More Can Be Done to Mitigate Risk to Unemployment Compensation Under the CARES Act (OIG 19-20-008-03-315)
Summary
Report No. 19-20-008-03-315 of the U.S. Department of Labor Office of Inspector General, COVID-19: More Can Be Done to Mitigate Risk to Unemployment Compensation Under the CARES Act, dated August 07, 2020. The audit asks whether the Employment and Training Administration's initial implementation of the CARES Act Unemployment Insurance provisions was sufficient to mitigate the risk of fraud, waste, and abuse. OIG found that ETA implemented the provisions timely but that additional guidance could better assist states in mitigating the risk of fraud. OIG made four recommendations to ETA, and ETA agreed with three of the four.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“More Can Be Done to Mitigate Risk to Unemployment Compensation Under the CARES Act (OIG 19-20-008-03-315).”
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EMPLOYMENT AND TRAINING
ADMINISTRATION
COVID-19: MORE CAN BE DONE TO
MITIGATE RISK TO UNEMPLOYMENT
COMPENSATION UNDER THE CARES
ACT
DATE ISSUED: AUGUST 07, 2020
REPORT NUMBER: 19-20-008-03-315
U.S. Department of Labor WHAT OIG FOUND
Office of Inspector General
Audit While ETA implemented CARES Act UI provisions
timely, additional guidance could better assist
states in mitigating the risk of fraud. Further, ETA
has directed states to leverage their existing
BRIEFLY… program integrity systems to include CARES Act
UI programs, but ETA can do more to ensure
adequate program assessment and reporting.
COVID-19: MORE CAN BE DONE TO MITIGATE
RISK TO UNEMPLOYMENT COMPENSATION ETA’s guidance did not sufficiently address
the risk of fraud, waste, or abuse. On May 26,
UNDER THE CARES ACT
2020, we issued an alert memorandum to
August 07, 2020 highlight the risk of fraud in the Pandemic
Unemployment Assistance (PUA) program given
WHY OIG CONDUCTED THE AUDIT its reliance on self-certification. In response to our
memorandum, ETA agreed to engage Congress
On March 27, 2020, Congress passed the regarding additional fraud prevention and program
Coronavirus Aid, Relief and Economic Security integrity measures.
(CARES) Act. The CARES Act included an
estimated $260 billion in funding for new or ETA is leveraging existing tools to combat
expanded Unemployment Insurance (UI) benefits. fraud, but more needs to be done. In April 2020,
It provided for additional benefit payments and we issued an advisory report presenting our initial
created new programs that provided benefits to areas of concern regarding implementation of
CARES Act UI provisions. ETA’s implementation
individuals not traditionally eligible for UI. These
expanded benefits and new programs have of the provisions has included measures to
significantly increased the risks for fraud, waste, combat fraud and other improper payments. ETA
and abuse. directed states to include CARES Act UI
programs in its Benefit Payment Control activities.
However, ETA needs to do more to ensure
WHAT OIG DID
existing tools are used effectively and to assist
We conducted this performance audit to answer OIG obtain access to state data. Over the years,
the following question: joint investigations between OIG and states have
led to hundreds of successful prosecutions and
Was ETA’s initial implementation of the CARES monetary recoveries.
Act UI provisions sufficient to mitigate the risk of
fraud, waste, and abuse? ETA’s oversight plan does not sufficiently
address the assessment of CARES Act UI
To answer this question, we conducted interviews program results. ETA does not include CARES
with ETA officials and reviewed and assessed Act UI programs in its program assessments,
guidance, oversight and fraud prevention plans, noting their temporary nature and the cost
training offered to states, state agreements, associated with including them. However, by not
assessing these programs, it discounts the scope
program funding, plans for information technology
assistance, and implementation challenges. of programs that are estimated to cost $260
billion.
READ THE FULL REPORT
https://www.oig.dol.gov/public/reports/oa/2020/19- WHAT OIG RECOMMENDED
20-008-03-315.pdf
We made four recommendations to ETA to improve
management oversight of the UI program provisions
under the CARES Act.
ETA agreed with three of our four recommendations.
ETA did not agree to adapt its benefit accuracy
measure program to provide for temporary program
changes, such as with the CARES Act.
