Taxpayers lost $163 billion to COVID unemployment fraud

With $163 billion in COVID relief unemployment benefits lost to fraud and improper payments, House Republicans have proposed a way to claw some of it back: Encourage states to chase down the fraudulent payments and let them keep part of the cash.

The Chase COVID Unemployment Fraud Act of 2022 would allow states to keep 25% of any improper payments they recover and use the money for hiring fraud investigators and prosecutors, modernizing unemployment compensation systems and other program integrity measures. States would be allowed to retain 5% of overpayments recovered in the future.

While the COVID unemployment money was federal, states were responsible for administering the program and distributing checks. Of the estimated $163 billion lost in improper payments, just 2% has been recovered, according to the Department of Labor.

The GOP bill would also require states to run future claimants through databases like the Social Security Administration's Death Master File, the National Directory of New Hires and the Data Integrity HUB, a fraud alert center.

Introduced in May, the bill has 42 co-sponsors. All are Republicans.

As a ranking member of the Ways and Means Committee, Rep. Kevin Brady of Texas said he is troubled by the lack of cooperation from his Democratic colleagues.

"Republicans have repeatedly offered amendments to stop the fraud from occurring by requiring the identification in the wages before sending those benefits," Brady said. "Those amendments were defeated unanimously. Democrats allocated funding to deal with this COVID fraud, but for the most part, it wasn't spent and wasn't really directed to prevent fraud."

A Ways and Means Committee representative declined to comment on the legislation.

The organization United to Safeguard America from Illegal Trade is on the frontline of the fight against international fraud and counterfeiting. Its spokesman, Matt Albence, said the bill is a common sense, straightforward approach that should be in place to prevent future widespread attacks occurring largely from foreign entities.

"I'm sure these offices don't want the money to be used unlawfully," Albence said. "It's just a matter of resources available to conduct investigations and invest in identifying fraud. When you get money to do that, it certainly changes the dynamic and makes it a much more feasible activity for these states to engage in."

The White House has been aware of the widespread fraud for more than a year within the unemployment insurance system. Even with Department of Labor investigations, criminals are continuing to seek vulnerabilities. Data analytics company LexisNexis CEO Woody Talcove said state tax systems, Medicaid benefit systems and state disability systems are at risk, too.

In the last six months, LexisNexis has seen the production of fake drivers' licenses increase by 700%, Talcove said.

On June 14, Department of Justice inspector general Michael Horowitz testified before the House of Representatives Select Subcommittee on the Coronavirus Crisis. Horowitz is chairman of the Pandemic Response Accountability Committee, which is allotted $120 million to review the $5 trillion in federal pandemic relief spending. He said a primary cause of the widespread fraud was relief programs run by the Small Business Administration and the Department of Labor relying solely on self-certification.

Horowitz added agencies should use existing data to verify eligibility like the "Do Not Pay" system, which is best at identifying improper payments.

In early June, two bills passed the House that increased the statute of limitations to 10 years for prosecuting pandemic-relief program fraud related to Paycheck Protection Payment and Economic Injury Disaster Loan.

An October 2021 report found $33 billion in grants "had meaningless descriptions that made it difficult to know what the money was used for."

"In the Ways and Means Committee, we're still waiting for a hearing on this record pandemic unemployment fraud, and if there is interest, we're certainly not seeing it," Brady said.

Elaine Mallon writes about politics and public policy for InsideSources.com.