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Jobless Aid Fraud Warrants Greater Federal Action, Watchdog Says

Feb. 24, 2021, 7:01 PM

More federal government outreach to states is necessary to curb widespread unemployment insurance fraud during the pandemic, as billions of dollars have been paid to people illegally filing for benefits in multiple states, the U.S. Labor Department’s Inspector General warned.

Many states are still not cross-matching unemployment compensation claims against other state systems, the DOL’s independent watchdog found, and the problem is so extreme that one person filed for benefits in 40 states and received a combined $222,532 from 29 states.

The Labor Department “needs to take immediate action and increase its efforts to ensure” state agencies “implement effective controls to mitigate fraud,” the Office of Inspector General said in a memo to the DOL’s top official overseeing unemployment benefits that was released publicly on Wednesday.

The watchdog’s analysis of data it subpoenaed from all states and territories last June identified $5.4 billion in potentially fraudulent jobless benefits that were paid out from March through October of last year. That timing overlaps with the initial period in which a virus stimulus law dramatically expanded the size of unemployment benefits and the number of people eligible to receive them.

Claims paid to Americans in multiple states accounted for $3.5 billion of the $5.4 billion in potential fraud the watchdog office found in the set of data it collected.

The Inspector General expects the amount of overall fraud to date to be much larger, and “could easily range in the tens of billions of dollars.”

Pandemic-fueled layoffs led to an unprecedented surge in unemployment insurance claims over the last year, which has exposed understaffed state agencies to criminal fraudsters who have preyed on states’ antiquated processing software. The DOL provides technical support to states, which in turn pay jobless benefits directly to claimants.

While lawmakers from both parties have called for increased federal funding to better equip states to combat unemployment insurance fraud, that issue hasn’t taken on as much urgency amid the political debate on Capitol Hill over whether to extend expanded benefits to laid-off workers beyond a March 14 deadline.

‘Deeply Concerned’

The Labor Department, in a prepared statement, attempted to distinguish between the Biden administration’s actions and steps taken under the leadership of former President Donald Trump.

“We are deeply concerned and angered by reports of widespread fraud—including by highly sophisticated criminals—in the pandemic unemployment system during the previous administration,” a DOL spokesman said.

“The Biden-Harris Administration is committed to administering programs—including unemployment insurance—with minimal fraud, waste and abuse. That’s why the Department is significantly increasing its work directly with states to protect their UI programs, including through technical assistance, guidance and $200 million in grants to help them build systems to fight identity fraud.”

The watchdog office also recommended that Suzi LeVine, the acting assistant secretary of the DOL’s Employment and Training Administration, work with Congress to pass legislation that would make it mandatory for states to cross-match their claims to identify four “high-risk” applications.

The department’s statement didn’t address whether it will prioritize such legislation.

“The administration has also called on Congress, as part of the American Rescue Plan, to provide funding to fight existing fraud and to help to modernize state IT systems to both make sure Americans get the benefits they deserve and to address problems like these,” the DOL spokesman added.

High-Risk Areas

Labor Department guidance last year encouraged states to take advantage of a federally funded hub designed for states to share applicant information and detect fraudulent claims filed in more than one state. However, participation in the program is voluntary, and only 32 of 54 state or territory workforce agencies in the U.S. had used the “integrity data hub” as of December, the IG said.

The multi-state claims the watchdog uncovered were filed in states that utilized the cross-matching data hub as well as in states that did not.

State efforts to detect multi-state filing fraud “will not be fully effective unless all 54" states and territories “consistently and effectively perform multi-state cross-matches,” the memo stated.

In addition to multi-state filings, the three other high-risk forms of unemployment fraud are claims paid to:

  • Applicants using Social Security numbers of deceased Americans, which accounted for $58.7 million in UI benefits in the data assessed by the IG;
  • Federal prisoners, totaling $98.3 million in benefits for 13,446 prisoners; and
  • Suspicious email accounts, such as those that hide the user’s identity, totaling $2 billion.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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