Labor Watchdog Finds $912 Million in Unpaid Unemployment Funds

The Labor Department’s internal watchdog urged agency leaders to recover nearly $1 billion in unemployment insurance funds from various financial institutions and state governments, saying most of the money is potentially linked to fraud.

The unnamed financial institutions are holding $912 million in unemployment benefits, including at least $720 million in prepaid debit cards that were supposed to be paid out to claimants and $192 million in unclaimed benefits still being held by the states, DOL Inspector General Anthony D’Esposito said Wednesday. The investigation identified about $715 million in potential fraud.

“There is no excuse for delay, and no acceptable outcome other than returning these dollars to the American people,” the IG said.

The unemployment benefits funds were given to the financial institutions as part of pandemic relief efforts administered by state unemployment agencies, D’Esposito said in a letter to Henry Mack, head of the Employment and Training Administration.

This is the latest step in efforts to recover money from widespread unemployment fraud during the Covid-19 pandemic. According to the letter to Mack, the IG’s office estimates that over $191 billion out of the $888 billion paid in unemployment during the pandemic could have been fraudulent. The labor department returned around $4.4 billion in recovered fraud to the treasury last June amid pressure from Republican lawmakers.

D’Esposito urged the ETA to issue guidance to states within 30 days on how to recover any fraudulently-obtained funds. Some states contracted with financial institutions to put the funds onto prepaid debit cards.

Inaction by the department could result in state administrators “not fulfilling their programmatic responsibilities to prevent and detect improper payments and recover potential overpayments, including fraud,” D’Esposito said in his letter.