Alert Memorandum: ETA Needs to Ensure State Workforce Agencies Take Action to Recover Significant UI Holdings Still Held by Financial Institution 2's Prepaid…

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An alert memorandum dated February 10, 2026 from Inspector General Anthony P. D'Esposito of the U.S. Department of Labor Office of Inspector General to Henry Mack, Assistant Secretary for Employment and Training. It concerns unemployment insurance funds still held on prepaid cards issued through Financial Institution 2 (FI2) under contracts with state workforce agencies during the COVID-19 pandemic. The OIG reports analyzing more than 1.5 million prepaid card accounts and finding $197,780,028 in potentially fraudulently obtained funds held on 773,339 FI2 cards, plus $48,059 already escheated to state unclaimed property administrators. It states that $120,854,589 relates to claims the OIG flagged to ETA in September 2022. The memorandum says ETA has an opportunity to issue guidance to state agencies within 30 days, and an attachment presents three data tables.

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U.S. Department of Labor 
Office of Inspector General 
 
 
Washington, DC 20210 
Working for America’s Workforce 
 
February 10, 2026 
 
 
MEMORANDUM FOR: 
HENRY MACK  
 
 
 
 
Assistant Secretary  
  for Employment and Training 
 
FROM:  
 
 
ANTHONY P. D’ESPOSITO 
 
 
 
 
Inspector General 
 
 
 
 
 
SUBJECT:  
Alert Memorandum: The Employment and Training 
Administration Needs to Ensure State Workforce 
Agencies Take Action to Recover Significant 
Unemployment Insurance Holdings Still Held by 
Financial Institution 2’s Prepaid Card Program 
 
The purpose of this memorandum is to alert you to an urgent concern regarding 
the potential upcoming loss of more than $197 million the Office of Inspector 
General (OIG) has identified through its ongoing work with financial institutions. 
During the COVID-19 pandemic, certain financial institutions contracted with 
state workforce agencies (SWA) to disburse unemployment insurance (UI) 
benefits on prepaid debit cards. As reported in DOL OIG’s recent alert 
memorandum0F1 on this subject, a substantial amount of these funds remains 
unspent. This includes upwards of $56,000 on a single prepaid card held by 
Financial Institution 2 (FI2). These funds are being held by the respective 
financial institutions with significant amounts linked to potential fraud. The OIG 
assesses that—if swift action is not taken—taxpayers risk losing these funds.1F2 
 
Many SWAs provided financial institutions with information on improper UI 
payments, including fraud, in accordance with Employment and Training 
Administration (ETA) guidance. However, SWAs do not appear to have 
adequately managed millions of prepaid card accounts with remaining balances 
from COVID-19-era UI claims. Continued inaction will likely result in SWAs not 
fulfilling their programmatic responsibilities to prevent and detect improper 
payments and recover potential overpayments, including fraud. Further, this 
situation is worsened as the funds on these prepaid cards may still be targeted 
 
1 Alert Memorandum: The Employment and Training Administration Needs to Ensure State 
Workforce Agencies Take Action to Recover Significant Unemployment Insurance Holdings Still 
Held by Financial Institution 1’s Prepaid Card Program, January 30, 2026 
2 The OIG assessed the share of state versus federal UI funding by examining UI Program Letter 
(UIPL) 13-25, Attachment 1: State Reimbursements - Program Allocation Chart. This examination 
of the 53 SWAs’ UI funding mix showed approximately 22 percent of pandemic UI funding 
sourced from state UI funds and 78 percent of pandemic UI funding sourced from the three key 
pandemic UI programs: Pandemic Unemployment Assistance, Pandemic Emergency 
Unemployment Compensation, and Federal Pandemic Unemployment Compensation. 

Alert: ETA/SWA Action Needed on UI Funds FI2 Held or Escheated 
Page 2 of 5 
 
by capable adversaries or the funds may have to be escheated (surrendered) to 
state unclaimed property administrators2F3—as some funds have already been—
further complicating potential overpayment recovery. 
 
