U.S. Department of Labor Office of Inspector General — Memorandum for John P. Pallasch (May 26, 2020)

Summary

Alert Memorandum dated May 26, 2020, Report Number 19-20-002-03-315, from Elliot P. Lewis, Assistant Inspector General, Department of Labor Office of Inspector General, to John P. Pallasch, Assistant Secretary of Employment and Training Administration (ETA). It states that the Pandemic Unemployment Assistance (PUA) program needs proactive measures to detect and prevent improper payments and fraud. It says an individual who fails to provide documentation within 21 days is not rendered ineligible and could continue to receive an average of $775 per week based solely on an initial undocumented self-certification. It suggests that ETA seek guidance from Congress, consider tools already available under the CARES Act, or request legislative action, and asks for a written response by June 2, 2020.

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U.S. Department of Labor                 Office of Inspector General
                                         Washington, D.C. 20210




May 26, 2020




MEMORANDUM FOR:                JOHN P. PALLASCH
                               Assistant Secretary of Employment and Training
                               Administration




FROM:                          ELLIOT P. LEWIS
                               Assistant Inspector General Office of Audit

SUBJECT:                       Alert Memorandum: The Pandemic
                               Unemployment Assistance Program Needs
                               Proactive Measures to Detect and Prevent
                               Improper Payments and Fraud
                               Report Number: 19-20-002-03-315


The purpose of this memorandum is to alert you to a concern we identified during
our ongoing audit of the Department of Labor’s (DOL) response to the
Unemployment Insurance (UI) Program’s expansion under the CARES Act.

The CARES Act’s Pandemic Unemployment Assistance (PUA) program
expanded UI eligibility to individuals who are not typically qualified to receive
such benefits. To establish eligibility, the CARES Act requires individuals to self-
certify that they have lost employment income due to a COVID-19 related reason
specified within the statute. This self-certification renders the individual eligible to
receive payments immediately.

Costs for PUA benefits are currently estimated to total nearly 110 billion 1 dollars.
The associated risk of improper payments and fraud is significant, as the UI
program historically experiences some of the highest improper payment rates
within the federal government. The Office of Inspector General (OIG) believes
state’s reliance on self-certifications alone to ensure eligibility for PUA will lead to
increased improper payments and fraud.

1
  This includes an estimated $61.5 billion for the Federal Pandemic Unemployment
Compensation (FPUC) portion of the PUA program.


                       Working for America’s Workforce
                                           -2-


PUA Self-Certification

The CARES Act (§ 2102(a)(3)) provides PUA coverage to individuals who are not
normally eligible for UI benefits and who self-certify that they are able and
available for work but are unemployed due to a COVID-19 related reason. This
includes individuals who: have exhausted eligibility for regular UI benefits; are
self-employed; are gig workers; are members of clergy; or were not previously
covered by UI programs. Claimants must self-certify one of the criteria identified
within § 2102 applies to be eligible for PUA benefits. Claimants generally self-
certify by checking a box next to a qualifying criterion on the form submitted to
state workforce agencies. The individual is also required to acknowledge a
warning that intentional misrepresentation to obtain PUA benefits constitutes
fraud.

The following are examples of COVID-19 related reasons that qualify individuals
for PUA program benefits:

      •   place of employment is closed as a direct result of COVID-19;
      •   unable to reach place of employment due to COVID-19;
      •   was scheduled to commence employment but does not have a job as a
          direct result of COVID-19;
      •   was diagnosed with COVID-19 or has experienced symptoms and is
          seeking medical diagnosis;
      •   providing care for a family or household member who has been diagnosed
          with COVID-19; or
      •   a child or other household member for which the individual has primary
          caregiving responsibility is unable to attend school or another facility that
          is closed due to COVID-19.

Individuals who qualify for PUA per CARES Act § 2102 are eligible to receive
weekly benefits equivalent to the state’s regular unemployment compensation
plus an additional $600 weekly payment under CARES Act § 2104.

Disaster Unemployment Assistance Program Requirements Apply to PUA

The CARES Act (§ 2102(h)) states that federal regulations2 governing the
Disaster Unemployment Assistance (DUA) program apply to the PUA program
unless there is a conflict between the regulations and CARES Act § 2102, or an
express provision in § 2102 applies. The DUA regulations at 20 C.F.R. § 625.6(e)
require states to immediately determine eligibility upon an initial application
based on the individual’s statement of employment/self-employment.
Furthermore, states are required to make an immediate determination of a

2
    20 C.F.R § 625.6
                                            -3-

weekly benefit amount (WBA) based on documentation provided, at the time of
initial application, or if not available, on any state agency records of employment
or self-employment and related earnings; or on an individual’s statement of
employment or self-employment wages earned. DUA regulations at 20 C.F.R.
§ 625.6(e)(1) state that individuals receiving a benefit payment based solely on
the claimant’s statements are required to submit documentation to substantiate
employment or self-employment wages within 21 days of the initial filing.
Documentation accepted to validate DUA program eligibility include:

    •   pay stubs,
    •   business records,
    •   business licenses,
    •   tax returns, and
    •   letters or email from an employer acknowledging the individual was
        scheduled to commence employment.

