Fraudsters stole up to $135 billion in unemployment benefits during pandemic

Fraudsters stole up to $135 billion in unemployment benefits during the coronavirus pandemic, the Government Accountability Office reported Tuesday, delivering the most thorough government examination of the problem to date.

Less than $7 billion of that amount has been recovered, GAO said.

In addition to fraud, states say they have identified another $50.5 billion in overpayments in the Unemployment Insurance program (UI) that were made because of other errors that weren't due to fraud during the pandemic.

Just $5.6 billion of that has been recovered, GAO said.

That pandemic programs were slammed by fraud has long been known, but government agencies have bickered about the total amount. The estimate by GAO, the government's premier watchdog, is likely to become the standard, though even it has limits, investigators acknowledged.

"The full extent of UI fraud during the pandemic will likely never be known with certainty," GAO said.

GAO looked at the period from the start of the coronavirus emergency in March 2020 to the official end of the emergency in May 2023. They flagged payments where the recipient was listed as dead, or where there were multiple "fraud indications," and then they extrapolated a final number.

Investigators said the range of fraud runs from a minimum of $100 billion to $135 billion. That works out to between 11% and 15% of total unemployment benefits paid out.

The figure is less than some private sector guesses, which had put fraud at nearly half of the roughly $900 billion spent.

Still, it represents an unprecedented waste of government cash, equivalent to the entire yearly gross domestic product of more than half of the countries on the globe.

“The fraud detailed in this report represents the greatest theft of taxpayer dollars in American history,” said House Ways and Means Committee Chairman Jason Smith, Missouri Republican.

He pointed to a bill that cleared the House earlier this year that would give investigators more time to bring fraud cases and would allow them more tools to recover money. Mr. Smith said the Senate, controlled by Democrats, should pass the legislation and send it to President Biden.

He said the longer Mr. Biden “spends ignoring this problem,” the tougher it will be to claw back the cash.

The unemployment program is a joint operation between the feds and states, with Uncle Sam acting as a source of money during the pandemic and states doling out the cash.

When Congress created enhanced benefits for the pandemic, lawmakers facing a potential economic collapse wanted the money out the door quickly, so they ordered states to skip some of the usual checks and allow people to self-certify that they were out of work due to the crisis.

The result was millions of bogus applications.

The Labor Department, which oversees the federal side of the program, said the program "provided a vital lifeline," even as it acknowledged major shortcomings, such as state systems not prepared to sniff out the types of fraud that struck.

"The long-term neglect to adequately fund the UI system and the absence of any dedicated funding stream for maintaining and enhancing the information technology (IT) systems that underpin state UI operations, coupled with Congress' direction to remove key integrity controls, especially early during the crisis, left the system vulnerable to sophisticated syndicates who used stolen identities to defraud the UI system as it delivered critical relief to millions of Americans," said Brent Parton, principal deputy assistant secretary.

Even so, he challenged GAO's estimate as too scary.

He said GAO relied too heavily on its study of a small sample of cases to extrapolate a total fraud estimate. He said the new report should be considered an estimate of "fraud risk," rather than actual fraud.

GAO said it took pains not to misidentify fraud and, if anything, erred on the side of caution, perhaps missing actual fraud.

"For example, except for deceased beneficiaries, we only treated payments as fraudulent for the purpose of our estimate if multiple fraud indicators were present. In addition, we subjected sampled payments to multiple levels of manual review, which examined the fraud indicators in conjunction with other available case and public information," the investigators said.

GAO said recovering fraudulent payments from the pandemic is proving tougher than recovering regular unemployment benefit overpayments, chiefly because the type of fraud that took place was different.

Regular unemployment fraud usually involves individuals falsifying information to claim benefits they didn't earn. But during the pandemic, identity fraud became the standard, with criminal syndicates filing reams of applications in the name of stolen identities, then directing the payments to their own accounts.

That made unemployment fraud a major source of income for international fraudsters, including operations linked to adversarial governments in Russia and China.

For more information, visit The Washington Times COVID-19 resource page.