U.S. Department of Labor – Office of Inspector General
TABLE OF CONTENTS
INSPECTOR GENERAL’S REPORT .................................................................... 1
RESULTS ............................................................................................................. 3
ETA Guidance Did Not Sufficiently Address the Risk of Fraud,
Waste, or Abuse......................................................................................... 5
ETA is Leveraging Existing Tools to Combat Fraud, but More
Needs to be Done ...................................................................................... 8
ETA’s Oversight Plan Does Not Sufficiently Address the
Assessment of CARES Act UI Program Results ...................................... 11
OIG’S RECOMMENDATIONS ............................................................................ 16
Summary of ETA’s Response .................................................................. 17
EXHIBIT 1: CARES ACT UIPLS ......................................................................... 18
EXHIBIT 2: REQUIRED REPORTING FROM CARES ACT UIPLS.................... 19
APPENDIX A: SCOPE, METHODOLOGY, & CRITERIA.................................... 20
APPENDIX B: AGENCY’S RESPONSE TO THE REPORT ............................... 22
APPENDIX C: ACKNOWLEDGEMENTS ........................................................... 28
-i-
U.S. Department of Labor Office of Inspector General
Washington, D.C. 20210
INSPECTOR GENERAL’S REPORT
John Pallasch
Assistant Secretary
for Employment and Training
U.S. Department of Labor
200 Constitution Ave, NW
Washington, DC 20210
This report presents the results of the Office of Inspector General’s (OIG) audit of
the Employment and Training Administration’s (ETA) planning for and initial
implementation of the Coronavirus Aid, Relief, and Economic Security (CARES)
Act Unemployment Insurance (UI) programs.
On March 27, 2020, Congress passed the CARES Act. The expanded UI
benefits under the CARES Act required ETA to implement major changes to the
existing system including establishing six new programs — each with the intent
of providing expanded UI benefits to Americans who are unable to work as a
direct result of the COVID-19 pandemic. These expanded UI benefits are
estimated to cost $260 billion and are funded by the federal government. The
billions of dollars involved have significantly increased the risk for fraud, waste,
and abuse in UI programs.
We conducted this performance audit to answer the following question:
Was ETA’s initial implementation of the CARES Act UI provisions
sufficient to mitigate the risk of fraud, waste, and abuse?
To answer this question, we conducted fieldwork with the ETA, Office of
Unemployment Insurance’s National Office. We conducted interviews and
reviewed and assessed guidance, oversight and fraud prevention plans, training
offered to states, state agreements, program funding, plans for information
technology assistance, and implementation challenges.
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U.S. Department of Labor – Office of Inspector General
We found that while ETA implemented CARES Act UI provisions timely,
additional guidance could assist states in better protecting funds against fraud,
waste, and abuse. Further, ETA has directed states to leverage their existing
program integrity systems to include CARES Act UI programs, but ETA can do
more to ensure adequate program assessment.
Background
The CARES Act established six new UI programs with unemployment
compensation provisions generally effective through December 31, 2020. The six
programs include:
• The Federal Pandemic Unemployment Compensation (FPUC) program,
which provides a supplemental payment of $600 per week to individuals
receiving traditional and PUA benefits until July 31, 2020.
• The Pandemic Unemployment Assistance (PUA) program, which extends
UI benefits to individuals who are not traditionally eligible for UI benefits.
This includes self-employed workers, independent contractors, those with
limited work history, and others.
• The Pandemic Emergency Unemployment Compensation (PEUC)
program, which provides up to an additional 13 weeks of unemployment
compensation to individuals who have exhausted their regular
unemployment benefits.
• The Temporary Full Federal Funding (TFFF) program. Most states require
a one-week waiting period prior to a claimant being eligible for regular UI
benefits. The TFFF program provides federal funding for the first week of
benefits if states agree to waive the waiting week.
• The Emergency Unemployment Relief for Governmental Entities and
Nonprofit Organizations program (EURGENO), which provides payments
to states to reimburse non-profits, government agencies, and Indian tribes
for half the costs of UI.
• The Temporary Financing of Short-Time Compensation (STC) program
provides funding to support employers who reduce employee hours
instead of laying off workers and the employees with reduced hours
received a pro-rated unemployment benefit.
The Department of Labor completed funding agreements with almost every state
shortly after the CARES Act was signed into law, with states drawing down funds
CARES ACT IMPLEMENTATION
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U.S. Department of Labor – Office of Inspector General
from the U.S. Treasury as early as April 7, 2020. Table 1 shows that states had
drawn down a total of approximately $165 billion to administer five CARES Act UI
programs, as of June 19, 2020.
Table 1 – CARES ACT UI Program Funding*
(as of June 19, 2020)
Program FPUC PUA TFFF PEUC EURGENO
No. States** 54 52 24 46 43
Funding Amount
($ in millions) $144,605 $15,672 $2,567 $1,858 $258
*No states reported funding for STC
**Includes the 50 states, District of Columbia, Puerto Rico, U.S. Virgin Islands, and the Pacific
territories
Past audits of expansion of the UI program have revealed that ETA did not
adequately ensure proper controls were in place to protect funds and ensure they
were paid to eligible claimants. With the historic increase in costs for the CARES
ACT UI programs, ETA’s oversight is of critical importance to ensure that funds
are protected from fraud, waste, and abuse.
RESULTS
ETA’s implementation of the CARES Act UI provisions focused on interpreting
the Act, translating it into operating guidance for the states, and ensuring states
understand the guidance through training and technical assistance. While these
actions are critical for program implementation, ETA could provide additional
guidance to help protect against fraud and other types of improper payments.
