As state agencies try to tackle the unprecedented cases of fraud that have come out of federal unemployment programs during the pandemic, the US Department of Labor has offered relief in the form of millions of dollars in additional funding to identify fraud and recover illegally paid benefits. .
The question now is what will states do with this money?
The intent when the Department of Labor issued a program letter earlier this summer was to give states a way to fund system upgrades, acquire better tools and technology solutions, and hire staff. additional staff to better deal with what has become a flood of fraud around the now expired CARES (Coronavirus Aid, Relief, and Economic Security) Act and its series of unemployment compensation programs. In its June letter, the Department of Labor announced that up to $225 million in additional funding would be available to pay state agencies’ administrative costs related to reporting, overpayment detection, and enforcement activities. recovery.
In its latest program letter, the Department of Labor notes that the additional funds will allow states to better “support accurate reporting” as well as detect and recover overpayments that may have been made during the pandemic. The Ministry has also outlined the authorized uses of these funds, including:
- payment of expenses incurred in reporting investigation and overpayment activities;
- payment of expenses incurred to gather business requirements, program computer systems or otherwise implement tools, strategies or solutions to detect, establish and collect overpayments; and
- hiring staff or obtaining contracted services for the processing and recovery of overpayments.
While the Department’s program letter focuses on fraud detection and overpayment recovery, it also recognizes the need for states to ensure that “eligible persons with legitimate claims receive the benefits to which they have been entitled.” right when they are due”. Attachments to the program letter detail the amounts available to each state for administrative expenses; and in its most recent change, the Department extended the deadline for state agencies to apply for the additional fraud funding to October 30, 2022.
Lessons learned from unemployment fraud
Much of the wave of fraudulent unemployment claims stemmed from the CARES Act, through which the federal government provided about $260 billion for improved and expanded benefits under three new unemployment insurance benefit programs. in the event of a pandemic. Unfortunately, few states were prepared to handle the influx of individual claims for unemployment benefits, let alone the vastly increased number of fraudulent claims made by illicit actors using personal information obtained from data breaches or purchased on the dark web. In the first five months after the CARES Act was passed, the Department of Labor reported states were processing “10 to 15 times the typical volume of claims” and 57.4 million initial jobless claims had been filed.
Unsurprisingly, given the economic emergency that gripped the nation at the onset of pandemic-induced lockdowns and lockdowns, state agencies prioritized helping those who applied, leaving testing potential fraud in the background.
This, coupled with many states’ already antiquated and outdated information technology (IT) systems, led to a very predictable result: millions of fraudulent claims were approved and billions of dollars in fraudulent claims were improperly paid. . Indeed, the US Jobs and Training Administration reported an abusive payment rate of 18.71% for 2021, with a “significant portion attributable to fraud”; while the Department of Labor estimated that at least $163 billion could have been paid out improperly overall.
During an audit, the Office of Inspector General (OIG) of the Department of Labor then identified several areas of vulnerability that contributed to the increase in fraud discovered in these programs, including state computer systems. which “have not been modernized” and staffing levels which “have been insufficient to handle the increased number of new requests. The OIG noted that “many States have not carried out the required and recommended and recovery of improper payments.” In fact, the OIG found that 40% of states did not perform the required cross-matching and 38% did not perform the required recovery activities.
Additional Fraud Funding Provides Opportunities
Fortunately, the additional funding now being offered to enhance states’ unemployment fraud recovery efforts aims to address these past issues. Indeed, these additional resources could go a long way to easing much of the burden that States still face, while alleviating the chronic understaffing and continued reliance on the same outdated computer systems that were so vulnerable to the criminal exploitation.
For example, simple technology updates that would improve the cross-checking process required by states would enable state agents to identify the most obvious fraudulent claims, originating from I) multi-state applicants; ii) deceased persons; iii) federal prisoners; and iv) those who use “suspicious and disposable email accounts”. Other fraud prevention technology solutions are also available to help state unemployment agencies identify deceased or fake identities, as well as fictitious employers and businesses.
State agencies charged with identifying, rectifying, and recovering past improper payments and preventing them from being made in the future should view any new fraud funding received under this program as an opportunity to increase headcount to alleviate some of these workload issues. They should invest in upgrades and modernization of their IT systems and acquire new tools and technological solutions that could help them detect and investigate fraud much more quickly and efficiently.
In this case, a wise investment would bolster states’ anti-fraud efforts in their area of unemployment benefits.