Congressional Testimony: Unemployment Insurance during COVID-19 — The CARES Act and the Role of UI (DOL OIG, June 2020)

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Testimony before the U.S. Senate Committee on Finance 
 
Hearing Title: 
“Unemployment Insurance during COVID-19: The CARES Act and the Role of 
Unemployment Insurance during the Pandemic” 
 
 
Testimony of Scott S. Dahl 
Inspector General 
Office of Inspector General 
U.S. Department of Labor  
 
Number 19-20-004-03-315 
 
June 9, 2020 
 
 
 
 
U.S. Department of Labor 
Office of Inspector General 
 
Congressional Testimony 
 
 

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Congressional Testimony 
 
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Good morning Chairman Grassley, Ranking Member Wyden, and distinguished 
members of the Committee. Thank you for the opportunity to provide a statement for the 
record on our work relating to the Unemployment Insurance (UI) program. As you know, 
the Office of Inspector General (OIG) is an independent agency within the Department 
of Labor (DOL). My statement focuses on our work to ensure the Department is 
effectively addressing new and heightened challenges created by the unprecedented 
expansion of the UI program. The views expressed herein are based on the 
independent findings and recommendations of the OIG’s work, and are not intended to 
reflect the Department’s positions. 
 
Overview of the Unemployment Insurance Program 
 
The federal-state UI program offers the first economic line of defense against the 
collective impact of unemployment. With more than 40 million UI claims filed since 
March, nationwide stability and efficiency of the program is imperative. The UI program 
was designed to assist those who are out of work through no fault of their own. Each 
state administers a separate UI program under state laws, but all states follow uniform 
guidelines established by federal law. Every state system sets its own requirements for 
eligibility, benefit amounts, and length of time that benefits can be paid. States also 
manage the staffing and system resources to administer their respective programs. UI 
benefits are generally funded by state employer taxes with administrative costs funded 
by the federal government. Expansions of coverage and benefits, such as by the 
CARES Act, are normally funded by the federal government. As such, the Department’s 
Employment and Training Administration (ETA) is responsible for providing program 
direction and oversight. The OIG provides independent oversight of the UI program 
through audits to strengthen the integrity and efficiency of the program, and criminal 
investigations to combat large-scale fraud. 
 
 
 
 

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Expansion of the Unemployment Insurance Program under the CARES Act 
 
The CARES Act provided changes to existing UI benefits that will result in hundreds of 
billions of dollars in additional payments. The Pandemic Unemployment Assistance 
(PUA) program under the Act extended unemployment benefits to people who are self-
employed, independent contractors, those with limited work history, and other 
individuals traditionally ineligible for unemployment benefits who are unable to work as 
a direct result of COVID-19. The Act provides $600 per week for all unemployed, in 
addition to their regular unemployment benefit, through July 2020. The Act also 
provides an additional 13 weeks of unemployment compensation for individuals who 
exhaust their regular unemployment benefits. Finally, the Act allows states to waive the 
requirement that claimants wait one week before being eligible for benefits.  
 
A History of Improper Payments 
 
The UI program has historically had some of the highest improper payment rates among 
all federal programs. The UI program paid approximately $27 billion in benefits over a 
one-year period ending June 2019. Of this, the Department estimated almost $3 billion 
were improper payments, making the improper payment rate more than 10 percent. The 
improper payment rate could increase due to the significant funding provided in 
response to the pandemic. However, conservatively assuming improper payments 
continue at the current rate, at least $26 billion of UI program funds issued under the 
CARES Act would be wasted, with a large portion attributable to fraud. The substantial 
increase in UI benefits, and the likelihood that the improper payment rate will increase 
as well, requires that ETA and State Workforce Agencies (SWAs) strengthen controls to 
ensure funding is used to support workers and the economy as intended. 
 