The substantial increase in UI benefits magnifies the need for ETA and the states
to take every action to ensure funding is used to support impacted workers and
the economy as intended. The UI program paid approximately $27 billion in
benefits over a one-year period ending June 2019 and estimated almost
$3 billion (11 percent) were improper payments. Assuming the improper payment
rate continues above 10 percent, at least $26 billion of the estimated $260 billion
in expanded UI program funds could be paid improperly. Media reports and
OIG’s own investigative work indicate significant fraudulent activity is occurring,
which poses a major threat to the integrity of the UI program. Following are the
overall results of ETA’s planned implementation of the CARES Act UI provisions,
which are discussed in greater detail in this report.
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U.S. Department of Labor – Office of Inspector General
ETA guidance did not sufficiently address the risk of fraud, waste, or
abuse. On May 26, 2020, OIG issued an alert memorandum highlighting the
increased risk for fraud due to the sole reliance on self-certification for claimant
eligibility. ETA’s guidance to states, based the Department’s Office of the
Solicitor’s (SOL) interpretation of CARES Act UI provisions, directs states not to
require individuals applying for PUA to provide documentation to support their
employment, but rather to accept an individual’s self-certification for a COVID-19
related issue. We recommended ETA consult with Congress regarding this issue
and in its response to our memorandum on June 5, 2020, ETA agreed to engage
Congress regarding additional fraud prevention and program integrity measures.
In addition, ETA’s PUA program and program integrity guidance does not
adequately assist states in identifying individuals who refuse to return to work
and continue to receive program benefits. ETA’s guidance simply encourages
states to request employers to provide information when workers refuse to return
to their jobs for reasons that do not support their continued eligibility for benefits.
More substantive guidance is needed to mitigate the risk presented by current
CARES Act programs and any future extensions.
ETA is leveraging existing tools to combat fraud, but more needs to be
done. On April 21, 2020, we issued an advisory report presenting our initial
areas of concern that ETA and the states should consider as they implement UI
provisions in the CARES Act. ETA’s implementation included proactive measures
to combat related fraud and other improper payments. ETA directed states to
include CARES Act UI programs in its Benefit Payment Control1 activities. ETA
also worked with the National Association of State Workforce Agencies (NASWA)
UI Integrity Center and other entities to develop and promote additional
resources. However, more needs to be done, to include ensuring existing tools
are used effectively to combat fraud and other improper payments. ETA also
should work with the OIG to obtain access to state claimant data that can be
used to identify and disrupt fraudulent schemes that threaten the integrity of UI
programs, including those under the CARES Act.
ETA’s oversight plan does not sufficiently address the assessment of
CARES Act UI program results. ETA only assesses the performance and
estimates improper payments for its three permanent UI programs. The agency
maintains it does not include episodic, temporary programs in assessments due
to their temporary nature and the cost associated with including them. However,
the inclusion of the CARES Act programs is especially critical for ETA’s
assessment of performance and improper payments, as the estimated program
1 Benefit Payment Control entails the prevention, detection, and recovery of improper UI benefit
payments.
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U.S. Department of Labor – Office of Inspector General
costs are nearly 10 times the $27 billion in regular UI outlays the Department
estimated for Fiscal Year (FY) 2019.
ETA GUIDANCE DID NOT SUFFICIENTLY
ADDRESS THE RISK OF FRAUD, WASTE, OR
ABUSE
ETA worked quickly to obtain signed agreements with and to ensure funds were
made available to states. ETA also issued Unemployment Insurance Program
Letters (UIPLs) that provided guidance for the new programs and produced
related training webinars available through the ETA sponsored WorkforceGPS
website, UI community of practice page. However, it could provide additional
guidance to further reduce the risk of fraud and other improper payments related
to PUA program eligibility and individuals refusing return to work opportunities.
Based on SOL’s interpretation of the CARES Act UI provisions, ETA issued PUA
program guidance that instructed states not to require documentation to support
an individual’s employment or self-employment. In addition, ETA’s guidance to
states should encourage them to take proactive measures to detect individuals
who refused to return to work rather than waiting for employers to report this
information. PUA regulations2 require documentation to support employment or
self-employment and CARES Act provisions require individuals to be able and
available for employment in order to remain eligible for benefits. ETA maintains
that the PUA regulations conflict with the CARES Act self-certification
requirement for PUA eligibility, and further maintains that while it strongly
encouraged states to put procedures in place to enable employers to report
individuals who refuse to return to work, it does not have the authority to require
states to take proactive measures to detect those individuals.
PUA PROGRAM RISK NECESSITATES GREATER OVERSIGHT
On May 26, 2020, OIG issued an alert memorandum regarding ETA’s decision to
instruct states not to require individuals applying for PUA to provide
documentation to support employment, self-employment, or the scheduled
commencement of either. Our alert memorandum recommended that ETA
consult with Congress concerning whether a claimant is entitled to establish and
continue to receive PUA payments without providing documentation at any point
during a weekly benefit amount determination.
