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Labor Department Watchdog Subpoenas Jobless-Aid Data From States

July 10, 2020, 2:47 PM

The U.S. Labor Department’s independent watchdog has subpoenaed all states for comprehensive unemployment insurance data on millions of claims filed since March, when the coronavirus outbreak was declared a pandemic, a sweeping fraud-detection probe that some workforce professionals say could delay payment of benefits.

The subpoenas were issued June 19 and gave states until Friday, July 10, to submit data on all claims for regular unemployment insurance and new programs funded by virus-relief law. DOL’s Office of Inspector General requested 26 different categories of information for each claim, such as bank account numbers and employer addresses, according to a copy of a subpoena one state received. Unemployment officials from four states verified the subpoenas for Bloomberg Law, and the Labor Department confirmed their issuance.

State unemployment agencies, already facing staffing and technology shortcomings that compound the challenge of processing a backlog of unemployment insurance claims, were forced to scramble to meet the Inspector General’s demands. In some states, officials and workforce advocates said, complying with the subpoena likely required administrators to redirect resources that otherwise would have been used to help jobless workers overcome hurdles in getting paid or to review appeals from denied claims.

“The same staff that would develop this [data] extract are the same limited staff that work on implementing all technical aspects of the CARES Act,” said Jessica Picard, spokeswoman for Maine’s Department of Labor. She was referring to the contagion-tied $2.2 trillion federal relief package enacted in March, which boosted all unemployment checks by $600 per week and extended benefits to independent contractors.

The DOL watchdog on Thursday approved Maine’s request for a one-month extension. The extra time should help the state avoid negative effects on claims processing, Picard said.

The Inspector General’s data collection comes on top of heightened scrutiny from Labor Department regulators who focus on the federal-state unemployment insurance system. The department has worked with states in recent weeks to ensure compliance in processing of Pandemic Unemployment Assistance, a new program created by the CARES Act to assist independent contractors and others who don’t traditionally qualify for jobless aid.

The watchdog plans to use information from the subpoenas to compile a centralized database that will help regulators thwart scammers who’ve been filing bogus claims. High volumes of fraudulent claims have led some states to temporarily suspend claims processing during the pandemic.

Congress gave DOL’s watchdog $30 million in virus-relief funding to review state unemployment program performance. In his final weeks before stepping down June 21 as head of the OIG, Scott Dahl told Congress that by early June the watchdog was “aggressively pursuing” more than 300 investigations of suspected unemployment insurance fraud.

“As the OIG recently testified, we have seen a significant increase in COVID-19 related fraudulent activity involving the unemployment insurance program,” an OIG spokesman said in a prepared statement in response to Bloomberg Law’s questions about the subpoenas. “The OIG is working closely with DOL, the states, and our law enforcement partners to more timely detect and stop fraud activity and ensure benefits are available for workers in need.”

States that didn’t receive an extension were staring down a filing deadline of noon Friday, at a time when many people are still waiting to be paid on claims they filed months ago. The federal expansion of jobless aid programs also is a central issue as Capitol Hill lawmakers gear up for a fierce battle later this month over whether to extend the extra $600 payments beyond their July 31 expiration.

‘Difficult Trade-Off’

The historic surge in unemployment claims combined with what regulators have described as sophisticated fraud rings preying on state processing systems flush with federal cash have forced state officials to balance the dueling priorities of making payments quickly while ensuring checks only go to eligible workers.

The exhaustive data sets the watchdog requested through the subpoenas marked a departure in the OIG’s traditional approach, multiple veteran labor officials said. The demands added to the administrative burden states face, despite the potential to pay dividends in the fight against fraud, they said. Another 1.3 million first-time jobless claims were filed last week.

“States are working hard to pay benefits to people who need money to survive, and they don’t necessarily have the staff resources to respond to what seems like an incredibly extensive subpoena request,” said Gerri Fiala, a former DOL career official who worked under four presidents at the agency overseeing the federal-state unemployment system. “States face a difficult trade off: Should they pull staff away from helping people who need UI now and slow down the appeals process to satisfy the unprecedented scope of this OIG request in whole or in part?”

Fiala and five other former senior DOL leaders who oversaw unemployment benefits all said they were not aware of a time when the Inspector General had ever issued subpoenas to extract state unemployment insurance data.

State agencies and other organizations that receive DOL funding are generally fearful of the OIG’s investigative authority, said Mason Bishop, who was deputy assistant secretary at DOL’s Employment and Training Administration in the George W. Bush administration.

“The IG has a lot of power, and there is a general feeling that the IG has to find something to justify their time spent on an investigation,” said Bishop, now the owner of WorkED Consulting. “If the IG is asking state UI agencies for information, etc., it could have a chilling impact on the ability of those agencies to conduct business in real time.”

Workforce agency officials from three states other than Maine all spoke to Bloomberg Law on condition of anonymity to avoid the potential for repercussions with the OIG. Their views on the probe were divided, though all agreed that compiling the information was a massive undertaking that presented logistical problems in how to format and transmit the data.

Three officials called the three-week turnaround time unreasonable for such detailed data collection. One of the officials was certain that unemployed workers in the state would wind up experiencing delays in claims processing. And another supported the watchdog’s help in cracking down on fraud, particularly within the new program for gig-economy workers that allows claimants to self-attest their eligibility without immediately providing documentation.

Proactive Probe

The subpoenas stood out to several former DOL officials not just for being broader in scope than the watchdog’s previous unemployment inquiries, but also because the requests were made in the midst of an economic crisis.

In prior economic downturns, the DOL Inspector General would also collect data, interview state employees, and issue a compliance report, “but it was generally after the fact,” without imposing immediate deadlines, said Dale Ziegler, a former deputy administrator of DOL’s unemployment insurance office.

“That’s really an onerous request right during the period of time when states are processing historic levels of unemployment initial and continued claims,” he added.

The watchdog office declined to respond to additional questions for this article. Dahl, the agency’s former head, discussed the broader initiative in written testimony submitted to Congress on June 9.

“The OIG is currently seeking data from the states that will allow the OIG to more timely detect fraud activity,” Dahl stated. “Earlier detection will allow the OIG to save taxpayer dollars by stopping fraud while it is happening.”

Labor Department brass support the effort. “We share the OIG’s strong desire for proper administration of these programs and acknowledge the OIG’s subpoena power in conjunction with its investigations into fraud related to the CARES Act programs,” a DOL spokeswoman said in a statement. She added the department is"cognizant of the current workloads of the state workforce and UI agencies.”

Republicans on the Senate Finance Committee, which has oversight power over the unemployment insurance system, saluted the watchdog’s effort.

“Requesting information from all jurisdictions is only fair as the potential for fraud or mismanagement exists in every state and territory,” said Michael Zona, spokesman for the committee’s GOP office.

But for workers waiting to get paid, federal intervention would be more beneficial in the form of increased support for state agencies, said Drake Hagner, a senior staff attorney in the public benefits unit at the Legal Aid Society of the District of Columbia.

“Since March 16, I’ve been receiving panicked calls from a very high volume of workers who cannot access the system to even lodge a complaint or claim,” Hagner said. “A sweeping data-mining expedition is not supportive, it’s not useful, and it’s not narrowly tailored to uncover any actual existing fraud.”

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; Andrew Harris at aharris@bloomberglaw.com

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