Unemployment fraud hit $100-135B during Covid, watchdog says

As much as $135 billion in unemployment insurance benefits may have been lost to fraud during Covid-19, according to a Government Accountability Office report released Tuesday, more than double an earlier estimate.

The federal watchdog estimated that fraudulent payments may have amounted to between 10 and 15 percent of the $900 billion spent on UI between April 2020 and May 2023, when the federal public health emergency ended.

Background: Last December, GAO estimated that roughly $60 billion may have been lost to UI fraud, but officials later concluded that figure to be a substantial undercount.

However, Tuesday’s report cautioned that the “full extent of UI fraud during the pandemic will likely never be known with certainty.”

How it happened: The report attributes the deluge of fraud to vulnerabilities in the state-federal partnership that existed long before the pandemic’s onset in early 2020 and were exacerbated by a series of emergency relief measures passed by Congress that sought to quickly help people who were put out of work during the pandemic.

The problem spanned both the Trump and Biden administrations, the latter of which has taken steps to crack down on fraud and other improper benefit payments.

The American Rescue Plan allocated $2 billion to help states modernize their UI systems and improve their safeguards, but the debt ceiling deal hashed out this spring between the White House and congressional Republicans chopped that funding in half after some conservatives took issue with which areas the administration was targeting funding toward.

House Ways and Means Chair Jason Smith (R-Mo.) said in a statement Tuesday that he was “extremely alarmed” by the report and that “immediate action is needed to recover as much taxpayer dollars as possible.”

Earlier this year the House passed Smith-backed legislation aimed at incentivizing states to recover misspent funds.

DOL pushback: The Labor Department took issue with the GAO’s methodology, arguing that it resulted in a higher share of UI expenditures to be categorized as fraudulent. Brent Parton, the acting head of DOL’s Employment and Training Administration, cast the findings as “best understood as an estimate of UI fraud risk, rather than a fraud estimate,” in a letter responding to a draft version of the report.

Still DOL’s inspector general in February estimated that as much as $191 billion had been improperly distributed, through fraud and improper payments.

What’s next: Parton said that the agency has “committed significant resources and taken concerted action to deter fraud and to assist law enforcement in holding perpetrators accountable while ensuring timely, equitable access to benefits” to address the issue.

The Justice Department in recent weeks has reiterated that it continues to pursue criminal charges into Covid-related fraud and that it has investigated more than $8.5 billion in allegations to date.