COVID relief ripoff: Improper unemployment payments could total $87B, watchdog reports

This week's award goes to the Department of Labor for its lack of guidance and oversight on unemployment insurance benefits to states under the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), as a result of which "at least $39.2 billion in improper payments, including fraud, were at risk of not being detected and recovered," estimates a recent audit by the DOL's Office of Inspector General. 

"Specifically," the audit found, "DOL's guidance and oversight did not ensure states implemented the programs and paid benefits promptly; performed required and recommended improper payment detection and recovery activities; and reported accurate and completed program activities."

The failures, according to the IG report, "occurred primarily because states' IT systems were not modernized, staffing resources were insufficient to manage the increased number of new claims, and according to state officials, guidance from [the Employment and Training Administration] was untimely and unclear."

The audit report was published after the IG sent a memo in February alerting the DOL that they found $5.4 billion in potentially fraudulent claims paid to prisoners, the deceased, multistate claimants and suspicious accounts from March through October 2020. 

The IG found that social security numbers of prisoners and the deceased were fraudulently used to claim benefits. A total of $58.7 million was sent to the deceased, $98.3 million to federal and state prisoners, $3.5 billion to multistate claimants, and $2 billion in claims paid were related to suspicious and disposable e-mail accounts. 

The alert memo "only captures a subset of the potential fraudulent UI activities," wrote the memo's author, Carolyn R. Hantz, DOL assistant inspector general for audit.

Many states — 40% of them — did not perform cross-matches, and 38% did not perform recovery activities, according to the full audit report. In addition, 42% of states did not report overpayments to the DOL's Employee and Training Administration (ETA).

The states that did report overpayments to the ETA understated their amounts by an estimated 89%.

Even more alarming, the IG stated improper payments could reach $87.3 billion by the time the CARES Act extensions for unemployment end in September.

The number of fraudulent claims paid out could be much higher still. One company which offers fraud prevention services believes as much as 50% of benefits may have been stolen. ID.me CEO Blake Hall told Axios this week that the country has lost more than $400 billion in fraudulent claims.

In a letter to states in early May, the DOL offered guidance on fraudulent payments and overpayments of benefits. It also gave states certain criteria for waiving recovery of overpayments. 

The DOL is allowing states to waive recovery of overpayments under certain circumstances. They include if a state determines someone received compensation through no fault of their own, or if "such repayment would be contrary to equity and good conscience."

The DOL concurred with all the IG's recommendations to tackle fraudulent and improper payments.