 agreement (obtained from the Texas State Social Security Administrator).  It defines part-time hours as "25 hours or less per week."  Regardless of the definition used, it is clear that Hidalgo's 488 one-day clerks worked "part-time" hours.
 

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.)

Finally, when we asked:  "Is it the policy of Hidalgo to cover all part-time workers for Social Security?" we received the following response.  "Only full time and part time non-professionals are covered for Social Security" (emphasis added).  This answer indicates an ignorance or disregard of the part-time exclusion in Hidalgo's Section 218 agreement (which excludes part time positions from Social Security coverage).
 

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).

In other words, the one-day workers paid for the cost of their own wages, and they paid additional amounts sufficient to provide Hidalgo with a "profit."  This is strong evidence that the employment was not bona fide.
 

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.

Given the large and selectively-charged fees, the admission by the human resources director that the fees paid for "each employee's one day of work," the extremely large concentration of workers on a single day, and the termination of all hiring on the day 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. 

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.

We asked the superintendent, Mike Poynor:  "[W]hat is the distinction (for Yoakum ISD) between a full-time and part-time position (in terms of hours)?  In a written statement, he responded:  "Part-time work less than 20 hours/week:  Full-time employees with full benefits work 20+ hours/week" (sic).  However, a different definition is found on Yoakum's Section 218 agreement.  It states that part-time is 1040 hours or less per year.[10]  With regard to either standard, it is clear that the one-day employees were working part-time hours.  However, is it possible that they were substituting in full-time positions?  No.  According to Poynor, the use of the one-day workers did not result in any full-time workers being laid off, or suffering work reductions.  And, when asked:  "[H]ow many of the temporary workers (or what percentage) did work that normally would have been done by workers in full-time positions," Poynor responded, "none."[11] 
 

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.

We didn't obtain daily detail regarding the scheduling of the one-day employees; however, it appears (from written statements made by Poynor) that 75 of the 83 workers were hired during just 3 days in June and July, 2004.  And, according to Poynor, the program completely ended on August 1, 2004 - just 32 days after the loophole terminated.  The concentration of workers within a few days, and the termination of the program shortly after the loophole was no longer available, cast additional doubt on the bona fides of the employment.
 

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.

The district's business manager, Delbert Dodds, said that he could not locate Iraan-Sheffiled's Section 218 agreement, but stated: "Social Security employment is provided for all full time or part time employees of the district, whether professional or non-professional" (emphasis added).  However, we obtained a copy of the district's Section 218 agreement directly from the Texas State Social Security Administrator.  It indicated that Social Security coverage was not extended to workers in part-time positions.   
 

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. 

However, is it possible they were working in full-time positions?  No.  When Dobbs was asked whether the workers were substituting for full-time workers, he responded (in a written statement): "No substitute, did other tasks" (sic). 
 

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.

Finally, the concentration of workers in a short time span suggests the work was manufactured, and not bona fide.  Although the program ran for over 2 years, 361 of the 827 one-day workers were employed in the month of June, 2004 - just before the law was changed to eliminate the loophole.[18]  This is compelling 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.

In response to questioning, Hunt's business manager, Carol Sieverson, stated that Hunt uses two definitions for full-time employment:  20 hours or more per week (for pension eligibility) and 7 hours per day for no less than 6 months (for other benefits).  However, the district's Section 218 agreement includes a different definition of part-time:  "less than 700 hrs. per year."  Under any of these definitions, the one-day workers would be classified as "part-time."  Indeed, this was confirmed by Sieverson.  In response to the question, "Did the one-day temporary workers (i.e., the retiring teachers) get full-time fringe benefits?" Sieverson replied:  "No - they were not full time employees" (emphasis added).
 

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."

No matter how they're viewed, the 537 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 Hunt's Section 218 agreement.  Without that coverage, the GPO loophole can not be used.
 

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.

Sieverson admitted, in a typed statement to me, that the fees "defrayed the cost of supplies, materials, postage, salaries and any other expenses associated with the program" (emphasis added).  In other words, the one-day workers paid for their own "salaries."  This is strong evidence that the employment was not bona fide.
 

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.

Given the large and selectively-charged fees, the admission by district officials that the fees were a recovery of the wages paid, the extremely large concentration of workers in a one-month time span, and the complete termination of hiring on the day 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. 
 

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.

In an e-mailed response to one of our questions, the district's business manager, Bill Maline stated: 

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. 

If "all full-time" custodial and clerical workers get those benefits, and the one-day workers did not get the benefits, we can deduce that, in the view of Mr. Maline, these were "part-time" employees. 
 

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. 

Using either definition, it is clear that the one-day employees worked part-time hours.  However, is it possible that they were substituting in full-time positions?  No.  In response to this question, Maline responded:  "They did short term jobs that materialized on or before workday..."  He also noted that the one-day workers did not cause the layoff of full-time workers, or a reduction in their work hours.

