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Jobless Aid Stalls in States as Pressure Mounts to Prevent Fraud

June 2, 2020, 1:30 PM

The massive surge in unemployment along with a spike in benefits fraud schemes are straining states’ ability to strike a balance between speed and accuracy to get checks to millions of newly laid-off workers.

More than 40 million Americans filed initial jobless claims since mid-March, a trend criminal fraudsters have seized on by targeting overwhelmed unemployment systems from Washington state to Maine. As a result, states struggle to police fraud without substantially delaying the payment of valid claims.

“I don’t think that there’s any doubt that those two things are in conflict, so sure, the spike in claims does stress that,” said Josh Richardson, chief of staff at Indiana’s Department of Workforce Development. “Unemployment benefits sort of lose their purpose if you make the perfect decision in a case four months too late.”

Whenever states have a heightened urgency to pay claims during an economic downturn, unemployment systems are more vulnerable to fraudsters seeking to take advantage of overburdened agencies.

Responding to requirements from the U.S. Department of Labor, jobless insurance offices deploy a range of automated program integrity checks that run cross-matches against other databases to flag potentially fraudulent or improper applications. But often, eligible filers’ claims get tagged as having issues, requiring repeated phone calls to understaffed state offices that then need even more documentation that may be tough to obtain.

Throughout the coronavirus outbreak, DOL and its internal inspector general have preached vigilance against criminal fraudsters and preventing overpayments to ineligible workers.

“Now that we’re in an unprecedented claim level, those checks and balances which were well intended and serve a definite purpose, are a bar to efficient payment of benefits,” said Thomas Crowley, government affairs director at payroll company ADP and a former unemployment insurance tax chief at DOL.

State governments already trying to overcome staffing and technology shortcomings to launch the complicated expansion of unemployment compensation included in the $2 trillion virus stimulus package are feeling added pressure to uncover impostor claims. The most up-to-date DOL data shows only 47% of workers seeking benefits at the end of April had been paid, according to an analysis by Andrew Stettner, a senior fellow at the left-leaning think tank, The Century Foundation.

“While everyone wants payments as fast as possible, the Department has been consistent in its messaging and work with states that payments must be made to eligible individuals,” John Pallasch, head of DOL’s Employment and Training Administration, said in a statement. DOL “has no flexibility under Federal UI laws to permit states to pay first and determine eligibility later.”

States Plead for Leniency

Pallasch’s agency has issued program letters advising states on how to legally adjust their unemployment processes to meet the influx of jobless claims. The department stresses in every letter the importance of program integrity, encompassing both intentional fraud and claims from people who don’t qualify.

ETA guidance on May 11 warned that “states must work to maintain program integrity by ensuring that claimants are not continuing to claim benefits when they have been offered suitable work.”

The agency said that in an effort to expedite claims processing, “a number of states” have requested relief from program integrity mandates, such as reviewing wages earned in other states. “While the Department understands the rationale behind these requests,” they “remain fundamental requirements ... which must be adhered to,” ETA said.

Scams that capitalize on a temporarily enlarged benefits system also are emerging. Maine was forced to shut down its UI program for two days last week to investigate about 1,000 reports of impostor fraud in which personal identity breaches led to illegal benefits applications. The Maine Department of Labor said it has identified and canceled about 2,200 fraudulent claims. Washington state reported a 65% decline in initial unemployment filings the week ending May 28, which it attributed to “significant fraud detection measures” put in place that month.

DOL’s internal watchdog office is “aggressively pursuing” more than 300 “investigative matters involving UI fraud,” Inspector General Scott Dahl told lawmakers at a House subcommittee briefing Monday.

But as fraud rings proliferate, honest workers are still desperate for financial support.

“I think we have to be really careful when millions of people have not yet received a single dollar since the beginning of March that we don’t all of a sudden switch to how to prevent people from getting paid,” said Julia Simon-Mishel, supervising attorney for Philadelphia Legal Assistance’s unemployment compensation unit.

Fraud is real, she added, “but the vast number of what the government would call improper payments that could come out of this pandemic are going to be caused by confusion, misunderstanding, and a lack of information.”

DOL’s Office of Inspector General was awarded $26 million by Congress under the virus response law, much of which will be focused on policing UI fraud and erroneous payments to people who already are earning wages. The IG recently cautioned that the new expanded benefits system for self-employed workers and others not traditionally eligible for benefits is particularly vulnerable to fraud.

States could slow their payments to avoid an IG investigation and the possibility of being forced to develop a corrective action plan and claw back payments.

Software vs. Humans

Depending on the state’s UI technology, workers can easily get flagged for such discrepancies as a different address on their unemployment claim than on a driver’s license or when more than one person file from the same computer. This requires them to contact a state employee to rectify the matter.

Dale Ziegler, government relations director for UI software vendor On Point Technology, said his company works with at least a dozen states to help catch fraudulent claims. All the states are struggling with the volume, he said.

When the software automatically blocks a claim, the state’s ability to override the valid filings depends on staffing. But some jobless workers could be delayed by “many, many weeks” to get paid as they wait to get their issue cleared, Ziegler estimated.

“There are just certain things that have to be done in order to maintain integrity and they’re labor intensive, and there’s no real easy way to automate around them,” added Ziegler.

Richardson, the Indiana official, said his state’s automated verification system handles 75% to 80% of filings on its own. But states do struggle to expedite payments when they need to assign someone to work through the issue, he said.

In California, claims without an eligibility issue—dubbed “clean claims"—usually get paid within three weeks, said Barry White, a spokesman for the state’s Employment Development Department. But claims that get flagged in the identity verification process as requiring more documentation take longer. White said the time to resolve those issues varies by case.

State Flexibilities

Some governors are stepping in to speed up the process.

Michigan Gov. Gretchen Whitmer (D) signed an executive order in May instructing her UI office to only review job separations from the worker’s most recent employer, and barred the state from making determinations based on the worker’s full employment history.

That’s the type of action more states should take “so they don’t get dinged on program integrity,” said Stettner from The Century Foundation.

ADP’s Crowley said relaxing certain integrity checks could be wise on the front end. But it wouldn’t come without risk.

“It would probably make sense from a system payment standpoint to temporarily ease those requirements, but again, you have to be aware of the adverse consequences from that action,” Crowley said. “Yes, you’ll get people paid, people who desperately need it, but you’ll also have an increase in improper payments.”

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

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com