Government Watchdog Finds $60 Billion in Pandemic Unemployment Fraud, Suggests Maybe Doing Something About It
Despite multiple warnings in the past, the Department of Labor has yet to implement a comprehensive strategy for detecting unemployment insurance fraud.
In the year after the COVID-19 pandemic reached the U.S., Congress passed $6 trillion in spending to address it. Of that amount, it apportioned hundreds of billions of dollars to expand unemployment benefits. As a result of the emergency situation, the benefits were particularly generous, offering some laid-off workers as much as triple the amount normally paid by unemployment insurance (U.I.).
A report from the Government Accountability Office (GAO) made public this week found "substantial levels of fraud" in the program. More notably, it indicated that the government lacks a real strategy for dealing with the problem.
Each state administers its own U.I. program, and the U.S. Department of Labor (DOL) ensures that states comply with federal standards. According to the GAO report, Congress established four new U.I. programs during the pandemic that collectively paid out over $878 billion between April 2020 and September 2022, all of it meant to supplement state U.I. benefits.
Such a substantial infusion of cash created numerous opportunities for fraud and abuse. Applicants submitted falsified income or employment information; some fraudsters even used false identities altogether. The GAO notes that state agencies reported U.I. fraud during the pandemic totaling $4.3 billion. But the DOL's inspector general identified another $45 billion in potential fraud that had not been investigated.
Using the DOL's U.I. fraud estimates of between 7.6 percent and 8.6 percent, the GAO determined that total unemployment fraud during the pandemic could be over $60 billion. But notably, those fraud estimates are for unemployment spending during normal times: An earlier GAO report concluded that during the pandemic, the improper payment rate more than doubled to 18.9 percent, so the actual amount could be considerably higher.
Republicans on the House Oversight Committee will hold a hearing on February 1 to investigate the fraud. Rep. James Comer (R–Ky.), the committee chairman, said that "the Biden Administration has allowed fraud to run rampant in federal assistance programs and Democrats in Congress conducted little oversight. That changes with our House Republican majority."
But the increases were a bipartisan affair: The Coronavirus Aid, Relief and Economic Security (CARES) Act, which established multiple U.I. programs to cover different subsets of laid-off workers, passed unanimously in the Senate and was signed into law by President Donald Trump. Later, a Democratic Congress under President Joe Biden extended and expanded the new programs with bills like the American Rescue Plan Act of 2021.
Any investigation would need to address certain structural issues. There is a considerable discrepancy in the GAO's fraud estimates due to a lack of information. In 2015, the GAO published its "Framework for Managing Fraud Risks in Federal Programs," a list of best practices for federal agencies to "prevent, detect, and respond to fraud, with an emphasis on prevention." In the new report, the GAO notes that "DOL has not yet developed an antifraud strategy based on leading practices in GAO's Fraud Risk Framework." It further notes that DOL has yet to address six recommendations from an October 2021 GAO report for identifying and mitigating U.I. fraud risks.
"These are essential pieces to inform an overall antifraud strategy," the report cautions. "Without an antifraud strategy, DOL is not able to ensure that it is addressing the most significant fraud risks facing the UI system."