The Department has continually faced challenges in ensuring UI improper payments 
were prevented, detected, and recovered in a timely manner. The UI program is 
required to make timely weekly benefit payments to provide needed assistance to 
unemployed workers. However, it is equally important that the program have sufficient 

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controls in place to determine as quickly as possible that benefits were paid to the right 
person in the correct amount, and not paid to fraudsters. A UI benefit payment may later 
be determined improper upon receipt of information that was unavailable at the time the 
payment was required to be made, or because states must afford claimants due 
process prior to terminating benefits. The Department’s challenges in helping states 
address the leading causes of improper UI payments are exacerbated by inadequate 
information when eligibility is established and the need to reassess payment eligibility 
each week. 
 
Major Challenges in Administering and Overseeing the UI Program  
 
The unprecedented increase in unemployment claims has left states struggling to pay 
claimants quickly while ensuring program integrity. OIG reports have highlighted several 
challenges in the UI program over many years. Likewise, we have listed identifying and 
reducing UI improper payments as a top management challenge facing the Department 
for several consecutive TMC reports. 
 
Based on our prior and ongoing work, the following are major challenges DOL and 
States face in administering and overseeing the UI program: 
 
• Program Fraud  
• Self-Certification for PUA Benefits  
• Communication with Employers 
• Benefit Year Earnings 
• Information Technology (IT) Systems, Staffing, and Monitoring 
 
Program Fraud 
 
Fraudulent activity poses a significant threat to the integrity of the UI program as identity 
thieves and organized criminal groups continue to exploit program weaknesses. Fraud 
schemes primarily relate to the legitimacy of initial benefit claims. Specific schemes we 

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are investigating include fraudulent claims for benefits using stolen identities and 
fictitious employers to establish fraudulent work histories. The volume of investigative 
matters we are currently investigating involving CARES Act related fraud is 
unprecedented in the OIG’s history. Currently, we are investigating over 400 UI matters 
and we expect that number to continue to rise. 
 
SWAs have been challenged in detecting UI fraud. Past audits have found that states 
can do more to both prevent and detect fraud. Unfortunately, the higher weekly benefits 
offered under the CARES Act are an attractive target for scammers and fraudsters, 
increasing the burden on states to get payments out quickly while protecting the 
integrity of the program. The states must pay many more claims just as quickly as 
before, leaving more room for error in a program with pre-existing control weaknesses 
and inadequate staffing. 
 
Workers are desperately seeking benefits in light of the pandemic and wide-scale 
unemployment. One scam exploits these workers by offering to help them apply for UI 
benefits, only to misuse their personal and financial information to fraudulently divert UI 
payments to scammers. Our office issued a fraud alert about this scam, and also sent 
the alert to SWAs and the U.S. Department of Justice to warn the public against these 
predators.  
 
The most common fraud involves criminals using stolen identities to make fraudulent 
claims in multiple states for significant amounts of money by using prepaid debit cards 
and fraudulent bank accounts. There are few controls in place to prevent this particular 
fraud scheme, though we have recommended in the past that benefits no longer be paid 
using prepaid debit cards that provide anonymity to criminals. In many instances, 
victims only learn of the theft and use of their identity when they themselves submit a UI 
claim only to learn that an identity thief has already filed a fraudulent claim on their 
behalf. In one case, we are currently investigating the alleged theft and fraudulent use 
of more than three dozen frontline healthcare workers’ identities that were stolen while 
they were combatting COVID-19. In another recent example, a local police department 

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found a list of dozens of stolen identities in the possession of a suspect that they 
arrested. The suspect also had in his possession a loaded weapon. Further 
investigation by the OIG determined that some of the stolen identities have been used 
to file out-of-state UI claims. In yet another example, the identities of several former 
federal government attorneys, including a former Assistant U.S. Attorney, who work for 
the same law firm, were allegedly stolen and used to file fraudulent UI claims. In these 
cases, fraudsters allegedly used the victims’ identities to file fraudulent unemployment 
claims in multiple states. These are just a few examples of the hundreds of investigative 
matters involving UI fraud we are currently pursuing. The vast majority of these matters 
involve identity theft.  
 