Background: OIG Work to Combat the UI Fraud Crisis 
 
In March 2020, among other relief, the Coronavirus Aid, Relief, and Economic 
Security (CARES) Act created three key temporary UI programs: Pandemic 
Unemployment Assistance (PUA), Pandemic Emergency Unemployment 
Compensation (PEUC), and Federal Pandemic Unemployment Compensation 
(FPUC).3F4 Later, the Continued Assistance for Unemployed Workers Act of 2020 
and the American Rescue Plan Act of 2021 reauthorized and extended these 
programs. The OIG has previously reported more than $888 billion in total federal 
and state UI benefits were paid for benefit weeks during the pandemic period.4F5 
 
While providing relief to eligible workers affected by the COVID-19 pandemic, 
these benefits were distributed amidst a perfect storm—millions of claims, a 
vulnerable system, and motivated offenders. CARES Act UI programs became a 
high-value, low-risk target for criminal actors. For example, the U.S. Department 
of Labor reported an improper payment rate of 35.9 percent for the life of the 
PUA program. Further, criminal enterprises took advantage of the situation, 
increasing their fraud schemes with readily available stolen identities. According 
to Inspector General congressional testimony, of the $888 billion, at least 
$191 billion could have been improper payments, including more than $76 billion 
paid to fraudsters.5F6 
 
Starting in April 2020, to combat this crisis, the OIG initiated over 
200,000 investigative matters to bring perpetrators to justice. Further, the OIG 
conducted targeted audits, issuing reports with recommendations to mitigate 
program vulnerabilities. As of December 31, 2025, the OIG’s pandemic 
UI-related criminal investigations have resulted in more than: 2,300 individuals 
charged; 1,800 convictions; 55,000 months of incarceration; and $2.2 billion in 
 
3 In this alert memorandum, the term escheatment refers to the mandatory obligation for financial 
institutions to surrender unclaimed funds. These requirements and their deadlines vary by state, 
and funds from a single account may not be transferred all at once but rather determined by the 
date of deposit against the state’s required time period. These funds are not surrendered directly 
to SWAs, but, instead, go to state unclaimed property administrators. 
4 While this alert memorandum refers to PUA, PEUC, and FPUC, the OIG’s concern extends to 
outstanding UI funds in all UI programs, including pandemic-related state UI programs. 
5 “The Greatest Theft of American Tax Dollars: Unchecked Unemployment Fraud,” Hearing, 
Statement for the Record of Larry D. Turner, Inspector General, U.S. Department of Labor, 
House Committee on Ways and Means (February 8, 2023), available at: 
https://www.oig.dol.gov/public/testimony/02082023.pdf 
6 “Waste, Fraud, and Abuse Go Viral: Inspectors General on Curing the Disease,” Hearing, 
Statement for the Record of Larry D. Turner, Inspector General, U.S. Department of Labor, 
House Committee on Oversight and Accountability, Subcommittee on Government Operations 
and the Federal Workforce (March 9, 2023), available at: 
https://www.oig.dol.gov/public/testimony/03092023.pdf 

Alert: ETA/SWA Action Needed on UI Funds FI2 Held or Escheated 
Page 3 of 5 
 
monetary results. Further, the OIG’s pandemic UI-related audit activities have 
resulted in over 100 UI program recommendations and more than $75 billion in 
monetary results. Access to CARES Act UI program data and associated 
financial data from financial institutions has been vital to the OIG’s 
pandemic-related oversight. 
 
OIG’s Findings regarding UI Funds Still Held by FI2 
 
Based on the OIG’s continued work with various financial institutions responsible 
for administering prepaid cards during the pandemic, the OIG learned FI2 and 
three other financial institutions were the largest prepaid card providers and 
significant UI funds: (1) are still being held and soon may be escheated or 
(2) have already been escheated.  
 
In August 2025, to further examine the nature of these UI holdings, the OIG 
issued Inspector General subpoenas to these four financial institutions pursuant 
to its authority under the Inspector General Act of 1978, as amended. The OIG 
sought financial institution records pertaining to: (1) all prepaid cards with 
remaining UI balances and (2) prepaid card balances already escheated to state 
unclaimed property administrators. We detailed our findings regarding the largest 
provider, Financial Institution 1, in our recent alert memorandum. In 
November 2025, FI2 provided records to the OIG that detailed remaining and 
escheated balances specific to client SWAs. 
 
With these records, the OIG assessed both available and escheated UI balances 
for potential fraud via comparative analysis with the OIG’s UI claimant data. 
Specifically, the OIG’s analysis included crossmatching against high-risk 
indicators on which the OIG has previously reported.6F7 
 
As of December 2025, OIG data analytics 
had identified the following information in 
relation to FI2’s holdings based on the 
provided records. Overall, the OIG 
analyzed more than 1.5 million prepaid 
card accounts and identified 
$304,200,513 in affected funds. 
Specifically, the OIG examined two 
categories of affected funds: (1) funds 
remaining on the prepaid card accounts 
and (2) funds that have been escheated 
to state unclaimed property 
administrators. The OIG found: 
 