2 The CARES Act (§ 2102(h)) states that federal regulations (Title 20 C.F.R § 625) governing the
Disaster Unemployment Assistance (DUA) program apply to the PUA program unless there is a
conflict between the regulations or expressly provided for by the Act.
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U.S. Department of Labor – Office of Inspector General
On June 5, 2020, ETA and the Department of Labor, Office of the Solicitor (SOL)
responded to our alert memorandum and maintained their position that the PUA
program does not require proof of employment, but instead it requires that the
individual self-certify that one of many COVID-19 related reasons for
unemployment applies to his or her situation. Nonetheless, ETA and SOL agreed
to engage Congress regarding ways in which it may want to legislatively enhance
fraud prevention and program integrity requirements of the CARES Act.
In addition to our alert memorandum, the OIG conducted a survey of the state UI
agencies to identify actions the states are taking to ensure program integrity over
their individual PUA programs. The results from that survey are to be issued in a
separate report. ETA needs to follow through on its commitment to consult
Congress and implement the strongest program integrity measures it deems
allowable. If it does not issue stronger guidance or the states do not implement
additional measures on their own, the PUA program is at significant risk of fraud
and other improper payments until the program expires on December 31, 2020.
INDIVIDUALS REFUSING TO RETURN TO WORK WITHOUT VALID
JUSTIFICATION
To address individuals who refuse to return to work, ETA encouraged states to
request employers report such employees to the state workforce agency.
However, to prevent millions of dollars in overpayments, states will also need to
take proactive measures to identify individuals that refuse to return to work. ETA
should consider encouraging states to contact large employers or, at least,
ensure that states use public websites to alert employers about their obligation.
The FPUC program’s $600 weekly benefit set to expire July 31, 2020, has
potentially exacerbated this condition. These expanded benefits have provided
much needed financial assistance to millions of American workers but have also
raised concerns from some business leaders who worry that workers who
receive more in UI benefits than they earned in their prior employment will refuse
to return to work as the economy reopens.
The CARES Act 3 and ETA’s implementing guidance 4 both require an individual
to be able and available for work as a condition of eligibility for UI benefits. To
meet this requirement, states direct individuals to certify that they were able and
available to work. Any individual who refuses suitable employment would not
meet this requirement.
3 Section 2102 (3)(A)(ii)(I) and Section 2107(A)(2)(D).
4 UIPL 17-20 Change 1, and UIPL 16-20.
CARES ACT IMPLEMENTATION
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U.S. Department of Labor – Office of Inspector General
ETA has made it clear that individuals who refuse to return to work, except for
good and just cause as determined by respective states, are ineligible to receive
UI benefits. Good and just cause includes the inability to work as a direct result of
COVID-19. 5 However, the Agency has offered minimal guidance to assist states
with identifying these potentially ineligible individuals. In UIPL 23-20, issued
May 11, 2020, 6 ETA stated:
Conversely, as states begin the process of phased reopening, we
expect historically high levels of suitable return to work opportunities.
As such, states must work to maintain program integrity by ensuring
that claimants are not continuing to claim benefits when they have
been offered suitable work.
To assist states with identifying individuals who refuse reemployment
opportunities, the UIPL contains the following statement:
…states are strongly encouraged to request employers to provide
information when workers refuse to return to their jobs for reasons
that do not support their continued eligibility for benefits.
We reviewed state websites as of June 25, 2020, and found that 23 percent did
not provide employers detailed instructions and/or forms designed specifically for
reporting individuals who refused to return to work. However, the remaining 77
percent (up from 51 percent in May 2020) of states websites provided guidance
for employers on how to report employees who refuse to return to work. For
example, according to a June 2020 news article, 7 employers in one state
informed state officials of 3,336 individuals who refused to return to work since
January. About one third of these individuals have been denied benefits and the
rest have lost benefits while they are under review. However, the state has
delayed reviews of refusal to work cases due to limited staffing.
With large numbers of employees expected to receive return to work
opportunities with their prior employers, states will need to take active measures
to identify employees who refuse those offers and continue to collect UI benefits.
ETA’s guidance does not encourage states to proactively contact employers —
especially large employers with a multitude of laid off or furloughed employees —
5 Eligibility for PUA requires that the individual be able to work and available to work within the
meaning of applicable state law.
6 UIPL 23-20, May 11, 2020, Program Integrity for the Unemployment Insurance (UI) Program
and the UI Programs Authorized by the Coronavirus Aid, Relief, and Economic Security Act of
2020 - Federal Pandemic Unemployment Compensation, Pandemic Unemployment Assistance,
and Pandemic Emergency Unemployment Compensation Programs.
7 Whites-Koditschek, S. (June 23, 2020). Alabama begins cutting unemployment for thousands
for ‘refusal to work’. AL.com.
