Kansas paid $700 million in unemployment benefits to fraudsters during pandemic, audit estimates

This week's Golden Horseshoe is awarded to the Kansas Department of Labor for an estimated $700 million in potential fraudulent unemployment benefits it paid out during the pandemic from January 2020 to February 2021, according to an audit by the state legislature.

"We estimated about $700 million in potentially fraudulent payments could have been made in Kansas during the pandemic," the Kansas Legislative Division of Post Audit reported. 

The LPA analysis found that of the estimated $700 million in payments, approximately $343 million came from federal funds and $344 million came from state funds. 

The state was dealing with a high volume of claims, and its antiquated computer system contributed to fraudulent payouts and also led to claims processing delays.

"During the pandemic, a surge in valid and fraudulent claims strained the state's outdated and piecemeal unemployment system, leading to system failures and claim delays," the audit found.

The state's systems were overrun as "fraudsters put additional strain on the state's system," the audit found. "Fraudsters may be able to automate their attacks against states' systems. In doing so, they can overwhelm state systems with a significant number of claims. This puts more stress on already strained systems." 

The number of fraudulent claims were estimated to be nearly 60% of all unique claims filed, the audit discovered.

"As part of this audit, we estimated about 630,000 of the 1.08 million unique claims applications (59%) from January 2020 to February 2021 could have been fraudulent attempts," according to the report.

Kansas paid out approximately $2.8 billion in unemployment benefits during the 13-month period audited, and about 25% is estimated to have been fraudulent.

"KDOL relied on an outdated, piecemeal, and poorly maintained unemployment computer system during the pandemic," the auditors found. The department made frequent changes to the state's unemployment computer system, which led to processing delays and errors.

"The pandemic spurred lots of sudden changes at the state and federal level," according to the report. "Government officials were trying to quickly implement new programs to help address high unemployment caused by the pandemic."

While KDOL disagreed with $306 million of the $700 million estimated in fraudulent benefits it paid out, the auditor claimed their "$700 million estimate is very reasonable." Indeed, the audit found "it's also likely that neither we nor KDOL have identified all fraudulent claims (which would understate our estimate)."

The Kansas Department of Labor is reportedly working with federal agencies and also banks to "identify and recover fraudulent payments, but no estimate on recovered funds was available."