The state will spend $650,000 on a new program to weed out fraudulent Permanent Fund dividend applications under a no-bid purchase last month from international data company LexisNexis.
LexisNexis won its sole-source deal after hiring a lobbyist who is good friends with the senator who proposed the state budget amendment setting aside the money.
The senator, Republican Pete Kelly of Fairbanks, specified that the money be used for exactly the kind of service provided by LexisNexis, though he didn't name the company in the budget.
LexisNexis will bring new scrutiny to every one of the 675,000 applicants for this year's Permanent Fund dividend, the annual oil-savings payout. The state will send private and public information from applicants to the company, which will compare it against its massive database of personal records to see whether people claiming to be Alaskans had signs of residency in other states.
The PFD division, which administers the dividend program, had traditionally done audits on 4,000 to 5,000 applications, like those filed with out-of-state computers or postmarks.
But using the new system, the division is sending its entire computerized file of applications to LexisNexis to search for "risk factors" like out-of-state voter registrations, drivers licenses or property tax exemptions, before dividends are paid next month.
Kelly said the LexisNexis purchase could produce "significant savings" at a time of big deficits by weeding out illegal applicants.
But even if thousands of applicants are judged fraudulent, it won't save state any money. Instead, the "savings" will stay in the state's dividend account and be reallocated to the pool of legitimate applicants next year, said Jerry Burnett, deputy revenue commissioner.
Officials in Gov. Bill Walker's administration cited the same assertions as Kelly in their justification for approving the no-bid purchase. And they said LexisNexis could help produce savings at some point in the future if the dividend was capped at a fixed amount.
[Read the procurement documents supporting the state's no-bid purchase]
LexisNexis is part of multinational corporation RELX, formerly Reed Elsevier, which reported more than $7 billion in revenue last year.
RELX pays its Juneau lobbyist, Eldon Mulder, $56,000 a year, and lobbied in more than three dozen other states between 2010 and 2014, according to the Center for Public Integrity.
Both Kelly and Revenue Commissioner Randy Hoffbeck, whose department includes the PFD division, said they first learned of the availability of fraud detection systems from corporate representatives — though Kelly said it wasn't Mulder and Hoffbeck said he couldn't remember which lobbyist he spoke with.
Mulder didn't respond to requests for comment.
LexisNexis was hired by the revenue department in August after Kelly amended the state budget to provide the $650,000 for PFD fraud detection in the current fiscal year, which ends June 30.
The PFD division's director, Sara Race, then said there wasn't enough time to follow standard procurement procedures, which would have required competitive bidding.
"Due to the current fiscal crisis, it is not in the state's best interest to put this off," Race wrote in her request for approval of the no-bid purchase from LexisNexis. "The state cannot afford to continue to pay out ineligible or fraudulent dividends, nor can it afford to put off identifying and recouping dividends that should not be paid."
Race wrote that the PFD division consulted with several other revenue department divisions, including those responsible for overseeing unclaimed property and child support, and "confirmed that LexisNexis, a vendor widely utilized across the state, could be the solution."
Kelly, co-chair of the Senate Finance Committee, declined to be interviewed when reached by phone. But he said in an email that it was still accurate to say the fraud detection system produced savings because "we will keep money that we would normally pay out to fraudulent applicants."
Kelly didn't directly answer emailed questions about whether he'd discussed his budget amendment with Mulder. But Kelly said that it was another company — not one represented by Mulder — that originally brought the fraud detection technology to his attention during discussions about a Medicaid reform bill that was approved this year.
That legislation, Senate Bill 74, also included a section requiring the state health department to hire a "third-party vendor" to verify the eligibility of applicants for welfare and other assistance programs.
"It sounds like the Republicans may have made a sound business decision to reduce fraud in PFD and Medicaid," Kelly said.
Revenue Commissioner Randy Hoffbeck said the Walker administration hadn't pushed to adopt the fraud detection system for dividend applications, but he added that the technology would be useful.
"There was some talk in the halls about this particular product," said Hoffbeck. He was asked about it by a corporate lobbyist — Hoffbeck couldn't remember who, but thought it was someone working for LexisNexis — and recalled that he ultimately ended up in a meeting with the lobbyist in Kelly's office.
Kelly "asked me what I thought about it," said Hoffbeck, who responded: "It's a tool — we'd use it if we had it."
Asked about Hoffbeck's recollection, Kelly didn't dispute it, writing in an email that "I don't even remember discussing this with Randy, but probably did."
Kelly ended up proposing the $650,000 for the dividend fraud detection system as an amendment to the state budget on March 10, when the legislation was being heard in the Senate Finance Committee. Members approved it after two minutes of discussion.
The purchase of the fraud detection system will be valid through June 2017, which means that the Permanent Fund division will be able to use it for two batches of applications, since this year's dividends won't be paid until October and next year's application deadline is March 31.
Burnett, the deputy revenue commissioner, wouldn't say exactly how many applications this year had been flagged by LexisNexis's program; he said the number was still changing but was "less than 4,000 and more than zero."
Applicants with the risk factors identified by the company will be contacted by the Permanent Fund division, and they'll be given an opportunity to respond before their applications are denied.