Prisoners, identity thieves reap COVID jobless benefits, as lax controls cost billions

Pandemic relief watchdog cites U.S. Department of Labor for directing states to accept self-certifications for unemployment benefits instead of claimants providing documentation.

Updated: December 25, 2021 - 10:22pm

This week's Golden Horseshoe is awarded to the U.S. Department of Labor and several state agencies, which paid out billions in improper and fraudulent federal unemployment benefits to ineligible recipients, including prisoners and those with stolen identities, according to the Pandemic Response Accountability Committee.

PRAC's report showed the federal Pandemic Unemployment Assistance Program in the CARES Act opened unemployment benefits to new categories of workers, such as self-employed and gig workers and others, who did not have to provide documentation to get payments.

The Department of Labor's interpretation of the CARES Act unemployment insurance provisions led the department's Employment and Training Administration to direct states to accept self-certifications for unemployment benefits instead of claimants providing documentation.

The resulting "reduction in controls to receive PUA benefits was a direct cause of the widespread fraud seen across states," the PRAC determined.

UI fraud was most rampant in the most populous state, California, where the state auditor found the state Employment Development Department paid out $10.4 billion in fraudulent claims. 

EDD's approach during the pandemic was "marked by significant missteps and inaction," and the audit found the state "did not take action to bolster its fraud detection efforts until months into the pandemic."

"Specifically," according to State Auditor Elaine M. Howle, "EDD waited about four months to automate a key anti-fraud measure, took incomplete action against claims filed from suspicious addresses, and removed a key safeguard against improper payments without fully understanding the significance of the safeguard."

That removed safeguard accounted for $1 billion of the $10.4 billion in fraudulent payments sent out.

The state audit found California's fraudulent payments included $800 million in benefits to "45,000 claimants whose personal information matched those of incarcerated individuals" between January 2020 and November 2020.

Arizona has the dubious distinction of being second in fraudulent pandemic payouts, despite having a population 5.5 times smaller than California. The Arizona State Auditor found the Arizona Department of Economic Security paid out $4.4 billion in fraudulent and improper payments. 

Of the $4.4 billion, $1.6 billion in federal UI benefits went to individuals who used stolen identities.

The DES "did not put all critical identity verification or other anti-fraud measures in place before paying federal CARES Act unemployment insurance benefits," the audit found. 

Michigan came in third in fraudulent UI benefit payouts, issuing $3.9 billion in PUA benefits to those who were ineligible, as previously reported by Just The News.

Other states highlighted by the PRAC include Washington, which paid out $647 million  in improper or fraudulent payments, and Ohio, which paid out $574 million in fraudulent payments, with an additional $390 million flagged as potentially fraudulent.

Two other states besides California — Colorado and Louisiana — also paid out hundreds of millions to prisoners. In Kentucky, the UI fraud also involved state employees who applied for unemployment insurance while they were still fully employed.