We are also seeing an alarming trend of violent criminals engaged in fraudulent 
schemes, including some transnational gangs. We are currently working closely with 
states that have been targeted by these organized criminal networks outside of the 
country to investigate these matters. 
 
The OIG is currently seeking data from the states that will allow the OIG to more timely 
detect fraud activity. Earlier detection will allow the OIG to save taxpayer dollars by 
stopping fraud while it is happening. We are also working closely with our partners in 
the federal, state, and local law enforcement communities to leverage resources and 
hold fraudsters accountable.  
 
Self-Certification for PUA Benefits 
 
We recently issued an alert memorandum about self-certifications for PUA, which 
extended benefits to self-employed workers, gig workers, and others not covered under 
traditional UI programs. We alerted the Department that states’ reliance solely on self-
certification to determine eligibility significantly increases the risk of fraud. According to 
the Department’s guidance, any individual may self-certify without providing evidence of 
earnings and be approved for payment. We already see indications in our investigations 
that fraudsters are exploiting the lack of controls for this category of assistance.   

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Our alert memorandum recommended the Department consult with Congress or seek 
additional legislation to curtail potential fraud. 
 
Communication with Employers 
 
Past OIG audits have shown the need for better strategies to increase employer 
participation in efforts to determine an individual’s initial eligibility for UI benefits. States 
need employers to confirm the employee worked for them for a sufficient length of time 
and lost their job through no fault of their own. The most efficient method for employers 
to exchange separation information is through the use of the State Information Data 
Exchange System (SIDES). SIDES is a standardized computer-to-computer system 
designed to enable rapid and accurate communication between states and employers. 
 
A 2017 audit found that almost all states used SIDES to obtain timely and accurate 
information from employers on the reasons individuals separated from employment. 
Specifically, we found that improper payment rates for each of the five states we 
reviewed declined after implementing SIDES. In those instances where SIDES was 
used, it resulted in better initial eligibility determinations and a reduction in improper 
payments. However, we found that opportunities were missed to maximize the 
utilization of the system. Specifically, better strategies were needed to address the 
following: 
• Less than 20 percent of employers covered by the five states we reviewed 
signed up to use SIDES. 
• Employers that did sign up to use SIDES did not respond to more than 40 
percent of the more than 4 million state requests for employee separation 
information. 
• State marketing did not increase employer participation in SIDES. 
• SIDES infrastructure presented technical challenges. 
 

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We found that SIDES was particularly effective when used by employers with a higher 
number of unemployment claims. As significantly more employers will fit this profile due 
to the pandemic, we have recommended that ETA work with SWAs to increase the 
number of employers using SIDES and resolve technical challenges with the system. 
While ETA generally agreed with our recommendations and issued additional guidance 
to SWAs encouraging the use of SIDES, we remain concerned that some states may 
not have effectively increased employer use of SIDES. This could require greater 
reliance on compensating controls to detect improper payments. 
 
Benefit Year Earnings 
 
In Fiscal Year 2017, DOL estimated the UI program improperly paid more than 
$1 billion to ineligible claimants who had returned to work. ETA classifies these types of 
overpayments as “benefit year earnings (BYE) overpayments.” To ensure 
unemployment compensation payments stop at the appropriate time, it is critical that 
states identify when claimants have returned to work. A key control for doing so is the 
effective use of the National Directory of New Hires (NDNH), which is a nationally 
consolidated database that contains UI claimant data and wage information from state 
and federal agencies. States will need to perform cross matches of the NDNH against 
state claims databases, including PUA claimants, to ensure the continued eligibility of 
benefit recipients. This is especially important given that large numbers of claimants are 
expected to return to work once COVID-19 subsides and some may continue to collect 
benefits after successful reemployment. 
 
This is also an area the OIG has seen significant fraudulent activity, in particular 
claimants working in one state while claiming benefits in another. Therefore, it is critical 
that states effectively utilize the NDNH, which includes employment and wage 
information for all states. States also use their own State Directory of New Hires 
(SDNH) to identify BYE overpayments. However, since 2011, ETA has mandated that 
states use the NDNH. 
 

