When the COVID-19 pandemic spread across the country, the federal government responded with a massive amount of money in an effort to help keep the economy from collapsing.  It was clear that Congress intended to get the money out as quickly as possible without worrying about whether it would be subject to waste, fraud, abuse, and mismanagement. 

One of the programs that fell into the pay now and worry about waste later category was the Department of Labor’s (DOL) Unemployment Insurance (UI) program, which was added to the Government Accountability Office (GAO)’s High-Risk List in a June 22, 2022, report.  Between FYs 2020 and 2021, improper payments in the UI program doubled.  The DOL reported $8 billion in improper payments in FY 2020, or 9.2 percent of total payments.  In FY 2021, DOL reported $78.1 billion in improper payments, which made up 18.9 percent of total payments.  

As the size of the UI program increased dramatically during the pandemic, an already overburdened bureaucracy failed to keep up.  Before the pandemic, most improper payments arose from eligibility determination issues. The pandemic, however, brought an uptick of identity theft fraud.  While the most common fraud occurred when individuals who had been laid off at the start of the pandemic failed to report that they had returned to work and continued to collect benefits, the pandemic also brought increased opportunities for criminals to coordinate efforts to exploit the vulnerable system.  According to reporting from ProPublica, some criminals raked in up to $1.5 million in fraudulent claims.  

The state-based nature of UI programs also contributed to the problem.  Criminals were able to target 50 different state unemployment agencies, most of which were unprepared to deal with the large influx of UI claims, in part due to vulnerable and outdated information technology (IT) systems.  These state agencies struggled to coordinate with one another, which allowed criminals to defraud one state before quickly moving onto another.

GAO recommended several possible solutions to prevent UI fraud, including replacing federal legacy IT systems with modernized databases that can handle increased levels of UI claims.  To address problems at the state level, GAO recommended tightening federal standards by ending the practice of self-certification and centralizing the disbursement of aid.  The report recommended reducing the amount and duration of benefits, in addition to gathering more data from recipients to identify fraud more easily.  By investing in improved IT systems and improving security, the DOL and states will have a better chance at preventing fraudulent claims before they are made.

The House version of the FY 2022 Labor, Health and Human Services, Education, and Related Agencies Appropriations Act allotted $2.9 billion for the UI program in FY 2022, $285 million more than in FY 2021.  The bill includes a contingency clause that allows for more funding if the states have an influx of unemployment claims but does not reform the system for paying out aid.    

It has proven to be difficult to get a program off of the GAO High-Risk List, but given the importance of using the taxpayers’ money for the intended purpose of helping people who are unemployed, rather than losing tens of billions of dollars to fraud and mismanagement, Congress and the DOL should act quickly to take the steps recommended by the GAO to ensure that the UI program can effectively carry out its mission of providing effective relief for unemployed Americans.  

written by Bailey O'Donnell