Pandemic unemployment insurance fraud could have cost $135B, says government watchdog

A report by the Government Accountability Office this week paints a gloomy picture of the amount of unemployment benefits lost to fraud during the pandemic, doubling the amount it previously estimated states had mistakenly handed out. 

The report also said that Congress has hurt future efforts to prevent fraud when it cut hundreds of millions of dollars of assistance to the states as part of the debt ceiling deal struck in June.

In a December estimate, the GAO put the dollar amount of fraud at $60 billion. But after doing a more detailed analysis, the government watchdog agency now says that between $100 billion and $135 billion, or 11% to 15% of the total amount of benefits paid out during the pandemic, was distributed fraudulently. 

Unemployment insurance was expanded in the early days of the pandemic by the Trump administration to help those who lost their jobs. To get funds to people faster, the 2020 CARES Act let people self-certify that they were eligible for unemployment, which raised the risks of fraud.

States’ antiquated computer systems also played a large role in the amount lost to fraud because those systems became overwhelmed processing tens of thousands of requests.

To avoid such waste in the future, the Labor Department has been working with states to improve their practices and upgrade their computer systems. But a department spokesperson said the effort will have to be scaled back after Congress as part of the debt deal took back $639 million in funding meant to help states avoid making fraudulent payments. 

The deal struck by President Joe Biden and Republican House Speaker Kevin McCarthy also took back $86 million that had not been spent to make improvements like upgrading states’ computer systems.

One result of the cuts, the spokesperson said, is that only 36 state unemployment agencies will get visits by the agency’s “tiger teams,” in which experts are sent to states to assess their operations and recommend ways to improve. Forty-five states had asked for the assistance, but now nine will no longer be getting it because of the funding cuts. 

In all, 15 states won’t be receiving visits from the tiger teams: Florida, Louisiana, Massachusetts, Minnesota, Montana, New Jersey, New York, North Dakota, South Carolina, South Dakota, Tennessee, Texas, Utah and Vermont. (Some because they did not request help in the first place.)

The cuts by Congress came despite concerns raised by the GAO and other government watchdog agencies for over a year about the amount of aid lost to fraud during the pandemic. The agencies said the funding was necessary to address states’ antiquated computer systems.

Michele Evermore, a senior fellow at the progressive Century Foundation, said that taking away the funding will harm states’ ability to prevent fraud in the future. The amount of fraud during the pandemic happened, she said, because “we don't spend money improving technology, improving systems, when times are good. And then we expect them to perform well during the crisis and that's exactly what Congress decided to do again this time.”

The Labor Department declined to comment on the June debt deal but had previously opposed a Republican push to take back the unspent money.

“The department is deeply concerned that a move to repeal [the funding] will throttle essential, ongoing efforts to strengthen and protect the [unemployment insurance] program from fraud,” Brent Parton, acting assistant secretary of the employment and training administration at the Labor Department, wrote in a Feb. 27 letter to Massachusetts Rep. Richard Neal, the top Democrat on the House Ways and Means Committee.

Democratic spokespeople on the Senate appropriations and finance committees did not respond when asked why they went along with the cuts, though members of Congress were under intense pressure to reach an agreement to avoid defaulting on the nation’s debt.

For Republicans, though, the GAO report provided ammunition to criticize the Biden administration, with Sen. Mike Crapo of Idaho, the top Republican on the Senate finance committee, calling the report “shocking.” Ways and Means Committee Chairman Rep. Jason Smith, a Missouri Republican, said in the release that he was “extremely alarmed by these findings.” 

Both Republicans renewed their calls for passing their proposal to address the issue by giving states more of an incentive to recover funds distributed fraudulently. Rather than sending money to the states, the Republican proposal would let states keep 25% of the money they get back. Currently, states have little incentive to go after benefits that were fraudulently obtained or improperly given out because it costs them staff time and resources, and the money recovered all goes back to the federal government anyway.

The Labor Department, meanwhile, told the GAO that it thought its new estimate was “overstated.”

Because many cases of fraud are never discovered, the report noted, “the full extent of [unemployment insurance] fraud during the pandemic will likely never be known with certainty.”