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] 

In addition, the business manager, Bill Maline, admitted, in a typed statement responsive to one of our questions, that two of those administration costs defrayed were "wages $48.00" and "social security $3.67."  These costs, and all of the proceeds going to the scholarship foundation, would constitute a return of wages paid (and not a legitimate processing fee).  This means that the one-day workers paid for the cost of their own wages, and plenty more.  Since the wages were recovered, we can conclude that this was not bona fide employment. 
 

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. 

Given the large and selectively-charged "donations," the admission by the business manager that the donations constituted a complete recovery of the wages and Social Security tax paid, and the extremely large concentration of workers in a one-month time span, 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. 

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] 

In accordance with these agreements, Anahuac supposedly established a substitute employment agency - like "Accountemps" or "MinuteMen."  There were some variations in the terms of the 6 agreements, but they generally worked as follows:  On the day before his/her retirement, a teacher in one of the 6 districts would be hired by Anahuac to work as a substitute - for himself![33]  He would carry out his normal employment responsibilities, and would teach his regular class in the usual location, but technically he'd be on the payroll of Anahuac, instead of his own district.  Anahuac would withhold FICA tax from the substitute teacher's paycheck (so that he would qualify for the last-day loophole), but that tax, and the wages themselves, would be 100% reimbursed by the teacher's regular district (even though that district was not supposed to pay FICA).  For the privilege of being a substitute for himself, the teacher paid a fee to Anahuac (usually $500). 
 

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.

Most aspects of the program were spelled out directly in the signed interlocal agreements, and SSA reviewed one of those agreements in 2003.  Surprisingly, SSA determined that an employer-employee relationship existed between Anahuac and the substitute teachers.
 

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]

This statement, which was central to Anahuac's claim to be the legitimate employer of the substitute teachers, has since been flatly contradicted by Anahuac's own business manager, Dick Walker.  In a written statement, he said: 

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).

We found this hard to believe, so we repeated the request.  Walker then wrote:

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). 

And, under questioning, other parties to the interlocal cooperation agreements agreed with the assessment made by Anahuac's business manager. We have their statements indicating that they arranged for the substitute work, without notification to or from Anahuac, and without any other type of involvement on the part of Anahuac.[35] 
 

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]  

Remember, Anahuac gained SSA approval for its program by claiming that the substitute workers would be "directed, assigned, and paid" by Anahuac.  We now know that, in reality, Anahuac performed none of these responsibilities.  We know from the business manager that "no one at Anahuac directed or assigned substitutes."  And, we know from the interlocal agreements that Anahuac was fully reimbursed for any salary and tax expense it incurred.
 

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

Generally, substitute teachers had to pay Anahuac a $500 fee. (For one district it was only $100.)[37]

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.

Unless a payroll clerk's time is worth $250 per hour, the $500 fee recouped much more than just processing costs:  It also recouped part or all of the substitute wages paid by Anahuac.  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.[38]  And, bona fide employment is required for Social Security coverage.  Walker's admission is new and important evidence that indicates the employment was a sham.
 

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). 

According to Barbers Hill's superintendent, G. Wayne Rotan, Barbers Hill's employees did not substitute for full-time teachers; rather, they did short-term menial, minimum wage jobs on an "as-needed basis."  In addition, Rotan stated:  "The workers were not doing the work normally done by full-time staff."[39]  It must be remembered, of course, that these were, supposedly, Anahuac's employees.  Therefore, it is necessary to determine Anahuac's definition of "part-time."  Anahuac's business manager, Dick Walker, said that there were no documents describing how part time positions are distinguished from full-time positions, so we asked him to give us the time sheet of someone he considered to be part-time employee.  He responded by giving us the time sheets of an employee who worked three days per week, for up to 9.5 hours in a day.  The part-time worker's average weekly hours were 23.  If such a person is considered to be "part-time" by Anahuac, then it is very clear that all of the Barbers Hill workers (who only worked 8 hours or less) would also have to be part-time.
 

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. 

Port Arthur is a larger district than most of the others.  It has 18 buildings and nearly 11000 students.  Port Arthur jumped into the one-day scam at the very last minute, with the help of JR3 Education Associates, a Waco consulting firm.  In the month of June, 2004, 49 one-day workers were hired - half of whom worked in the last 3 days of the month, just prior to the law change. 
 

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

The District's duties were, essentially, to pay the employees, pay the taxes, and sign and certify the final day of employment.[41]
 

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.

Given the large and selectively-charged fees, the admission that the fees were a recovery of the wages paid, and the concentration of workers just before 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. 
 

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]

The required "donations"

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 .... 

