NYS out an estimated $11B in fraudulent unemployment insurance payments

The state has lost an estimated $11 billion in fraudulent unemployment insurance payments due to the New York State Department of Labor's mismanagement, according to an audit by NYS Comptroller Thomas DiNapoli spanning Jan. 2020 to March 2022. A press release from the comptroller's office stated that auditors could not calculate the exact amount due to the DOL's refusal to provide data and that this amount is likely an understatement, as it was based on the DOL's estimated fraud rate for the state's unemployment insurance program in state fiscal year 2020-21.

Part of the blame has been placed on outdated systems, which DOL had been warned about in 2010 and again in a 2015 audit. The comptroller's office noted that DOL was unable to "identify the root cause of overpayments and fraud," "provide auditors with information to support their management and response to fraudulent claims," and provide various information about fraudulent claims, such as how they were identified, how many were paid before being identified, and how long they were paid before being identified.

"The state Department of Labor's antiquated UI system was illequipped to handle the challenges posed by the extraordinary demand caused by the pandemic for unemployment benefits and more lenient federal eligibility requirements," DiNapoli said. "The agency resorted to stop-gap measures to paper over problems, and this proved to be costly to the state, businesses, and New Yorkers. The department needs to recoup fraudulent payments and correct its mistakes."

According to the comptroller's office, the state had an average of $9.3 billion in loans from the federal UI trust fund from September 2021 through April 2022, which New York employers will need to pay back with interest. Upstate United, an organization that describes itself as nonpartisan and pro-taxpayer, pointed out that the $11 billion in fraudulent payments exceeds the $7 billion in debt that the state currently owes to the federal government for pandemic unemployment insurance claims. The audit also found issues with data security and reported that DOL took almost a year after temporary benefit programs were introduced to implement ID.me to stop identity theft, which DOL has called a major source of fraud.

"This stunning incompetence demands immediate accountability and action," said Upstate United Executive Director Justin Wilcox. "Governor Hochul should pledge to fully refund the $159 million that employers were forced to pay through an interest assessment surcharge in September. Additionally, Governor Hochul and legislative leaders must pay down New York's [over $7 billion] debt to the federal government." Upstate United additionally sent a letter last week calling for Legislative hearings, addressed to Legislature investigative committee leaders Senator James Skoufis and Assemblyman John Mc- Donald. The letter is posted online at upstateunited.com/wp-content/ uploads/2022/11/UU_ UI_ Hearing _Letter_ Final.pdf.

Auditors provided a series of recommendations which DOL officials agreed with in general. Recommendations included continuing to develop and replace the UI system; balancing identity verification with streamlining the process for people in need; following up on some "questionable claims" found through the audit; compliance with NYS Information Security Policy, the Classification, Authentication, Encryption, and Logging Standards and ITS Operations Change Management Process and Policy; and more timely compliance when receiving an oversight inquiry from the state.

For more information, visit tinyurl.com/DOL-UI-Audit/.