Court filing
Alert Memorandum — $5.4 Billion in Potentially Fraudulent UI Payments in Four High-Risk Areas
Record facts
| Court | U.S. Department of Labor, Office of Inspector General |
|---|---|
| Filed | 2021-02-22 |
Summary
An alert memorandum dated February 22, 2021 from the U.S. Department of Labor Office of Inspector General's Assistant Inspector General for Audit to the Principal Deputy Assistant Secretary for Employment and Training, Report Number 19-21-002-03-315. It reports that the OIG identified more than $5.4 billion in potentially fraudulent unemployment insurance benefits paid from March 2020 through October 2020 in four areas. The areas are multi-state claimants ($3.5 billion), Social Security numbers of deceased individuals ($58.7 million), federal prisoners ($98.3 million) and suspicious email accounts ($2 billion). It recommends that ETA establish effective fraud controls with state workforce agencies and work with Congress on legislation requiring cross-matches in high-risk areas. An attachment tabulates net funds for better use of $5,409,966,198.
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U.S. Department of Labor
Office of Inspector General
Washington, D.C. 20210
February 22, 2021
MEMORANDUM FOR:
SUZAN G. LEVINE
Principal Deputy Assistant Secretary for
Employment and Training
FROM:
CAROLYN R. HANTZ
Assistant Inspector General
for Audit
SUBJECT:
Alert Memorandum: The Employment and
Training Administration (ETA) Needs to Ensure
State Workforce Agencies (SWA) Implement
Effective Unemployment Insurance Program
Fraud Controls for High Risk Areas
Report Number: 19-21-002-03-315
The purpose of this memorandum is to alert you to a concern the Office of Inspector
General (OIG) identified during our ongoing audit of the Department of Labor’s (DOL)
response to the Unemployment Insurance (UI) Program’s expansion under the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The information
provided herein was developed in collaboration with the OIG’s Office of Investigations.
We identified more than $5.4 billion1 of potentially fraudulent UI benefits paid to
individuals with social security numbers filed in multiple states, to individuals with social
security numbers of deceased persons and federal inmates, and to individuals with
social security numbers used to file for UI claims with suspicious email accounts. The
Department needs to take immediate action and increase its efforts to ensure SWAs
implement effective controls to mitigate fraud in these high risk areas.
This alert memo only captures a subset of the potential fraudulent UI activities from
March 2020 through October 2020, and is the result of our comprehensive data analysis
1 The $5.4 billion covers the period March 2020 through October 2020. To prevent double counting, over
$313 million in UI claims filed using two or more of the methods noted in this report were counted only
once.
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performed. The OIG expects that the actual amount of potential fraud is much larger.
For example, in January 2021, California reported it paid at least 10 percent ($11 billion)
of its UI benefits to fraudulent claims since the pandemic began and believes the
amount could be as high as 27 percent ($29 billion). Other states have also reported
instances of major fraud including New York ($1 billion), Washington ($600 million) and
Maryland ($501 million). The SWAs paid out a total of $400 billion in CARES Act UI
benefits in calendar year 2020. If other SWAs have problems similar to California, the
potential fraud occurring throughout the nation could easily range into the tens of billions
of dollars. It is incumbent on DOL’s ETA to ensure SWAs employ more effective fraud
controls.
ETA issued Unemployment Insurance Program Letter (UIPL) No. 23-20, and UIPL
No. 28-20 on May 11, 2020, and August 31, 2020, respectively.2 The purpose of these
UIPLs was to remind SWAs of their program integrity functions for the regular UI and
CARES Act UI programs and their roles and responsibilities in addressing fraud.
Additionally, these UIPLs address techniques and strategies available to assist SWAs
with their fraud management operations and provide SWAs with funding to assist with
efforts to prevent and detect fraud and identity theft and recover fraud overpayments.
UIPL 28-20 provides direction to SWAs on implementing controls for detecting
fraudulent claims, including use of the National Association of State Workforce
Agencies’ (NASWA) Integrity Data Hub (IDH). The IDH was designed and is
administered by the NASWA Integrity Center’s group of unemployment insurance
experts. The secure, centralized platform brings SWAs together in collective action to
compare and analyze UI claims data for enhanced detection and prevention of fraud
and improper payments. The IDH allows the SWAs to perform various cross-matches of
UI data, such as, identifying claims filed in two or more states and claims filed using
deceased persons’ social security numbers. When the IDH detects suspicious or
fraudulent claims, the IDH provides match results to the affected SWA. However, IDH
use is optional for SWAs. According to ETA, SWA use of the IDH has increased
throughout the pandemic; and as of December 2020, 32 of the 54 SWAs use or partially
use the IDH. Per NASWA, the use of the IDH during the pandemic has helped to
prevent more than $178 million in improper payments.3
On June 19, 2020, the OIG issued subpoenas to the SWAs for specific data
elements related to SWA UI claims for the period March 2020 through June 2020.