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U.S. Department of Labor – Office of Inspector General
to determine if individuals have been offered reemployment and refused to return
to work. ETA stated it does not believe states have the capacity, nor does ETA
have the legal authority to require states to contact employers. ETA also stated it
cannot do more beyond encouraging states to request employers provide
information about individuals who refused to return to work when offered
reemployment. Even so, ETA should do more to encourage states to contact
large employers, or at least ensure that states that have not already done so are
using public websites to alert employers to their obligation.
Without proactive measures by the states, individuals will be able to continue to
collect benefits, including the FPUC $600 weekly benefit through July 31, 2020
(or future weekly supplements), even though they refused suitable job offers from
either their prior employer or an equally suitable employer. This will likely result in
millions of dollars in overpayments that will go undetected.
The Government Accountability Office (GAO) reported a similar issue in a report 8
issued on June 25, 2020. GAO identified that ETA had no real-time mechanism
to help states identify individuals who are both receiving UI benefits and wages
under the paycheck protection program, which is a program operated by the
Small Business Administration (SBA) and designed to provide small business
loans to employers with the intention of keeping their workforces employed
during the crisis. GAO recommended that ETA work with the SBA and Treasury
to provide paycheck protection program information to the state unemployment
agencies. ETA stated that is has consulted with the SBA and Treasury and plans
to soon issue guidance regarding the paycheck protection program and its
intersection with the UI program.
In addition, ETA could leverage the Department’s Enterprise Risk Management
Council (ERMC) to better understand and mitigate the risks presented by UI
CARES Act programs. The ERMC is available to offer assistance to DOL
agencies tasked with developing and implementing responses to COVID-19
related risks. This assistance is not limited to initial planning; it includes the
CARES Act implementation as well.
ETA IS LEVERAGING EXISTING TOOLS TO
COMBAT FRAUD, BUT MORE NEEDS TO BE
DONE
ETA has directed states to include CARES Act UI programs into their existing
program integrity systems, in an effort to prevent and detect improper payments.
8 GAO Report No. GAO-20-625, issued on June 25, 2020.
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U.S. Department of Labor – Office of Inspector General
However, ETA needs to take the necessary measures to ensure existing tools
are used effectively and to assist OIG obtain access to state UI claimant data.
On May 11, 2020, subsequent to an OIG advisory report regarding initial areas of
concern related to CARES ACT programs, 9 ETA issued UIPL 23-20. The
purpose of the UIPL was to remind states of their responsibilities for continuing
program integrity measures for regular UI programs and to incorporate CARES
Act UI programs in those measures, including all Benefit Payment Control
functions. In addition, ETA took the following additional steps to mitigate fraud:
• Included clear statements on states’ responsibilities for integrity in 10 of
the 15 UIPLs issued between April 2, 2020, and June 15, 2020 (see
Exhibit 1).
• Worked with the NASWA UI Integrity Center to promote its resources to
states and identify additional tools, such as the UI Integrity Data Hub, the
National Integrity Academy, and the Knowledge Exchange, and processes
that states can use to detect, prevent, and recover fraudulent and other
improper payments.
• Worked with the NASWA to develop a new resource through the Interstate
Connection Network (ICON) system to allow states to cross-check quickly
social security numbers for PEUC or PUA claims in other states, and
promoted the use of this tool on April 28, 2020.
Although ETA is not including the CARES Act UI programs in its estimates of
improper payments by including these payments in the sampling for the Benefit
Accuracy Measurement (BAM). ETA has directed states to include the PEUC
and PUA benefit payments when using its existing program integrity tools to
detect fraud and other improper payments. These include:
• Program integrity provisions designed to: (1) detect payments made in
error or through willful misrepresentation, (2) deter individuals from
obtaining benefits through willful misrepresentation, and (3) recover
overpaid benefits.
• Recommending states implement additional Benefit Payment Control
activities as part of an effective Benefit Payment Control operation for
regular UI programs, PUA, and PEUC. Some examples of the tools states
use are:
o National Directory of New Hires (NDNH) Cross-match. This runs a
weekly process that compares state UI beneficiary rolls against a
national database of employer reported new hires.
9 OIG Report No. 19-20-001-03-315 ─ CARES ACT: Initial Areas of Concern Regarding
Implementation of Unemployment Insurance Provisions, issued April 21, 2020.
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o State Directory of New Hires cross-match. This is a daily cross-
match that states use to compare their UI beneficiary rolls against a
state database of employer reported new hires.
o Social Security Administration cross-match; Matching UI beneficiary
rolls (usually monthly) against Social Security Administration data.
o Interstate Benefits Cross-match. This cross-matches state UI
beneficiary data against data from other states to locate individuals
with outstanding overpayment balances.
o State Identification Inquiry and IB8606 enhancements made to the
ICON cross-match to prevent concurrent claim filing in multiple
states.
o State Information Data Exchange System (SIDES). This is a system
designed to enable more rapid and accurate communication
between states and employers, resulting in better initial eligibility
determinations and a reduction in UI improper payments.
