WASHINGTON (Sinclair Broadcast Group) — An official report estimating state agencies have lost tens of billions of dollars in fraudulent unemployment claims could be just the tip of the iceberg, according to a private security company.
Earlier this week, the Department of Labor Office of the Inspector General released a report that found lax enforcement of fraud prevention and poor security practices by state workforce agencies was resulting in billions of dollars in fraudulent payments.
The Labor Department watchdog identified at least $5.4 billion in improper payments made by states between March and October. The figure represents less than 2% of the $400 billion spent on pandemic unemployment benefits but the investigation only accounted for a small subset of just four fraudulent activities.
"The OIG expects that the actual amount of potential fraud is much larger," the report stated.
Even before the pandemic forced tens of millions of Americans onto unemployment insurance, the program already had an improper payment rate above 10% for the last eight years.
Since Congress expanded unemployment insurance and allowed benefits to be backdated, the rates are even higher. If these figures hold true across the board, the OIG wrote, "[T]he potential fraud occurring throughout the nation could easily range into the tens of billions of dollars."
According to ID.me, a company that provides states with identity verification support tools, the losses are more likely in the hundreds of billions.
The company's founder and CEO Blake Hall estimated that ID.me has helped stop 895,974 fraudulent claims from being processed in the 21 states that use the tools. That amounts to nearly $15 billion saved.
"Given this and the trends we are seeing, we estimate the U.S. has actually lost nearly $200 billion in fraudulent unemployment claims (including UI)," Hall said.
ID.me has found a fraud rate of at least 30% when processing pandemic unemployment assistance claims and in some states, those rates are higher than 50%. Between the CARES Act and subsequent relief bills, Congress has spent roughly $561 billion on expanded pandemic unemployment benefits.
California, which just recently adopted ID.me, reported at least $11 billion in fraudulent unemployment payments during the past year. According to the state's unemployment agency, that figure could actually be as high as $29 billion, which would mean more than a quarter of the state's unemployment payments were fraudulent.
Earlier this month, the New York Labor Department acknowledged paying out 425,000 fraudulent unemployment insurance claims, more than 10% of all the claims filed by New Yorkers. In total, the state paid out $65 billion in benefits to 4 million residents.
Washington state has doled out $600 million in benefits to ineligible individuals. Ohio Department of Job and Family Services identified more than $330 million in losses to UI fraud last year.
Maryland has lost $501 million to fraud despite having fraud controls in place. WBFF reported that 87% of the claims submitted to the Maryland Department of Labor by people seeking benefits during the pandemic had been flagged as fraudulent.
The Department of Labor reacted to the OIG report on unemployment fraud linking the abuse to failures during the Trump administration. "We are deeply concerned and angered by reports of widespread fraud – including by highly sophisticated criminals – in the pandemic unemployment system during the previous administration," a department spokesperson told Sinclair.
"The Biden-Harris Administration is committed to administering programs – including unemployment insurance – with minimal fraud, waste and abuse," the spokesperson continued, noting the Biden administration had requested funding in the American Recovery Act to fight identity fraud and modernize states' IT systems, many of which are decades old.
However, much of the abuse of the system appears to be systematic and the result of policies at the Labor Department and state workforce agencies.
In its report, the OIG warned that states weren't doing enough to verify eligibility or protect against fraudulent payments. Too few states require rigorous controls to confirm the identity of claimants and the Labor Department uses minimal enforcement. Just 32 out of 54 agencies use a centralized Integrity Data Hub, to compare and analyze claimants' data across state lines.
In one case, a claimant used a single Social Security number to file for benefits in 40 states. In total, that person received $222,532 in UI benefits from 29 states.
The Department of Labor also doesn't require states to cross-match prisoner information when checking benefit eligibility. That lax enforcement left California on the hook for more than $400 million in payments to prisoners as far away as Florida. Earlier this month, Virginia's unemployment agency acknowledged paying out more than $40 million in benefits to inmates.
States' failure to implement fraud controls across the board led to at least $3.5 billion in fraudulent payments to people collecting benefits in multiple states and $2 billion losses to suspicious email accounts. Another $58.7 million was lost to scams using dead people's Social Security numbers and $98 million in false claims were filed using prisoners' identities.
"I think these things start out as well-intended efforts to get money into people's hands quickly, given the nature of the pandemic," said Matt Weidinger, a resident fellow in poverty studies at the American Enterprise Institute. "The sum total of this kind of created a green light for organized crime, international crime syndicates and regular individuals who were willing to go after the program and try to rip it off."
Early in the pandemic, reports emerged about Scattered Canary, a Nigerian cybercriminal organization that used identity fraud and a mass-emailing scheme to target unemployment agencies in Florida, Massachusetts, North Carolina, Oklahoma, Rhode Island, Washington and Wyoming.
Other international criminal networks have popped up in Europe, Canada and the United States. The threat intelligence firm IntSights recently exposed the existence of how-to guides on Russian dark web forums, detailing how to exploit state unemployment insurance programs.
At the same time there are growing concerns about the scale of unemployment fraud, the Department of Labor announced it was further expanding eligibility for pandemic unemployment benefits.
On Thursday, the Department of Labor announced a policy change to allow individuals to qualify for pandemic unemployment benefits if they refused to work or accept a job because they were worried about contracting COVID-19. The rule allows people to stay on unemployment insurance if they believe their worksite is not complying with local, state or federal coronavirus safety standards.
"Until now, many workers have faced a devil’s bargain: risk coronavirus infection, or choose some level of safety and live without income support," said Principal Deputy Assistant Secretary of Labor for Employment and Training Suzi Levine.
People requesting the benefits are allowed to self-certify eligibility and the benefit would be retroactive. Individuals who were denied benefits for refusing to return to work or accept a job at an unsafe workplace would be able to backdate their benefits, potentially for months, and receive a lump-sum payment.
While the guidance is aimed at people who have reasonable fears about returning to unsafe worksites, the program could further expand opportunities for fraud and abuse.
"It definitely opens the door to people attesting to things that are not so and we've seen plenty of that in the pandemic unemployment assistance program," said Weidinger.