Under the DUA regulations at 20 C.F.R. § 625.6(e)(2), an individual who fails to
submit documentation to substantiate their statements regarding employment or
self-employment wages is determined ineligible for the payment of benefits for
any week of unemployment covered by the disaster declaration.

The DUA and PUA programs are similar in that they both allow self-certification
of employment/self-employment and associated wages. However, the CARES
Act is silent on what should occur if an individual fails to submit documentation to
support the claimant’s WBA. The OIG believes the provisions under DUA
regulation 20 C.F.R. § 625.6(e)(1) apply and do not conflict with the PUA
requirement that eligible claimants receive payments without a waiting period.
Rather, OIG believes the aforementioned DUA regulation works in conjunction
with the state agency requirements to justify the continuation of program benefits
and the WBA.

Authority to Apply Wage Determination Requirements of 20 C.F.R.
§ 625.6(e)(2)

Employment and Training Administration (ETA) guidance 3 interpreting the
CARES Act provides that the Act’s self-certification provision is sufficient in and
of itself to establish entitlement to payment of initial benefits and the WBA. ETA
maintains it lacks the authority to add additional criteria regulating the payment of
the WBA. Consistent with this position, ETA issued guidance in April 2020 that




3
 UIPL 16-20 Change 1, entitled Coronavirus Aid, Relief, and Economic Security (CARES Act) of
2020 –Pandemic Unemployment Assistance (PUA) Program Reporting Instructions and
Questions and Answers
                                              -4-

specifically informed states that the DUA regulations4 requiring employment
documentation (including earnings) do not apply to the PUA program 5.

As ETA’s implementation of the PUA program currently stands, any individual
may initially self-certify without evidence of wages earned and be approved for
payment in accordance with the state’s UI regulations. If the individual fails to
provide documentation within 21 days, they are not rendered ineligible for PUA
benefits. 6 Consequently, an individual could continue to receive an average of
$775 per week based solely on an initial undocumented self-certification
statement that one of the COVID-19 related reasons were met; and by
acknowledging any intentional misrepresentation to obtain PUA benefits
constitutes fraud.

OIG is issuing this Alert Memorandum because states need to implement
measures, such as requiring claimants to document earnings to substantiate the
initial WBA determination, to establish and maintain integrity in the PUA program.
We believe that reliance solely on claimant self-certifications without evidence of
eligibility and wages renders the PUA program highly vulnerable to improper
payments and fraud. Without additional tools such as those that already exist
under the DUA regulations cited in this alert, the PUA program presents
substantial risks of the likelihood of loss of millions of taxpayer dollars.
Recognizing that ETA and the DOL Office of the Solicitor disagree with our
assessment based upon their interpretation of the Act and underlying regulations
– and given the UI program’s previously reported vulnerability to improper
payments and the high risk of fraud – we suggest ETA seek additional guidance
or clarification from Congress concerning whether a claimant is entitled to
establish and continue to receive PUA payments without providing
documentation at any point to support a WBA determination. Alternatively, we
recommend ETA consider tools already available under the CARES Act such as
those cited in § 2102(a)(3)(A)(i)(I)(kk) or § 2104(f) 7 and change its guidance; or
request legislative action to curtail improper or fraudulent PUA payments.




4 20 C.F.R   § 625
5 See footnote 3
6 Claimants will continue to receive payments at the minimum weekly benefit amount. This

amount currently averages $175 plus the additional Federal Pandemic Unemployment
Compensation (FPUC) amount of $600.
7 § 2102(a)(3)(i)(I)(kk) states a covered individual means an individual who provides self-

certification that the individual is able to work and available to work within the meaning of
applicable state law, except the individual is unemployed because the individual meets additional
criteria established by the Secretary for unemployment assistance under this section. § 2104
states if an individual has knowingly made a false statement or material fact and as a result the
individual receives FPUC then the individual is ineligible for further FPUC.
                                    -5-

We would appreciate your written response addressing this alert memorandum
and its recommendation by June 2, 2020. If you have any questions, please
contact Dwight Gates, Audit Director, at (678) 637-4659.

cc: Gay Gilbert, Administrator, Office of Unemployment Insurance
    Jim Garner, Deputy Administrator, Office of Unemployment Insurance
    Laura P. Watson, Administrator, Office of Grants Management
    Greg Hitchcock, Special Assistant, Office of Grants Management
    Julie Cerruti, Audit Liaison


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