ETA will need to be diligent to ensure states utilize available tools, such as
NDNH and SIDES, to mitigate the increased risks posed by CARES Act UI
programs. OIG identified insufficient use of these tools by state agencies in prior
reports. 10,11
WORKING WITH OIG TO ADDRESS FRAUD
OIG is currently encouraging ETA to issue a UIPL to state workforce agencies
that will provide the OIG with reoccurring access to state workforce agency data.
Access to the state data will help disrupt fraudulent schemes that threaten the
integrity of the CARES Act UI programs. ETA will need to ensure the swift
completion and issuance of the UIPL in order to address this growing concern.
States are in the midst of managing extraordinary workloads due to the effects of
the COVID-19 pandemic. As previously mentioned, the UI system is facing
historically high levels of claims in the regular UI program while simultaneously
implementing the newly created temporary programs authorized by the CARES
Act. During this time, there is a heightened need for states to maintain a
steadfast focus on UI functions and activities that ensure program integrity and
the prevention and detection of improper payments and fraud across all UI
programs. As states implement these new programs quickly, while also
processing an unprecedented volume of claims, there is significant risk for fraud
and abuse. Therefore, ETA, OIG, and state UI agencies must continue to work
10 Report No. 04-18-003-03-315 - Improved Oversight of States Use of New Hire Tools Would
Help Reduce Improper Payments, issued September 27, 2018.
11 Report No. 04-17-003-03-315 – Better Strategies Needed to Increase Employer Participation in
the State Information Data Exchange System, issued March 31, 2017.
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U.S. Department of Labor – Office of Inspector General
together to promote program integrity and mitigate fraud in the UI system to
ensure that UI payments are made only to eligible individuals.
OIG plays an essential role in working collaboratively with states to investigate
and prosecute fraud in UI programs. Over the years, joint investigations between
OIG and states have led to hundreds of successful prosecutions and significant
monetary recoveries. Many of these investigations successfully pursued
sophisticated multi-state fraud schemes by organized criminal groups involving
millions of dollars in fraudulent claims.
With the exponential increase in UI claims resulting from the COVID-19
pandemic, OIG expects a commensurate escalation in the number and
sophistication of fraud schemes impacting the UI system. Providing the OIG with
specific data to identify and investigate suspected fraudulent claims will enhance
its ability to work jointly with the states in responding to allegations of UI fraud
related to the COVID-19 pandemic.
ETA’S OVERSIGHT PLAN DOES NOT
SUFFICIENTLY ADDRESS THE ASSESSMENT
OF CARES ACT UI PROGRAM RESULTS
ETA’s oversight plan for the CARES Act UI provisions included hiring additional
staff, developing a new monitoring guide and a risk assessment tool, and
creating new reporting requirements. The plan does not: (1) establish
performance measures for the timeliness of determinations and payments, or
measures for improper payment detection and recovery; (2) include program
payments in their annual estimate of UI improper payments; or (3) include
additional measures to enhance the accuracy and completeness of program
reporting.
The Green Book12 requires management to measure performance of a program.
ETA stated it does not establish performance measures for episodic, temporary
programs. By not doing so for the CARES Act UI programs, ETA has not
recognized the material impact of these programs. For example, improper
payments for CARES Act programs will likely exceed $27.6 billion, which is
nearly 10 times the amount of estimated UI improper payments for FY 2019.
12 GAO-14-704G, Standards for Internal Control in the Federal Government, September 2014.
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ETA DID NOT ESTABLISH PERFORMANCE MEASURES RELATED TO
TIMELINESS OR IMPROPER PAYMENTS
ETA has not established performance standards for CARES Act UI programs or
any method of measuring performance in such key areas as timeliness of
determinations and payments, and identifying improper payments.
The Green Book requires management to measure performance and internally
communicate the necessary quality information to achieve the entity’s objectives.
ETA has established standards and methods of measuring many key metrics for
its regular UI programs using its performance management system, referred to
as UI Performs. 13
UI Performs establishes core measures and acceptable levels of performance for
metrics like first payment promptness, non-monetary determination timeliness,
and detection and recovery of overpayments. State performance is publicly
accessible and regularly displayed in UI Performs scorecards. ETA explained
that it has not historically measured performance for episodic, temporary UI
programs because by the time it could establish any performance measures, the
program would already be ending. ETA further explained that the statute did not
charge them with evaluating the success of the programs.
ETA should explore methods to evaluate the quality of assistance provided by
states under episodic, temporary UI programs. The CARES Act UI programs are
estimated to cost $260 billion. This amount is nearly 10 times the $27 billion in
regular UI outlays estimated in the Department’s FY 2019 Agency Financial
Report. By not measuring state performance for key areas such as timeliness of
determinations and payments and overpayment detection and collection, ETA
has discounted the magnitude of this temporary program and missed
opportunities to identify program weaknesses. Identifying program weaknesses
and applying lessons learned before another episodic event occurs is also
critical, regardless of whether the future events are on a smaller or larger scale.
