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Jobless Aid Error Rate High Before the Pandemic, IG Audit Shows

Sept. 30, 2021, 6:00 PM

Improper unemployment benefit payments accounted for more than 10% of total jobless aid paid out during the seven years leading up to the Covid-19 pandemic, with overpayments related to work-search rules as the leading cause.

The state agencies that administer unemployment benefits and their federal counterpart struggled to reduce the frequency of overpayments between 2012 and 2019, according to an audit released Thursday by the U.S. Department of Labor’s Office of Inspector General.

Payments to people who hadn’t satisfied their states’ work-search requirements were the No. 1 category of improper disbursements in five of the seven years, according to the report. For the year ending June 30, 2019, $2.9 billion of $26.2 billion in unemployment insurance claims paid were estimated to be improper, with $878 million of those errant payments related to work-search violations.

Federal law requires that unemployment claimants actively seek work, but states have discretion in how they define their work-search rules—a factor that the Labor Department auditor noted as a major challenge to the department’s efforts to prevent overpayments nationwide. Federal law also sets a target of keeping unemployment overpayments below 10% nationwide.

“The agency was unable to consistently reduce these overpayments mainly because states had varying work search laws and requirements, with some more stringent than others,” the audit report said.

States temporarily suspended their work-search rules during the pandemic, but nearly all have resumed enforcing them.

Combating Fraud, Overpayments

The Inspector General’s report highlights the challenges state unemployment agencies and the federal Labor Department face during ordinary times in avoiding technical errors and mistaken overpayments—problems that are more persistent but involve smaller dollar amounts than the rampant identity fraud states battled under the enhanced federal jobless aid programs that expired on Labor Day.

The department announced in August it is establishing an unemployment benefits modernization office, tasked with helping states improve their technology and processes to improve benefits disbursement and combat fraud and overpayments.

Before the pandemic, many states relied on better messaging to employers and benefit claimants as their primary strategy for reducing overpayments related to work search, according to the audit report.

A few attempted to reduce overpayments by making their work-search rules easier for jobless people to follow.

South Carolina reduced its rate of work-search overpayments to zero by switching to easy-to-satisfy requirements that include online job searching activities, but the auditor raised concerns that making the search requirements too easy might defeat their purpose. The report said the auditor’s staff reviewed system records, and found “a claimant could complete one valid work search contact in as few as 11 seconds, which does not appear to be sufficient time to conduct a valid work search.”

States should “recognize that less stringent work search requirements could result in ineffective and meaningless efforts to improve claimants’ chances of gaining employment,” the IG’s report said.

Better Monitoring

The auditor’s recommendations for reducing overpayments related to work search focused largely on more precise monitoring of which state policies are most effective and more accurate reporting of improper payments by the Labor Department’s Employment and Training Administration, the division that oversees unemployment insurance.

Among the accuracy concerns raised, the report said the Labor Department improperly allowed states to give formal or informal warnings to unemployment claimants who failed to satisfy work-search rules, rather than denying payment of their benefits claim. The Labor Department should have counted those in its tally of improper payments, and the report urged the department to notify states that warnings for work-search violations aren’t allowed.

The department’s Employment and Training Administration disagreed in a written response included with the audit report, saying states are bound by federal law to pay benefits promptly and sometimes must wait for due process to determine a claim improper after the fact.

The department is following methodology approved by the federal Office of Management and Budget in calculating improper payments, according to the response, and the ETA said it is working with OMB to issue guidance to states making clear that warnings for work-search violations aren’t allowed.

To contact the reporter on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com

To contact the editors responsible for this story: Andrew Harris at aharris@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com

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