Pandemic unemployment fraud as high as $135B, watchdog says

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The Government Accountability Office's new estimate underscores the urgency of modernizing state-based unemployment insurance systems.

Fraudulent unemployment insurance payouts during the pandemic amounted to $100 billion to $135 billion, according to an estimate from the Government Accountability Office included in a report released on Tuesday.

The congressional watchdog produced the estimate based on sampling of pandemic unemployment insurance payouts and the use of a statistical model that took fraud risks into account. According to the report, as of May 1, just $1.2 billion in fraudulent overpayments have been recovered by states.

The Department of Labor, in reply comments dated Aug. 28, 2023 that were included in the report, said GAO's model "likely overestimates the level of fraud," and took issue with the sampling methodology.

However, the department isn't disputing that there was rampant fraud at the outset of the COVID-19 pandemic, when Congress passed legislation ramping up unemployment payments and permitting applicants for benefits to make claims for lost self-employment earnings and earnings for employment that had yet to start without requiring documentation. 

The Labor Department is also looking to maintain its support for modernization of state-based unemployment insurance systems and the deployment of digital identity solutions to prevent systemic fraud in the future. So far, the agency has plowed $1 billion in funds appropriated via pandemic relief legislation to enhance the security and resilience of state unemployment systems. 

Additionally, the department "has also strengthened the tools it offers to states to protect against criminal actors perpetrating fraud in multiple states, including by investing in and promoting the use of the UI Integrity Data Hub," which is now in use by all 53 state and territorial systems, according to Brent Parton, the agency's principal deputy assistant secretary.

Sen. Mike Crapo, R-Idaho, called for legislation to incentivize state unemployment agencies to claw back fraudulent payouts or overpayments. The House passed the Protecting Taxpayers and Victims of Unemployment Fraud Act on a vote of 230-200 in May. Crapo is hoping the Senate will take up the legislation. Some of the measures in the bill are also included in the Biden administration's 2024 budget request for the Labor Department. 

"These shocking estimates continue to grow, and, as GAO notes, we may never know the full scope and scale of fraudulent pandemic payments. Unfortunately, the Administration’s efforts to address over one hundred billion dollars in fraud in the UI program have fallen woefully short," Crapo said in a statement.