ETA DID NOT INTEND TO MEASURE THE ACCURACY OF CARES ACT UI
PROGRAM PAYMENTS
Office of Management and Budget (OMB) Circular A-123 requires the inclusion of
any payment in an entity’s improper payment estimate. However, ETA stated it
13 The goal of UI Performs is to create a cooperative system of management, planning and
oversight leading to increasingly effective, consistent, efficient service to workers and employers.
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does not include payments for episodic, temporary programs in the BAM
program.
ETA uses the BAM program to meet its requirement under the Improper Payment
Information Act 14 (IPIA) to estimate UI improper payments. ETA officials do not
include episodic, temporary programs, such as the CARES Act, in BAM due to
the temporary nature of the programs and the cost and time associated with their
inclusion. By not including CARES Act programs in the UI improper payments
estimates, ETA will materially underestimate UI improper payments for both IPIA
years 2020 and 2021.
ETA uses the BAM program to estimate improper payments in UI’s three
permanent programs: State UI, Unemployment Compensation for Federal
Employees, and Unemployment Compensation for Ex-Service Members. It does
this by reconstructing the claims process for weekly samples of paid and denied
claims using data verified by trained investigators. In addition to estimating
improper payments, BAM investigators identify the cause and responsible party
for the error. Apart from the current pandemic programs, ETA has historically
chosen to exclude other periodic and episodic, temporary programs, such as
Extended Benefits (EB) and Disaster Unemployment Assistance (DUA).
Historically, a temporary or episodic program may represent a relatively
insignificant amount of money. For example, the DUA program reported an
average of about $21 million in benefit payments over the past three FYs. By
comparison, regular UI program outlays for the past three FYs averaged about
$29 billion. Table 2 breakdowns UI program outlays from FY 2017 through
FY 2019.
However, the CARES Act UI programs are estimated to cost $260 billion for a
period of less than one year. By not estimating CARES Act UI program improper
payments using either the BAM program or another reliable estimating
14 Improper Payments Information Act of 2002, Public Law 107-300 as amended, January, 2013.
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methodology, ETA is neglecting its responsibility to accurately quantify and
ultimately recover improper payments.
OMB Circular A-123, Appendix C, provides guidance to agencies responsible for
estimating and reporting on improper payments. The Circular defines improper
payments as:
…any payment that should not have been made or that was made
in an incorrect amount…includes any payment to an ineligible
recipient, any payment for an ineligible good or service, any
duplicate payment, any payment for a good or service not
received…
The operative words in this definition are “any payment,” which implies that
episodic, temporary payments related to a particular program are to be included
in any estimates. Nowhere in the Circular does it direct agencies to exclude such
episodic, temporary payments, and ETA officials stated they had not sought
OMB’s approval to do so.
On June 17, 2020, OMB issued a memorandum regarding the use of risk based
financial audits and reporting activities in response to COVID-19. Related to the
inclusion of COVID-related funding in an agency’s improper payment reporting,
the memo stated:
Programs already reporting an annual improper payment estimate
do not need to perform an additional improper payment risk
assessment as the quantitative method used for annual reporting
fulfills the risk assessment requirement, unless Agency
management deems otherwise. Programs receiving COVID related
funding that are already reporting an annual improper payment
estimate may incorporate the new funding into their normal
sampling process.
OMB’s guidance does not excuse ETA from excluding the CARES Act UI
programs from its improper payment estimates, but it does provide them with the
option of including these payments in its regular sampling process. Logically,
ETA can include these payments in the BAM program or devise another
acceptable method for reliably estimating improper payments for these programs.
When questioned about including CARES Act UI program payments in the
BAM, ETA explained the following:
Historically, ETA has excluded episodic temporary programs from
BAM. Each of these programs are unique and have distinct
eligibility requirements that are different from prior episodic
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programs. Additionally, the CARES Act programs have different
eligibility requirements than the regular UI program. As such the
development of a standing BAM program for these episodic
programs is not feasible and would be costly to implement due to
changing eligibility requirements for these programs…By the time
the new BAM programs could be developed and become
operational, the underlying temporary programs will have
expired…we are looking to an alternative approach to conduct an
independent evaluation of improper payments related to these new
temporary programs.
The improper payment rate for FY 2019 was estimated at 10.61 percent.
Assuming this rate continues, we conservatively estimate that improper
payments for the CARES Act UI programs will be at least $27.6 billion. This
represents nearly 10 times the amount of estimated improper payments for FY
2019 of $2.9 billion. ETA will be vastly underestimating improper payments by
not including the CARES Act UI programs in its improper payment estimates.