The Board approved Martin's plan, which started on May 24, 2004 - just 37 days before the loophole was curtailed, on June 30, 2004.  At that time, the program ended.
 

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).

Thus, the "donations" were called "fees" in the minutes of the Board meeting, and it is quite clear, from the wording of those minutes, that those fees were not optional. 
 

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:

What is not stated in the minutes is the fact that the $188,000 amount was net of the wages paid to the one-day workers. We learned this fact from a typed outline, prepared for us by Jean Ann McCarthy, in response to one of our questions.  In the outline she listed the following amounts:

Donations                     $217,500.00

Actual costs                  - 29,649.08

Balance of donations     $187,850.92

Included in the $29,649.08 "Actual costs" was $17,839.60  in "Temporary Employee Salaries."  Thus, McCarthy didn't report the wages paid as custodial or clerical costs of the school operating fund (as one would normally expect).  Instead, she reported the wages (to us and to the Board) as a cost of Somerville's improvement fund.  McCarthy's outline is clear evidence that the wages were regarded, as costs necessary for raising funds - and not as costs of normal school operations.
 

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. 

No one managed the program?

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."

McCarthy's assertion, that R. Martin & Company managed the program, is also suggested in the minutes to the February 11, 2004 Board meeting, previously cited.  In those minutes it is stated:

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.

In addition, McCarthy's characterization of R. Martin & Company as a "third-party administrator" is confirmed by one of R. Martin & Company's own flyers, used to recruit new one-day workers.  This one-page "Social Security Alert" urges retiring teachers to contact "the Sweeny ISD and Somerville ISD third-party administrator, R. Martin & Company."[50]
 

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." 

So, Somerville says that Martin scheduled and supervised the workers, and he says the opposite.  Apparently, we have a program that was created and disbanded in such haste that no one even knows who was in charge.  This is compelling evidence that suggests the employment was not bona fide.
 

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.

Given the confusion regarding who supervised the workers, the large and selectively-charged "donations" (which were additional to the separately-charged processing fees), the fact that the donations were reported (to us and to the Board of Trustees) net of wages paid, the large concentration of one-day workers in a 37-day period, and the conclusion of the program on June 30, 2004, the day 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. 
 

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 uninformative answers might have deterred us from further inquiry were it not for the fact that we had seen Sweeny's name on an R. Martin & Company flyer, received from the business manager of Somerville.  That flyer was a "Social Security Alert," issued by R. Martin & Company.  It urged retiring teachers to contact "the Sweeny ISD and Somerville ISD third-party administrator, R. Martin & Company."[56]
 

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. 

And, as was true with Somerville, no one seems to know who managed, supervised or administered the program, or the workers in the program.  (Martin told us that his company did not schedule, manage, or supervise the workers.  Schoppe would not, or could not, identify the manager or supervisor of the program.)  This is evidence that the employment was not bona fide.
 

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)

The motion, "to allow one-day employment in the Sweeny ISD for spousal benefit purposes," was passed by a 5 to 1 vote.  It is interesting to note that, in the Board minutes, there is no discussion of whether or not there would be a legitimate work need for hundreds, and ultimately, thousands of extra workers.  And there is no discussion regarding how Sweeny would pay for the one-day workers. (Remember, the $500 donation went, supposedly, to a separate education fund.)  The discussion at the meeting focused exclusively on exploiting a Social Security loophole.  This is additional evidence that the employment was not bona fide.
 

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.

Finally, we requested time sheets for two different workers in Sweeny's one-day employment program, and noticed that the time sheets given to us had different names but, otherwise, were photo static duplicates.  In other words, one was just a copy of the other, with the name changed.  We suspect that, were we to request additional time sheets, more duplicates would be found.
 

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. 

Kilgore is a small district, with a total student population of 3604, at all age levels, [59] yet it hired 3155 one-day custodians during a 3-year period.[60]  Almost a quarter of the employees (733) worked in just one month - June, 2004, which was the last month the loophole was available.  Regarding that particular month, Kilgore's Director of Business Services, Revard Pfeffer, acknowledged that there was a "large demand caused by the closing of the federal loophole."  Of course, bona fide work is supposed to be based upon the actual labor needs of the employer - not on the "large demand" of workers seeking to exploit a loophole.  The very large number of one-day workers, and the very large concentration of those workers, just before the loophole ended, suggest that the work was manufactured, and 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] 

Pfeffer also stated that these fees were intended "to recover the costs associated with the expenditures of working an individual only one day" and not have "a chance [to] receive the appropriate work benefit from that employee" (emphasis added).  In other words, the work benefit was not sufficient to justify the cost of the wages, so it was necessary to charge the fees.  This is strong evidence that the fees were a recovery of the wages paid. 
 

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..."