Federal watchdog finds 20% of pandemic unemployment funds wasted on fraudulent or ineligible claims


At least 20 percent of federal dollars paid out through pandemic-related unemployment programs went to fraudulent and ineligible claims according to a new report from the Government Accountability Office (GAO). The federal watchdog reported that at least $78 billion, and potentially more, of benefits paid out in fiscal year 2021 were misspent. 

According to the report, the rate of improper payments made via unemployment insurance (UI) claims jumped from 9.2 percent, amounting to $8 billion in fiscal year 2020 before the COVID-19 pandemic, to 18.9 percent, amounting to $78.1 billion in fiscal year 2021. 

The report notes that the federal Department of Labor (DOL) found that the primary cause of improper payments, historically related to issues determining an individual’s eligibility, changed during the pandemic when identity theft became a main cause.

“Total UI improper payments are not known partly because DOL has not yet reported estimates for certain pandemic UI programs. States have also struggled with incomplete reporting of billions of dollars in identified overpayments,” the GAO report notes.

The report also notes that enhanced unemployment insurance, a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020, not only increased existing fraud risks but created new ones.

Between March 2020 and January 2022, 146 individuals have pled guilty to federal charges of UI fraud and charges were pending against a further 249 individuals according to the report.

Other challenges with the UI system relate to program design and variations in the way states administer the program. The GAO, DOL, and the DOL’s Office of the Inspector General have also said there is a need to modernize the IT systems states use to administer UI.

“In the pandemic, challenges emerged relating to providing customer service, timely processing of claims, and implementing new programs,” the report notes.

“These extensive challenges pose significant risk to UI service delivery and expose the UI system to significant financial losses. Based on GAO’s findings—including many open recommendations in this area—GAO has determined that the UI system should be added to GAO’s High-Risk List,” the agency stated.

The GAO’’s High-Risk List catalogs programs and operations vulnerable to waste, fraud, abuse, and mismanagement, or which need to be transformed. It is updated at the beginning of each Congress. The UI system was added on June 7, with the agency noting that the design of the current program and variations between how states administer UI “have contributed to declining worker access and disparities in benefit distribution.”

Gene Dodaro, head of the GAO and Comptroller General of the United States, called the problems with UI “widespread” and said they are “extremely troubling.”

“Not only is the system falling short in meeting the needs of workers and the broader economy, but the potential for huge financial losses could undermine public confidence in the stewardship of government funds. The Labor Department is considering a number of changes, but GAO is concerned that many long-standing problems may go unaddressed. By adding the Unemployment Insurance system to GAO’s High Risk List now, our hope is that Congress and agency officials will provide sustained leadership to act on our recommendations for turning the situation around,” Dodaro said via a press release.

Some of these problems have affected people in Maine. According to documents turned over by Gov. Janet Mills’ office as part of a Freedom of Access Act request, some teachers in the state had trouble having claims for Pandemic Unemployment Assistance (PUA) verified during the summer of 2020. 

The PUA program was among the expanded UI programs funded by the federal government through the CARES Act. It offered UI benefits to people not usually covered by unemployment, such as individuals who are self-employed 

On July 23, 2020, C. J. Betit, Director of Collective Bargaining and Research for the Maine Education Association, contacted the governor’s office to inquire about issues teachers were having claiming summer jobs through PUA.

“On the weekly certification there is a question that asks ‘do you have a definite date to return to full-time employment?’ How are educators supposed to answer this question? To me the question is in regard to their summer job since that is the job they are eligible to collect PUA for and they are answering based upon if their summer job will be returned. Since they are not eligible for employment for their school year job, that’s what would make sense to me and I can understand why people answer that question that way,” Betit wrote. 

“However, I have a member who has an issue on file and they called and were told the issue is they answered that question ‘No’ and they should have put ‘Yes’ based upon the letter of reasonable reassurance and knowing they had a date to go back to school,” Betit continues.

Betit added the member was told the only way to resolve the issue was to escalate it to the next level, but the member was taken off hold before it was resolved and was told an investigation, scheduled for over a month in the future, had been opened into the claim because of their answer about a date to return to work.

On July 24, 2020 Maine DOL Commissioner Laura Fortman said in an email that the state was aware of the issue and was “researching the nuances of these complicated scenarios.”

The Maine DOL has also experienced issues with its technology. On January 19, Fortman appeared before the Maine Legislature’s Committee on Labor and Housing and briefed legislators about a data breach that had occurred the previous day while the agency was uploading 1099-G tax forms.

The forms must be filled out by individuals who have collected UI. For a 90-minute period, documents were uploaded correctly and anyone who logged into the system was able to see personal information, including names, addresses, and the amount in UI benefits they had received, belonging to individuals other than themselves.

At the time, Fortman said in the future the agency will take the system offline while it is uploading the documents.


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