The SWAs generally provided the data available to them; however, some SWAs
had difficulty with full and timely compliance for varied reasons.4 Specifically, 35
2 On January 15, 2021, ETA issued Change 1 to UIPL 28-20 to the SWAs. The UIPL outlines further
efforts to prevent and detect fraud and imposter claims. Additionally, the UIPL provides solutions to
validate the identity of UI claimants. The change was issued after our period of UI data review.
3 An improper payment is any payment that should not have been made or that was made in an incorrect
amount, including an overpayment or underpayment, under a statutory, contractual, administrative, or
other legally applicable requirement. Improper payments broadly fall into three categories: intentional
fraud and abuse, unintentional payment errors, and instances where the documentation for a payment is
insufficient to discern whether a payment is proper.
4 One SWA did not provide dollar amounts with their UI claimant data.
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of the 54 SWAs provided UI claimant data past the June 2020 date with the last
SWA providing UI claimant data as of October 10, 2020. We included all data
provided by the SWAs in our analysis to identify potential fraudulent activities.
As noted, this memorandum is alerting you to a concern we identified during our
ongoing audit of the Department’s response to the UI program’s expansion under the
CARES Act. We identified potential fraudulent benefits paid in four areas:
1. Multi-State Claimants – totaling $3.5 billion in UI benefits paid;
2. Social Security Numbers of Deceased Individuals – totaling $58.7 million in UI
benefits paid;
3. Federal Prisoners – totaling $98.3 million in UI benefits paid; and
4. Suspicious Email Accounts – totaling $2 billion in UI benefits paid.
Multi-State Claimants
According to the CARES Act, a claimant who worked in more than one state and
became unemployed due to COVID-19 related reasons can only file for UI benefits in
one state. The OIG reviewed UI benefits paid, from March 2020 to October 2020, to
individuals via their social security numbers filed in two or more states, and revealed
individuals used a total of 226,829 social security numbers to receive UI benefits
totaling more than $3.5 billion. In one instance, a claimant used a social security
number to file a claim in 40 states and received, a total of $222,532 in UI benefits from
29 states.
During our review, we determined that the $3.5 billion in multi-state claims were filed in
states with SWAs using the IDH and SWAs that did not; and that the SWAs did not
consistently or effectively identify potential fraud involving multi-state claimants. For
example, a review conducted by an independent public accounting firm discovered one
SWA, processed UI claims without running the claims through its fraud screening
program. As a result, the state exposed “hundreds of millions of dollars” to fraud. Our
review identified this SWA paid over $191 million in potentially ineligible multi-state
claims.
ETA must increase its efforts to ensure all SWAs have established and implemented an
effective fraud detection system to mitigate improper multi-state claimant payments.
While not the only tool available to SWAs, all SWAs have the ability to perform cross
matches as a tool to mitigate fraudulent activity. However, SWAs efforts will not be fully
effective unless all 54 SWAs consistently and effectively perform multi-state cross-
matches.
Social Security Numbers of Deceased Individuals
Our analysis determined over 91,000 social security numbers of deceased persons
were used to file claims for UI benefits. To identify potential fraudulent benefit
payments, the OIG identified cases where benefit claims were submitted after the date
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of death associated with certain social security numbers. Based on our analysis, the
total potentially fraudulent benefits paid to claimants using these social security
numbers was $58.7 million. The OIG’s identification of $58.7 million in potential
fraudulent benefit payments further supports the need for greater involvement by ETA in
determining why this is occurring and assisting SWAs to mitigate fraud and other
improper payments to ineligible claimants.
Federal Prisoners and State Prisoners
Our analysis determined that the social security numbers of 13,446 potentially ineligible
federal prisoners were used to file for UI claims that paid out more than $98 million in UI
benefits. Even though ETA UIPL No. 28-20, strongly encourages SWAs to cross-match
state prisoner information, this problem is still occurring at the state prisoner level. On
November 23, 2020, the California District Attorneys Association notified Governor
Gavin Newsom that, “there is rampant and large scale pandemic unemployment
assistance (PUA) fraud occurring in our communities, in the jails and in state and
federal prisons…Undoubtedly, this money has been utilized to fund further criminal
conduct.” The District Attorneys also noted, “Police arrested 100 people in a massive
PUA scheme, totaling millions of dollars in illegally obtained benefits.”
The OIG’s identification of more than $98 million in potentially fraudulent benefit
payments to federal prisoners further emphasizes the need for greater ETA assistance.
ETA needs to determine how SWAs can cross-match federal prisoner UI data to
prevent additional improper payments. In addition to cross-matching federal prisoners
and UI data, ETA must assist SWAs to ensure they implement controls to cross-match
state prisoner data to mitigate fraud.
