$2 billion in pandemic unemployment fraud found

A state audit released Thursday found nearly $2 billion in federal money intended to help unemployed Illinoisans during the pandemic was lost to fraudulent claims in Illinois.

The Illinois Department of Employment Security blamed "insufficient and flawed federal guidance" and a lack of controls on a hastily constructed program put together by the Trump administration.

The federally-funded Pandemic Unemployment Assistance program provided up to 39 weeks of benefits for unemployed individuals who ran out of regular unemployment benefits and for self-employed individuals, gig workers and others not eligible for regular unemployment.

The report released Thursday by Auditor General Frank Mautino covered much of the life of the program, July 2020 through June 2021.

In the early days of the pandemic, amid business shutdowns and high unemployment, states struggled under a crush of claims from those laid off during those shutdowns. Amid the volume of claims, IDES was forced to try to weed out the fraudulent claims while under pressure to get money into the hands of the recently unemployed.

The Pritzker administration has said the PUA program was designed hastily and does not give employers an opportunity to challenge fraudulent claims because the type of workers applying for benefits do not technically have employers. The PUA program also eliminated existing controls, including income and employment verification, according to a statement by IDES. Much of the fraud, up to $163 billion estimated nationwide, involved identity theft.

Scammers filed unemployment claims using false identities and then had the payment method switched from the debit cards that people receive when they qualify for benefits to direct deposit into an account accessible by them.

The audit found that, of the $3.6 billion in PUA paid out from July 2020 through June 2021, nearly $1.9 billion was found to be fraudulent, mostly due to identity theft.

"Overpayments associated with identity theft and traditional fraud within the PUA program was unprecedented and resulted in fraudsters using highly sophisticated techniques to take advantage of the current economic condition created by the COVID-19 pandemic," the audit stated.

The audit found IDES:

Failed to implement general information technology controls over the Pandemic Unemployment Assistance.

Failed to maintain accurate and complete pandemic unemployment assistance claimant data.

Failed to perform timely cash reconciliations.

IDES responded that the system used to manage the PUA program is independent of the system used to manage regular unemployment benefits. From the beginning of the pandemic in March 2020 through the end of 2021, IDES stopped $40 billion in fraudulent payments from both state and federal programs, according to the agency's statement.

Republicans are calling for hearings related to IDES' handling of the programs and, specifically, whether the agency failed to follow federal recommendations for fraud prevention tools made available before the pandemic.

"The Pritzker administration and IDES have refused to disclose the extent to which fraud affected our unemployment system and this audit makes abundantly clear why," said Rep. Tim Butler, R-Springfield, said in a statement. "The loss of nearly $2 billion, more than half the funds for the PUA program, displays an unprecedented level of negligence by the administration and IDES management. Blaming the previous president's administration is an unacceptable excuse and we need immediate hearings to get to the bottom of this failure."