Pandemic unemployment fraud estimated to exceed $45 billion

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The estimated amount of pandemic unemployment compensation paid out to fraudulent claims has risen to $45.6 billion, according to recent findings from the federal Department of Labor’s Office of the Inspector General (OIG).

In previous memorandums issued in February and June 2021, the OIG alerted the Department of Labor’s (DOL) Employment and Training Administration to $16 billion worth of potentially fraudulent claims it had identified. As of September 22, 2022, the OIG has identified an additional $29.6 billion in potentially fraudulent claims, totaling $45.6 billion.

In its 2021 notices to the DOL, the OIG identified four high-risk areas in which fraudulent claims were likely paid out, including filings in multiple states, filings from deceased persons, filings from suspicious email accounts, and filings from federal prisoners. Its latest findings include an increase of potentially fraudulent claims in three of those areas, but the OIG did not have access to the Department of Justice’s Bureau of Prisons data. Data on potentially fraudulent claims from federal prisoners has not been updated since June 2021.

In its September 22 memorandum to the  Employment and Training Administration (ETA), the OIG noted it had recommended in February 2021 that the DOL agency take several steps to prevent fraud from occurring in the high-risk areas it had identified. Those steps included establishing effective controls against fraudulent claims by working with state workforce agencies and working with Congress on legislation that would require state workforce agencies to cross-match high-risk areas. 

As of its latest memorandum, the OIG wrote that the ETA had “not taken sufficient action to implement these recommendations.”

“ETA’s lack of sufficient action significantly increases the risk of even more [unemployment insurance] payments to ineligible claimants. Our identification of the additional potentially fraudulent payments emphasizes the need for increased ETA engagement and assistance to mitigate fraud and protect the UI program’s integrity,” the OIG wrote in the September 22 memorandum.

The OIG also noted that it continues to experience delays in obtaining needed data on unemployment insurance (UI), which impede its “statutory duty to effectively and timely conduct audits and investigations of the UI program.” The OIG cited a part of federal statutes related to the reporting of data by state workforce agencies, Code 20 of Federal Regulations, Part 603, which it says the ETA interprets in a way that prohibits the agency from informing state workforce agencies that they are required to provide the OIG with UI data for auditing and investigative purposes.

“Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the American Rescue Plan Act of 2021 (ARPA), ETA issued guidance providing for both audit and investigative access, but only on a temporary basis.” the OIG noted.

It further noted that this interpretation, as well as subsequent guidance the ETA has issued to state workforce agencies, contradicts amendments made to the Inspector General Act of 1978, which “authorizes mandatory OIG access to DOL grantee information, including state UI data.”

In June 2021, the OIG recommended the ETA use the agency’s rulemaking process to amend 20 C.F.R. Part 603 to reinforce the need of state workforce agencies to provide information to the OIG during audits and investigations. But the OIG states the ETA “implemented a temporary solution.”

In August 2021, the ETA issued a letter requiring states to disclose UI data to the OIG for audits during the pandemic and also awarded fraud prevention grants to states on the condition they provided the OIG access to UI data. But the OIG found these actions weren’t sufficient to resolve ongoing issues around its ability to access state UI data.

The ETA has said it is considering updates to 20 C.F.R. Part 603, but in the interim the OIG is still concerned with its inability to access UI data.

“Although we met with ETA numerous times and requested a written plan with projected timelines, none was provided until July 2022, more than one year after we made the recommendation. The Department estimates the projected effective date of the updated regulations will be in February 2025, creating a 14-month gap from the December 31, 2023, expiration of the grants that temporarily expanded OIG access. During this 14-month period, the OIG’s access to state UI data will again be impeded, in violation of the IG Act,” the OIG wrote.

On September 15, 2022, ETA issued guidance to states about the OIG’s authority to access UI data, but the guidance does not require states to provide access to the OIG. The OIG notes that while 20 C.F.R. Part 603 is being amended, the ETA has the authority to reinterpret the statute in order to allow the OIG access to UI data.

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