 
7 COVID-19: ETA Needs to Improve Its Oversight of States’ Efforts to Identify Multistate UI Fraud, 
Report No. 19-25-004-03-315 (August 4, 2025),  
https://www.oig.dol.gov/public/reports/oa/2025/19-25-004-03-315.pdf 
The OIG found $197,780,028 
(approximately 65% of $303,991,074) in 
potentially fraudulently obtained funds 
was being held on 773,339 FI2 prepaid 
cards, and 
 
The OIG found $48,059 (approximately 
23% of $209,439) in potentially 
fraudulently obtained funds have been 
escheated to state unclaimed property 
administrators. 
In this Second Alert, the OIG 
Identified more than $197 Million 
in Potential Fraud 

Alert: ETA/SWA Action Needed on UI Funds FI2 Held or Escheated 
Page 4 of 5 
 
• $303,991,074 remained on 1,533,056 prepaid card accounts (see 
Attachment, Table 1) and 
 
• $209,439 in already escheated UI funds from 968 prepaid card accounts 
(see Attachment, Table 2). 
 
Further, these findings include $120,854,589 in taxpayer money (approximately 
40 percent of the $303,991,074 not yet escheated) about which the OIG had 
previously notified ETA in September 2022 after flagging the underlying claim as 
suspicious (see Attachment, Table 3).7F8 
 
 
 
 
 
 
 
 
In summary, a total of $197,828,087 in potentially fraudulently obtained funds 
was held or is currently being held on 773,655 UI prepaid card accounts and 
swift action is required to recover those taxpayer dollars. This is in addition to the 
OIG’s recent identification of $714,626,297 in potentially fraudulently obtained 
funds, totaling more than $900 million requiring prompt attention. 
 
Conclusion 
 
As a result of this analysis, the OIG assesses a substantial risk of potential loss 
of taxpayer funds. An opportunity exists for ETA to issue guidance within 30 days 
to SWAs to commence engagement with ETA, the OIG, and relevant financial 
institutions to assess these findings. This will allow SWAs to detect improper 
payments and recover potentially fraudulently obtained UI funds held by financial 
institutions or various state unclaimed property administrators. In doing so, 
taxpayers may be able to recover these funds. 
 
The OIG provided ETA a draft of a non-public version of this alert memorandum 
for technical review. ETA responded timely with no substantive comments. We 
look forward to continuing to work with ETA personnel on this urgent concern and 
appreciate the cooperation and courtesies ETA has extended to us. 
 
 
 
Attachment
 
8 Alert Memorandum: Potentially Fraudulent Unemployment Insurance Payments in High-Risk 
Areas Increased to $45.6 Billion, Report No. 19-22-005-03-315 (September 21, 2022), 
https://www.oig.dol.gov/public/reports/oa/2022/19-22-005-03-315.pdf 
$197,828,087 of These UI Funds Being Held Were  
Potentially Fraudulently Obtained and  
Require Swift Action to Recover Taxpayer Funds 

 
Attachment 
Page 5 of 5 
 
The following three tables are sourced from OIG Data Analysis, Crossmatching 
of 2025 FI2 Data and OIG UI Data Warehouse. 
 
 
Table 1: FI2 UI Funds Held on Prepaid Cards  
(Not Yet Escheated), March 1, 2020–September 30, 2021 
 
Total 
Number of Prepaid 
Cards with Balance 
Total Current 
Balance on Prepaid 
Cards 
Number of Prepaid 
Cards Related to  
OIG-Identified 
Potential Fraud 
Total Balance Related 
to OIG-Identified 
Potential Fraud 
Total 
1,533,056 
$303,991,074 
773,339 
$197,780,028 
 
 
Table 2: FI2 UI Funds Escheated to State Unclaimed Property 
Administrators, as of September 25, 2025 
 
Total 
Number of Prepaid 
Cards with 
Escheated Funds 
Total Escheated 
Funds from Prepaid 
Cards 
Number of These 
Prepaid Cards with 
OIG-Identified 
Potential Fraud 
Total Balance Related 
of Escheated Funds 
with OIG-Identified 
Potential Fraud 
Total 
968 
$209,439 
316 
$48,059 
 
 
Table 3: Not Yet Escheated UI Funds on FI2 Cards OIG Identified in 2022 
 
Total 
Number of Prepaid Cards  
Related to Claims  
OIG Identified as Potential Fraud in 2022  
Total Balance on these Cards  
Related to Claims  
OIG Identified as Potential Fraud in 2022 
Total 
316,250 
$120,854,589

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