Inmates cashing in behind bars

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INDIANAPOLIS - The state of Indiana spends millions of dollars providing food, clothing and shelter for convicts. But for some offenders, it's not enough.

13 Investigates has found them stealing your taxpayer dollars and some government agencies padding inmates' prison bank accounts along the way. It's a troubling practice of criminals cashing in behind bars.

They are serial offenders: thieves, drug dealers, child molesters, even murderers, all locked up behind bars in Indiana and collecting taxpayer dollars they were not entitled to receive. They are checks the government should have cut off the moment the inmates stepped foot inside a state prison.

"There may be instances where they get in despite our best efforts," said Doug Garrison, Indiana Department of Correction.

It's not supposed to happen at all. But 13 Investigates has obtained copies of actual checks and prison correspondence showing inmates not only stealing millions from the IRS, but government agencies themselves are mistakenly giving away thousands of your tax dollars to convicts behind bars.

"That's clearly one that would have slipped by the system," Garrison admitted as 13 Investigates showed him a copy of a check.

In 1974, the government decided to stop Social Security payments to prisoners behind bars. A decade later, the feds were also supposed to stop mailing death, disability and retirement payments.

But here it is, 37 years later, and taxpayers' dollars are still getting into inmates' bank accounts.

How it happens is puzzling. The Department of Correction allowed our cameras inside to watch the process.

"We open the mail and we inspect it," said a mail inspector at the Pendleton Reformatory.

Each piece of general mail sent to inmates is searched for contraband, checks and money orders before the letters are delivered.

"It's stressful," said another mail inspector, who carries the burden of not allowing dangerous items into prison cell blocks.

It was during a similar inspection that Department of Correction mail clerks at the Westville Correctional Facility seized federal checks sent to Larry Sires, a convicted thief.

For three months last year, the Social Security Administration sent checks totaling more than $4,000. Sires had been incarcerated since November 2009.

"Clearly, there was a deposit of a federal check that should not have been deposited. I don't know how it got deposited," conceded Garrison.

Each time a check came in, the DOC sent it back. The Social Security Administration even sent receipts as acknowledgement, but the agency never flagged Sires's name, so the checks just kept on coming.

13 Investigates handed over copy after copy of the checks to Garrison.

"If that's not the bureaucracy of government, I mean, it's crazy," said Garrison.

It's crazy, all right.

The Veterans Administration deposited almost $2,000 for drug dealer Terry Goad. Drunk driver Barry Bryson got a $2,000 child support check and we haven't even started talking about what murderer Khris Moore and others got from the IRS. (Moore was among those sent tax checks from the IRS. The IRS wrongly paid inmates a total of $1.4 million. Moore's $428.00 check was detected in November 2009 and sent back to the U.S. Treasury)

No one wants to talk about it on camera. For inmates, that would be admitting another crime. But neither the Social Security Administration nor the IRS would comment.

An recent audit released by the U.S. Treasury Inspector General determined Indiana prisoners made away with more than $1.4 million from fraudulent tax returns in 2009.

"Well, our reaction is the same as yours. It's outrage. We don't want to see any of our offenders, first of all, breaking state or federal law, or getting benefits that they're not entitled to. So we're not happy about it," Garrison told 13 Investigates.

The IRS actually caught 1,300 fraudulent returns filed by Indiana inmates trying to steal $44 million. That includes eight returns traced to a unit at Wabash Valley, from prisoners who are supposed to be on lockdown all but a few hours a day.

The DOC believes most of the tax fraud took place outside of prison with the help of others.

"The address that it was filed from would likely not be the prison," insisted Garrison.

But 13 Investigates discovered checks going directly to the Indiana Women's Prison.

An urgent fax from the Fraud Detection Center at the IRS showed inmates received checks over and over and over again at 401 N. Randolph Street which, at the time, housed the Women's Prison.

13 Investigates found nearly a dozen more sent to 1 Park Row Street in Michigan City - the Indiana State Prison.

"Yes," Garrison admitted the check was sent to the state prison.

"Would not a federal agency have the address to the Michigan City State Prison?" 13 Investigates asked.

"That's a good question. I mean, why were those checks being sent by the IRS to offenders whose names they should have had as being in prison? That's a good question. I don't know. I don't know why," Garrison said. "We're certainly aware of the problem. And we're taking internal steps to fix it."

The IRS is now devising an agreement with the Indiana Department of Correction to allow them to share information about inmates, especially those cashing in behind bars.

The IRS blocked refunds totaling $44.6 million in 2009, but hundreds of thousands of dollars still got through.

Big payouts

The biggest payout went to convicts at Miami Correctional Facility - $520,000. Criminals had filed more than $14 million in fraudulent returns.

The second largest take was from the Central Office Inbound. Seventeen individuals filed for more than $600,000 dollars in refunds. They got $110,000 in refunds.

At the State Prison in Michigan City, which houses death row, $96,000 dollars got through.

Efforts to stop double dipping

The Social Security Administration says recouping suspended payments to prisoners helped the agency to save $872 million in the 2009 calendar year nationwide, coming from 44,671 Social Security payments and 72,417 SSI payments.

Last year in Indiana, 397 Social Security Payments and 362 SSI prisoner payments were suspended. But the agency does not yet have the translated savings amounts available by state.

IRS Statement:

The IRS takes prisoner refund fraud seriously and has programs to aggressively combat it. The IRS stops the vast majority of incorrect refunds before they go to inmates. In 2009, the IRS stopped 87 percent of improper prisoner refunds – more than $250 million. We devote special scrutiny to prisoner returns and are substantially increasing our enforcement efforts in this area. However it is clear that more needs to be done.

The 2012 President's budget includes a critical legislative proposal to require state and federal prisons to report the status of inmates to the IRS. This would allow the IRS to cross reference tax returns with the list of inmates to determine if a legitimate return is filed, before tax refunds are paid. Without this comprehensive data, there will be gaps in the prison data and compliance problems will persist.

The IRS issues more than 100 million refunds each year to individual filers; the vast majority of these refunds are issued to taxpayers who are entitled to them.