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OIG audit work has found that states generally used these new hire detection tools to 
reduce BYE overpayments, but ETA could do more to assist states’ efforts.  Despite an 
8 percent reduction in overpayments, states underutilized new hire directories. Further, 
states did not make timely overpayment determinations of new hire investigations and 
did not report complete and accurate results of investigations, as required. These areas 
of concern will make the effective management of CARES Act funding difficult if ETA 
does not ensure states take action to enhance state controls over identifying claimants 
who return to work. 
 
IT Systems, Staffing, and Monitoring 
 
The inability of states to quickly ramp up staffing, and to modify IT systems to address 
limitations and institute program changes, are two overarching weaknesses identified in 
past audits that exacerbate the challenges noted and that contribute to states’ inability 
to pay claims timely. To meet the requirements of the CARES Act, states must have 
sufficient staffing and system resources to manage the extraordinary increases in the 
number of claims and payments. ETA must also provide program monitoring and 
oversight that ensures states establish procedures to detect and recover improper 
payments and redirects funding to those eligible for assistance. 
 
OIG Oversight of the Unemployment Insurance Program 
 
In April, we issued our Pandemic Response Oversight Plan to outline how we will 
review the Department’s response to the pandemic, focusing on the UI program. The 
work is being conducted in four phases covering the allocation and post-allocation 
periods for CARES Act funds. 
 
Phase 1 
We have already begun our audit and investigative work under phase one, and are 
reaching out to states and law enforcement contacts to provide UI fraud awareness and 

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training, as well as obtaining data analytics needed to effectively identify, investigate, 
and prosecute UI fraud. 
 
We have ongoing audits under Phase 1 of our plan to assess DOL’s guidance to the 
states for implementing CARES Act provisions and have already issued four advisory 
and alert reports that cover issues the Department should immediately address, 
including mitigating fraud.  
 
We have nine audits in progress assessing the guidance and oversight DOL provided 
for the UI program and other DOL agencies impacted by COVID-19, including the 
Occupational Safety and Health Administration, the Wage and Hour Division, the Office 
of Workers’ Compensation Programs, and the Mine Safety and Health Administration. 
As mentioned, our audit of UI program guidance has already identified significant 
program weaknesses. The target completion date of Phase 1 is June 30, 2020. 
 
Phase 2 
Phase 2 of the plan will focus on the Department’s implementation of its administration 
and oversight activities. We will also focus on increasing our investigative capacity 
during Phase 2 due to the unprecedented number of investigative matters that the OIG 
is working on related to the CARES Act. We will also continue to expand our data 
analytics work for both fraud prevention and detection. Phase 2 is expected to be 
completed by September 30, 2020.  
 
Phase 3 
Phase 3 will focus on after-the-fact reviews of the Department’s administration and 
oversight, lessons learned, and how DOL’s response to the pandemic affected normal 
operations. The OIG will use data analytics to reassess our deployment and 
complement of investigative resources during Phase 3. Should analysis show that the 
OIG has a need for additional investigative resources at that time, we plan on 
strategically increasing our investigative capacity in areas that have the greatest amount 

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of CARES Act related fraud. Phase 3 is expected to be completed by September 30, 
2021. 
 
Phase 4 
In Phase 4, an ongoing phase, the OIG will continue to monitor and assess the 
Department’s actions related to the pandemic in response to new legislation enacted by 
Congress, as well as continue our investigative efforts. An overall summary of lessons 
learned from all major programs impacted will also be included in this phase. 
 
Cross-Agency Coordination 
 
We are coordinating with the National Center for Disaster Fraud, U.S. Attorneys’ 
Offices, SWAs, and our law enforcement partners on pandemic related activity and 
fraud. We recently conducted UI fraud training to more than 300 of these partners 
nationwide to help them better identify and prevent fraud in the UI program. We are also 
actively seeking opportunities to collaborate because fraudsters often target other 
benefit and loan programs in addition to UI. 
 
