Stunning waste: Unemployment fraud during COVID cost more than triple total benefits paid in 2019

At least 10% of all unemployment benefits paid during the pandemic were lost to fraud.

Unemployment fraud exploded during the COVID-19 pandemic, according to the U.S. Labor Department Inspector General's semiannual report to Congress.

Approximately $872 billion in federal funding was allocated to unemployment benefits in the last year, and at least 10% was estimated to be paid "improperly, with a significant portion attributable to fraud."

This means that at least $87 billion was lost to fraud, the report said. By contrast, $27.3 billion in total unemployment insurance benefits were paid in 2019, according to the Labor Department.

The major increase in fraud is labeled a "significant" concern by the inspector general.

The watchdog office attributes it to the pandemic economy and the "unprecedented" levels of federal funding for unemployment insurance through the Coronavirus Aid, Relief and Economic Security (CARES) Act, and other legislation. This "into the UI program gave individuals and organized criminal groups a high-value target to exploit," according to the report.

Both factors have also made it difficult for the Labor Department to efficiently distribute benefits "while ensuring integrity and adequate oversight," according to the report.

More than 27,000 complaints and investigations related to unemployment benefits paid have been opened by the inspector general. The office is reviewing an additional 132,000 complaints from the National Center for Disaster Fraud. These investigations now account for 92% of the government watchdog's cases. Before COVID, only 12% of the cases involved unemployment fraud.

The department "has not done enough to formally assess the various strategies available to combat improper payments," the report warned.

In one case handled by the inspector general, a California woman was sentenced to 37 months in federal prison for "fraudulently obtaining more than $500,000 in COVID-19-related unemployment benefits by using the stolen personal information of dozens of individuals obtained from the 'darknet” in 2020.

In another prosecuted case, an Arizona man was convicted of "possessing multiple unemployment benefits debit cards, all in different names, and intending to fraudulently obtain nearly $239,000 in benefits" just in October 2020.

Even employees have been charged. In Michigan, a former contractor for the state unemployment insurance agency pleaded guilty to defrauding the state and federal governments of $3.8 million in June 2021 through an unemployment insurance wire fraud scheme.

The issue is not new. In June 2020, the Office of the Inspector General issued a report to Congress identifying that at least $26 billion of CARES Act funds at the time could be wasted, largely to fraud. More than a year later, and that number has more than tripled. 

The watchdog recommends Congress enact legislation to insure unemployment insurance integrity going forward.