Slightly more than $1 out of every $5 distributed in unemployment insurance payments during the pandemic could have been improper, mostly fraud.
Larry Turner, the inspector general for the U.S. Department of Labor, said Wednesday that of the more than $888 billion in total federal and state unemployment insurance benefits distributed during the pandemic, at least $191 billion could have been improper payments, “with a significant portion attributable to fraud.” Turner told members of the House Ways and Means Committee during a hearing. That’s up from a previous estimate of $163 billion.
“The reliance solely on claimant self-certifications without evidence of eligibility and wages during the program’s first nine months rendered the Pandemic Unemployment Assistance program extremely susceptible to fraud,” he said.
The Pandemic Unemployment Assistance program provided unemployment insurance benefits to people who were traditionally not eligible for benefits, including gig workers, self-employed workers, and independent contractors.
States administer unemployment insurance with oversight from the U.S. Department of Labor. In place for more than eight decades, the joint state-federal program serves as a safety net for people who lose their job through no fault of their own. When the pandemic hit, a combination of factors resulted in a spike in improper payments and fraud. A 2022 audit found that fraudulent claims were paid 60.5% of the time from March 28, 2020, to September 30, 2020.
“This created multiple high-reward targets where an individual could make a fraudulent claim with relatively low risk of being caught,” Turner said. “For example, as time went on, one fraudster could have been issued several UI debit cards, with tens of thousands of dollars on each card.”
As an example, Turner cited a person who filed a claim from a three-bedroom house that was the shared location for 90 other claims. The same person also shared a flagged email address with 145 other claims. In total, that person was connected to 235 other claims in three states and got benefits on 87 of those claims, all filed in California, for a total of $1,569,762. California stopped payment 164 days after the initial payment when officials were unable to verify the person’s identity, according to that 2022 audit.
Part of the problem was the nature of the crisis. The pandemic and governments’ response to it put millions of people out of work in a matter of weeks. Unemployment levels rose to historic levels. On March 14, 2020, the Department of Labor reported 282,000 initial unemployment claims. Within weeks, initial claims rose to 10 times pre-pandemic levels, “far higher than state systems were designed to handle,” Turner said in written testimony. Within five months, the Department of Labor reported 57.4 million initial claims, the largest increase since the agency began tracking unemployment insurance data in 1967.
Problems with the unemployment insurance program predated the pandemic. Turner said the program had among the highest improper payment rates in the federal government. It had been above 10% for 15 of the previous 19 years. In the last two years, the agency has estimated an improper payment rate of 18.71% and 21.52%, respectively.
Comptroller General of the United States Gene Dodaro told the committee that some improvements have been made to prevent fraud, but more remains to be done.
“I think we’re slightly better prepared, but not fully prepared for the next crisis,” he said. “A number of our recommendations at the Labor Department have been not fully implemented yet. I think states are trying to make improvements – there have been some improvements that have been made, but they’ve all been ad hoc. There hasn’t been a systematic approach to doing this.”
He said while the government should work to recover as much fraud as it can, prevention would go further.
“The only way to effectively deal with this is to prevent it up front,” Dodaro said.
Michael Horowitz, chairman of the Pandemic Response Accountability Committee, told the House Ways and Means Committee that the fraud was not limited to U.S. residents.
“One of the biggest challenges we have is following the fraud through overseas gang activity and fraudsters,” Horowitz said. “The Secret Service has reported that they’ve seen that occur through entities in Nigeria, China, Russia. That will be our biggest challenge.”
U.S. Rep. Vern Buchanan, R-Florida, asked for an estimate of how much that type of fraud cost U.S. taxpayers.
Horowitz said no such estimate was available.
“That’s among the hardest fraud to find, track, and figure out,” he said. “Because it is through overseas networks … the process is very challenging.”
Republished with the permission of The Center Square.
