Billions paid in phony unemployment claims in 2020, Labor IG reports

• By Natalie Alms
• Feb 25, 2021

Of the $400 billion in CARES Act unemployment benefits distributed last year, states paid over $5.4 billion in potentially fraudulent unemployment claims between March and October of 2020, according to the Department of Labor’s inspector general. The actual number may  reach tens of billions of dollars, the watchdog said.

In California alone, at least 10% of the benefits paid since the start of the pandemic have been to fraudulent claims, and that number could be as high as 27%, or $29 billion, the IG said in a Feb. 23 memo. Other states have also reported fraudulent claims. New York stated it paid $1 billion in fraudulent claims, and Maryland claimed $501 million, according to the IG.

"If other [state workforce agencies] have problems similar to California, the potential fraud occurring throughout the nation could easily range into the tens of billions of dollars," the report read.

The incorrect payments were sent to people who filed claims in multiple states, to those filing with the Social Security numbers of dead people and federal inmates, as well as to people claiming with "suspicious email accounts," the report said.

The report recommended that the Labor Department's Employment and Training Administration (ETA),  work with state agencies to mitigate fraudulent payments and collaborate with Congress to pass laws that would require state agencies to "cross match high-risk areas."

"ETA needs to take immediate action and increase its efforts to ensure [state workforce agencies] implement effective controls to mitigate fraud and improper payments," the report said. "Without effective controls, the UI program is exposed to substantial risks, including the cost of improper payments to ineligible claimants."

State agencies have struggled to meet the challenges brought on by the onslaught of claims from workers unemployed because of the pandemic. Many state IT systems for these services are decades old, making them vulnerable to crashes and difficult to adjust in response to policy changes.

ETA said in reply comments that it added an identity verification tool to its Integrity Data Hub, a centralized, multistate system that state agencies can use to cross-check claims and receive fraud alerts. It also said that some states have bolstered their fraud detection and identity verification tools, and the report noted that the ETA sent out letters to states last year to remind them of their roles in addressing fraud, fraud management techniques and options for assistance from the department.

The Integrity Data Hub tool isn't used by all state agencies handling unemployment claims, though, the watchdog said.

"ETA is unaware of the extent of potential fraud in its UI program," the report said. "To effectively combat fraud, ETA needs to ensure all [state workforce agencies] are effectively mitigating the fraud risk."

This article was first posted to FCW, a sibling site to GCN.