As a member of the Pandemic Response Accountability Committee, we are working 
with other OIGs to detect and prevent fraud and mismanagement of the trillions of 
dollars provided by the CARES Act and other legislation. 
 
OIG Legislative Recommendations 
 
The OIG believes that the following legislative actions are necessary to improve the 
integrity of DOL’s UI program. 
 
Allow DOL and the OIG Direct Access to Wage Records  
 
The OIG lacks direct access to wage records to reduce improper payments and combat 
fraud in employee benefit programs, including the UI and Federal Employees’ 

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Compensation Act (FECA) program. For example, the OIG needs access to the NDNH. 
Because the NDNH contains UI claimant data, granting the OIG statutory access to 
NDNH data would provide the OIG with a valuable source of information for both audits 
and investigations. The NDNH, however, cannot be used for any purpose not 
specifically authorized by federal law. In 2004, the law was amended to allow the SWAs 
to cross-match UI claims against the NDNH to better detect overpayments to UI 
claimants who have returned to work but continue to collect UI benefits. However, the 
applicable law does not permit the OIG to obtain NDNH data, and the OIG cannot use 
its subpoena authority to obtain NDNH records. Granting the OIG access to the NDNH 
would permit OIG auditors to use these records to verify reported outcomes for 
Workforce Innovation and Opportunity Act program participants. In addition, OIG 
investigators could use these records to investigate employer fraud in the UI program, 
claimant fraud in the FECA program, and prevailing-wage violations by federal 
contractors. 
 
DOL and the OIG also need the authority to easily and expeditiously access state UI 
and Social Security Administration (SSA) wage records. Access to SSA and UI data 
would allow the Department to measure the long-term impact of employment and 
training services on job retention and earnings. This type of outcome information for 
program participants is otherwise difficult to obtain. 
 
Enact UI Integrity Legislative Proposals 
 
In October 2016, the Department submitted a legislative package to Congress 
proposing legislative changes that would help address UI program integrity and the high 
improper payment rates experienced in the UI program. These proposals were also 
included in each of the President’s budget requests since FY 2018. The OIG 
encourages Congress to consider and adopt these proposals to aid the Department’s 
efforts to combat improper payments in the UI program. 
 
 

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The proposals include the following: 
 
• Require states to use the SIDES to cross-match against the NDNH. 
• Allow the Secretary of Labor to require states to implement UI corrective actions 
related to performance and integrity. 
• Require states to cross-match with SSA’s prisoner database and other 
repositories of prisoner information. 
• Allow states to retain 5 percent of UI overpayment recoveries for program 
integrity use. 
• Require states to use UI penalty and interest collections solely for UI 
administration. 
 
In addition to the above, the President’s FY 2020 budget request included a new 
proposal to require states to access data sources available through the UI Integrity 
Center’s Integrity Data Hub (IDH). IDH contains a Suspicious Actor Repository for 
states to exchange data elements from known fraudulent UI claims and will soon 
contain additional near-real-time data sources to detect improper payments and fraud, 
including an identity verification tool to prevent fraudulent UI benefit claims. This 
proposal will require states to cross-match against the data sources available through 
IDH. UI system-wide use of IDH will result in increased prevention, detection, and 
recovery of improper and fraudulent payments. 
 
These legislative proposals are consistent with previous OIG findings and 
recommendations to address UI improper payments. 
 
Conclusion 
 
Maintaining the integrity of the unemployment insurance program is imperative to 
protect workers and sustain the American economy. The OIG will continue to conduct 
vigilant oversight of the Department and this program. Our work will be particularly 
focused on the extent to which ETA and the states are addressing the concerns 

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presented with claimant eligibility and benefit year earnings. We will also work closely 
with our law enforcement partners, including other OIGs, to keep these important 
benefits out of the hands of criminals and available for workers in need. Our phased 
approach will allow us to timely report on our work in these critical areas and issues 
identified. 
 
Thank you for the opportunity to provide this statement for the record on our important 
work in the unemployment insurance program.

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