Suspicious Email Accounts
We found potentially fraudulent UI benefits were paid to individuals with social security
numbers used to file for UI claims with suspicious email accounts. The OIG identified
several methods for using certain types of email accounts to aid in suspected fraudulent
UI claims. These particular account types enable users to establish email addresses
that can hide personal information, such as the user’s identity. The suspicious email
addresses can also be used to apply for multiple UI benefits.
Email service providers that provided accounts offering anonymity were used
extensively to file UI claims. For example, claimants using one service provider received
$269,656,737 in UI benefits. In total, we determined that 276,194 suspicious email
addresses were used to file for $2,029,572,986 in UI benefits.
Additional controls are needed to mitigate the use of suspicious email accounts to
commit fraud. For example, ETA can require SWAs to request additional identity
verification to file a UI claim when using suspicious email accounts. Additionally, ETA
could prohibit claimants from using the particular account types used to commit fraud.
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Conclusion
ETA needs to take immediate action and increase its efforts to ensure SWAs implement
effective controls to mitigate fraud and improper payments. Without effective controls,
the UI program is exposed to substantial risks, including the cost of improper payments
to ineligible claimants. This memorandum outlined over $5.4 billion of potentially
fraudulent UI benefits paid to multi-state claimants, claimants who used the social
security numbers of deceased persons, potentially ineligible federal inmates, and
claimants with suspicious email accounts. Establishing effective controls in these areas
will help to prevent similar or even greater amounts of fraud and allow those funds to be
put to better use (see Attachment). Also, ETA needs to work with Congress to establish
legislation requiring SWAs to cross match the high-risk areas identified in this alert
memorandum.
ETA provided comments on the technical accuracy of this memorandum and we made
adjustments as needed. ETA stated that actions have been taken since the end of our
review period. This includes the addition of an identity verification solution as part of the
IDH and additional fraud detection and identity verification tools implemented by some
SWAs. However, the IDH is not fully utilized by all SWAs and ETA is unaware of the
extent of potential fraud in its UI program. To effectively combat fraud, ETA needs to
ensure all SWAs are effectively mitigating the fraud risk.
Recommendations
We recommend the Principal Deputy Assistant Secretary of Employment and Training:
1. Establish effective controls, in collaboration with SWAs, to mitigate fraud and
other improper payments to ineligible claimants, including the areas identified in
the memorandum: UI benefits paid to multi-state claimants, claimants who used
the social security numbers of deceased individuals, potentially ineligible federal
inmates, and claimants with suspicious email accounts. Effective controls will
help prevent similar or greater amounts of fraud and allow those funds to be put
to better use.
2. Work with Congress to establish legislation requiring SWAs to cross match
high-risk areas, including the four areas identified in the memo.
We would appreciate your written response addressing this alert memorandum and its
recommendations by March 1, 2021. If you have any questions, please contact Michael
Kostrzewa, Audit Director, at (312) 933-8777.
Attachment
cc: Jim Garner, Acting Administrator, Office of Unemployment Insurance
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Laura P. Watson, Administrator, Office of Grants Management
Greg Hitchcock, Special Assistant, Office of Grants Management
Julie Cerruti, Audit Liaison
ATTACHMENT
Funds for Better Use5
Description
Amount
Area of Issue
Page of Issue
Reductions in future outlays:
Multi-State Claimants
$3,537,090,855
SWA Controls
3
Social Security Numbers of the
Deceased
$58,749,938
SWA Controls
3
Federal and State Prisoners
$98,322,434
SWA Controls
4
Suspicious E-mail Accounts
$2,029,572,986
SWA Controls
4
Total Reductions in Future
Outlays
$5,723,736,213
Total and Net Funds for Better Use:
Total Funds for Better Use
$5,723,736,213
Less Duplicative Funds for
Better Use6
$313,770,015
Net Funds for Better Use
$5,409,966,198
5 As defined by the Inspector General Act, “funds for better use” means funds that could be used more
efficiently or achieve greater program effectiveness if management took certain actions. These actions
include reduction in future outlays and deobligation of funds from programs or operations.
6 Duplicative funds for better use are any item of funds identified under more than one category include
reduction in future outlays and deobligation of funds.File and source
- File
- REPORT_DOL-OIG_alert-memorandum-the-employment-and-training-administration-eta-needs-_2021-02-22.pdf
- Size
- 218,915 bytes
- SHA-256
- 604f4b8daea3113286d6855f1b2166394a64fc8ad7a27924ec857562efb764dd
- Our copy
- REPORT_DOL-OIG_alert-memorandum-the-employment-and-training-administration-eta-needs-_2021-02-22.pdf
- Original
- www.oversight.gov