State paid at least $5.2 billion in fraudulent or excessive unemployment claims during pandemic, audit finds [Chicago Tribune]

The state agency that distributes unemployment benefits paid out more than $5 billion in fraudulent or excessive claims over two years when the COVID-19 pandemic forced businesses to cut back their operations or shut down, leaving many Illinoisans out of work, according to a report from the Illinois auditor general.

Among the missteps by the Illinois Department of Employment Security were millions of dollars sent to people who were either in prison or dead, according to the report, which is the auditor general’s fullest accounting yet of massive fraud and overpayments that occurred as the state was flooded with jobless claims.

“IDES was not prepared to respond to the needs created by the pandemic,” the report from Auditor General Frank Mautino’s office stated. “IDES did not have a plan for responding to recessions and potential surges in claims.”

Mautino’s office reported a year ago that fraudsters pilfered nearly $2 billion from the federal Pandemic Unemployment Assistance program from July 2020 through June 2021.

In the latest audit, covering fiscal years 2020 through 2022, IDES reported overpaying, through fraudulent and nonfraudulent claims, $3.2 billion through the PUA program and $2.04 billion through regular claims from an unemployment insurance trust fund jointly run by the state and federal government.

Those numbers could be “understated: because they are merely estimates as IDES was still trying to account for all the fraudulent payments, auditors noted.

The PUA program was meant to pay people not usually covered by unemployment insurance, such as gig workers or the self-employed. Federal unemployment officials and law enforcement openly warned that thieves, many of them overseas, were jamming states’ online portals with fake claims.

IDES said it stopped or recovered $150.36 million in unemployment trust fund payments and $361.34 million for the PUA program. The report noted, though, that of the $5.24 billion in overpayments, $2.8 billion is classified as identity theft, money that is not considered recoverable since it can’t be collected from the identity theft victim.

A spokesman for Democratic Gov. J.B. Pritzker directed questions to IDES. Rebecca Cisco, a spokeswoman for the agency, said the findings “as expected” highlighted the challenges faced by the agency “in an unprecedented crisis and the necessary speed with which IDES responded to that crisis.”

Cisco also put some of the blame on former Republican President Donald Trump’s administration, which she said required every state to put in place “a poorly designed and brand new unemployment insurance program on their own in record time with continuously changing federal guidance.”

“This is a crucial distinction from (Illinois’) regular unemployment insurance program because the state’s system is designed and integrated with vital cross-matching and identity-proofing capabilities,” Cisco said in an email.

A 2021 Tribune investigation, however, found the problems in Illinois were exacerbated by IDES’ failure to follow federal recommendations to adopt free fraud-fighting tools made available before the pandemic, while also being slow in developing other processes to ferret out fraud.

Legislative Republicans used the latest audit to denounce the Pritzker administration’s handling of unemployment payments during the pandemic. State Sen. Chapin Rose, a Mahomet Republican who filed the resolution that led to the audit, said Wednesday the findings show “taxpayers were being robbed blind by what was happening at IDES.”

“The people of Illinois should be disgusted at how badly their money was handled and how little was done to account for the outright theft and gross incompetence,” Rose said in a statement. “The people who were supposed to serve as stewards of their resources completely failed them, and their ineptitude served to embolden and help criminals to abuse the system and steal benefits.”

“House Republicans called for an audit of IDES nearly three years ago to address the breakdown of the unemployment system during the COVID-19 pandemic that led to massive fraud and delayed assistance,” Colleen King, a spokeswoman for House GOP Leader Tony McCombie, of Savanna, said in a statement. “Taxpayers and job creators have paid the five-billion-dollar price of this failure, one the Pritzker administration owns.”

The auditor general’s report noted that several of IDES’ fraud defense mechanisms could not handle the “exponential increase” in unemployment claims. In March 2020, when the pandemic took hold and Pritzker began to institute his COVID-19 mitigations statewide, IDES suspended some of its routine methods to verify the legitimacy of the claims it was receiving because they were too time-consuming and the methods “constricted the processing system severely,” according to the report.

Suspending the verification methods or processing them offline allowed IDES to better manage the volume of claims, the report stated, but it left the unemployment programs administered by the agency more susceptible to fraud.

What’s more, the effort to pay claims so quickly increased IDES’ risk of making improper payments — either overpaying or underpaying claimants — especially if its normal verification methods weren’t being performed, according to the report.

“IDES made large payments of backdated benefits while controls were suspended which could have contributed to large overpayments and losses due to fraud and identity theft,” the report stated. “Claims were sometimes filed and paid within a matter of days and then fraudulent activity was subsequently detected.”

According to the report, IDES said it experienced three types of fraud schemes: identity theft, or the use of another person’s identifiable personal information to file online claims; fictitious employers, when fraudsters stole personal information to set up companies to file claims; and hijacked payments, when online payments were improperly diverted.

IDES data for the regular unemployment trust fund and PUA program combined showed that 3,448 people who were incarcerated received 92,811 payments totaling $40.5 million, while 10,527 payments totaling $6 million were given to 481 deceased individuals, the report showed.

Due to the “unprecedented increase in unemployment claims,” IDES also wasn’t prepared to quickly increase its staffing, causing delays in answering phone calls and processing claims, the report shows. “Staffing issues were compounded by retirements and staff being forced to work from home due to the pandemic,” according to the report.

It also said that claimants with missing or hijacked payments experienced significant delays in getting their payments reissued because of an inadequate process IDES had in place for dealing with those issues. For instance, auditors found that it took the agency an average of 198 days to reissue hijacked payments from the regular unemployment trust fund and 445 days for hijacked PUA payments, according to the report.

The auditor general issued several recommendations for IDES to improve its operations including developing a plan that covers lessons learned during the COVID-19 pandemic in case there are more periods of rapidly increasing volumes of claims.

In response, IDES told the auditor general’s office that it has upgraded its “public facing” website, and the underlying servers are robust enough to handle high volumes of traffic. Additionally, the agency said, the Illinois Benefit Information System (IBIS) is “constantly monitored to prevent malicious external attacks and ensure sufficient load capacity across its servers.”

The auditor general also urged IDES to identify and recoup any payments for applicants, if necessary, especially those who are deceased or ineligible because they’re incarcerated, the report stated.

“While IDES has worked over the course of the last three years to improve controls and security of its programs, recommendations from this audit will enhance that ongoing work,” said Cisco, the IDES spokeswoman.

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