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Fraud played a big role in leaking the $163 billion pandemic unemployment system


Courtney | E+ | Getty Images

More than $163 billion in benefits likely leaked from the unemployment system during the pandemic, with a “significant part” attributable to fraud, according to a report from the US Department of Labor.

Congress created many new programs in March 2020 to support millions of people who have lost their jobs due to the fallout from Covid-19. Together, the programs increased weekly benefits, increased their duration and expanded the pool of workers eligible for payments. They ended last September, although many states pulled out earlier.

During that period, the federal government paid nearly $873 billion in total unemployment benefits, the Labor Department said in a semiannual report to Congress released Thursday.

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“The unprecedented injection of federal funds into the [unemployment insurance] program has given individuals and organized criminal groups a high-value target to exploit,” according to the report.

Criminals were able to defraud the system due to weaknesses in the program and easily stolen personally identifiable information, the agency said.

Many states were unprepared to deal with the crush of new claims for benefits and struggled to implement the newly created programs – and so many traditional internal fraud checks were not used.

Criminals could fraudulently apply for benefits with relatively low risk of being caught, and potentially tens of thousands of dollars, the Labor Department said.

Much of the criminal activity was aimed at the temporary pandemic unemployment assistance program for odd jobs, the self-employed and other workers. Lawmakers first let program applicants self-certify their eligibility for benefits; they then rolled back that feature and added safeguards against fraud, as did the states.

The Department of Labor has also taken additional fraud prevention measures, including grants to help states upgrade their administrative systems.

The volume of [unemployment] the investigative issues currently under review is unprecedented in the history of the OIG.

Office of the Inspector General of the United States Department of Labor

Some say cutting red tape was essential to quickly inject financial assistance into households in the midst of a deep crisis.

Even with initially more lax rules, it took weeks (sometimes months) for states to begin providing pandemic unemployment assistance. For example, early PUA checks corresponded to delays of six or seven weeks, according to a recent report by the Hamilton Project, part of the Brookings Institution.

“These delays have impacted consumer welfare,” the report said, citing inability to pay bills, rising credit card debt, high-interest borrowing, l depletion of savings, food shortage and homelessness.

The so-called “abusive payments” happened even before the pandemic. It’s not all about fraud; some may stem from processing errors by state employment agencies or application errors by applicants.

In December, the Labor Department reported that 18.7% of benefit payments in 2021 were paid incorrectly. Applying the 2021 rate to the $873 billion in total pandemic-era unemployment benefits, the Labor Department derived its new estimate that at least $163 billion may have been paid out improperly.

Prior to the pandemic, the Department of Labor’s Office of Inspector General opened approximately 120 investigations related to unemployment insurance each year. In the era of the pandemic, the Bureau received more than 144,000 unemployment fraud complaints from the U.S. Department of Justice and independently opened more than 39,000 fraud investigations – an increase in volume by a factor of more than 1 000, he said.

“The volume of investigative matters currently under review is unprecedented in the history of the OIG,” its report said.


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