Audit: RI likely paid $550M in fraudulent jobless benefits

The amount of money Rhode Island officials believe has been stolen through fraudulent unemployment insurance claims since the start of the COVID pandemic keeps rising.

An audit of the state's finances released by Auditor General Dennis Hoyle on Tuesday said that while the Department of Labor and Training estimates $98 million in fraudulent claims were paid out last year, the total is probably closer to $550 million.

The Labor Department's "internal control procedures were not sufficiently effective to ensure that unemployment benefit payments were made only to eligible individuals," said the audit for the year ending June 30, 2021.

The federal government responded to business closures forced by the pandemic with supplemental jobless benefits that attracted a high level of fraud in states across the country.

The previous year's audit, which included the first four months of the pandemic, estimated $171 million in unemployment insurance fraud for the 2019-20 fiscal year.

To get jobless benefits out the door quickly, the state waived the weeklong wait for unemployment insurance.

And it installed a cloud-based system for handling claims to supplement the old mainframe computer system that processed claims before the coronavirus.

"The large volume of claims stressed an outdated system and the unprecedented economic impact warranted rapid processing of claims," the audit said. "The rapid implementation of new unemployment benefit programs authorized by the CARES Act did not allow sufficient time to employ wage verification and other procedures. Other procedures to verify client identity, prior wages and overall eligibility were also weakened due to the unprecedented volume of claims and new procedures employed to expedite benefit payments."

The audit said that although the cloud-based system helped expedite claims processing, "the primary claims processing functions were still performed by the legacy system."

The audit illustrates the impact of federal spending, which made up $8.4 billion of the nearly $14-billion Rhode Island budget last year. Of that total, $3.6 billion was federal COVID aid and $2.2 billion of that was for unemployment benefits.

In addition to increasing the size of jobless checks and extending the length of time people could receive unemployment insurance, the pandemic rules allowed "gig workers" and the self-employed to collect unemployment.

According to the audit, in a sample of 60 self-employed people who collected unemployment benefits, 50 provided no evidence of self-employment income, 31 had no prior earnings history and 24 declared dependents without providing a Social Security number for those dependents.

In its "corrective action plan" response to the audit, the Department of Labor and Training said it is working with "various vendors and federal partners to incorporate identity validation tools, pattern-based impostor fraud identifiers, and fraud intel received from other external sources. In addition, our fraud team works in partnership with federal and state law enforcement to share data and identify potential fraudulent activity."

The agency is seeking bids from consultants to create an unemployment insurance fraud strategic plan. The plan is expected to be completed by the end of the year.

The state budget passed by lawmakers last month included $100 million to replenish the unemployment insurance trust fund and prevent an increase in the taxes paid by businesses to fund the system.

In other areas of the 446-page audit, Hoyle found insufficient financial controls in, among other places, Medicaid capitation payments to managed-care organizations and systems for terminating Medicaid coverage to people who have died.

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