ETA CAN DO MORE TO ENSURE COMPLETE AND ACCURATE
PROGRAMMATIC REPORTING
ETA’s oversight plan includes hiring additional staff, developing a new monitoring
guide, and creating numerous reporting requirements. ETA will also rely heavily
on desk reviews, automated alerts 15 and the investigation of data anomalies with
the states. These techniques have proven insufficient in the past for ensuring the
completeness and accuracy of reported data. ETA should consider performing
periodic spot checks of state-reported data by requesting supporting
documentation for select data elements for a small number of reports, which
would help to ensure data is complete and accurate.
According to agency officials, ETA has temporarily rehired annuitants and other
staff and has plans to hire additional permanent or temporary staff. This will
increase the number of full-time equivalent positions from approximately 58 to
more than 70, including 12 positions the regional offices plan to fill to provide
additional monitoring and oversight. ETA is also working with its regional office
staff to develop new tools, including a risk assessment tool and a monitoring
guide, for conducting reviews of CARES Act UI programs.
Since passage of the CARES Act, ETA has issued numerous UIPLs providing
guidance to states for reporting. In total, states may be required to report
15 Automated alerts are received when edit checks embedded in the reporting system compare
natural correlations between numbers and identify outliers that require investigation with state
officials.
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program information using as many as 15 different reports due weekly, monthly,
and quarterly (see Exhibit 2). Due to the sheer scope of the CARES Act UI
programs and the multitude of reports that regional offices will need to review on
a regular basis, ETA will have to rely on its established methods of investigating
report outliers with state officials. Further, ETA must rely on edit checks and the
review and investigation of data anomalies with state officials to provide much of
its oversight. Use of these measures in the past have proven insufficient to
ensure the accuracy and completeness of state-reported data. Recent OIG
reports have identified instances of state reported UI data that was both
incomplete and/or inaccurate. 16,17,18
Without complete and accurate data reporting, Congress and ETA officials will
not be able to make informed decisions regarding the current program or future
programs of a similar nature.
OIG’S RECOMMENDATIONS
We recommend the Assistant Secretary for Employment and Training:
1. Amplify its guidance to states that strongly encourages them to enlist
employers to assist state officials identify the continued eligibility of
individuals who refuse to return to work by providing technical assistance
and sharing best practices on processes and messaging that will increase
employer reporting.
2. Include CARES Act UI transactions in the BAM or develop an alternative
methodology to reliably estimate improper payments for those programs.
3. Develop oversight processes that ensure states are administering the
CARES Act UI programs so as to ensure payments to eligible individuals
in a timely manner and that states are submitting accurate reports.
4. Issue guidance directing states to provide access to state UI claimant
data, in order to prevent and detect fraud.
16 Report No. 04-18-003-03-315 - Improved Oversight of States Use of New Hire Tools Would
Help Reduce Improper Payments, issued September 27, 2018.
17 Report No. 04-17-001-03-315 – ETA Should do More to Help States Curtail Unemployment
Insurance Tax Avoidance Practices, issued September 13, 2017.
18 Report No. 04-17-002-03-315 – Program Specific Performance Measurements are Needed to
Better Evaluate the Effectiveness of the Reemployment Services and Eligibility Assessment
Program, issued September 26, 2017.
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SUMMARY OF ETA’S RESPONSE
ETA agreed with three of our four recommendations. ETA agreed to amplify its
guidance to states to enlist employers to identify UI claimants who refuse return
to work opportunities, agreed to develop oversight processes to ensure states
are paying benefits timely and submitting accurate reports, and agreed to
continue to work with the OIG to gain efficient access to state UI data to prevent
and detect fraud.
ETA did not agree with our recommendation to include CARES Act UI
transactions in the BAM or to develop an alternative methodology to reliably
estimate improper payments for those programs. ETA argued that it was
impractical to include these payments in the BAM. It further stated that it will
maintain its continued and sustained focus on identifying potential root causes for
improper payments and fraud and developing and implementing strategies to
address these root causes.
We made technical revisions to the report as appropriate based on ETA’s review
of our draft report. Management’s response to our draft report is included in its
entirety in Appendix B.
We appreciate the cooperation and courtesies ETA extended us during this audit.
OIG personnel who made major contributions to this report are listed in
Appendix C.
Elliot P. Lewis
Assistant Inspector General for Audit
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EXHIBIT 1: CARES ACT UIPLS
No. OUI Guidance Date Issued Purpose
To provide states an overview of CARES
1. UIPL 14-20 4/2/2020 Act UI programs.
To provide operating, financial and reporting
2. UIPL 15-20 4/4/2020 instructions for the FPUC program.
To provide questions and answers and
3. UIPL 15-20 Change 1 5/9/2020 additional guidance for the FPUC program.
To provide states with new ETA 227
Overpayment and Detection Recovery
4. UIPL 15-20 Change 2 6/15/2020 Activities FPUC Report.
To provide operating, financial and reporting
5. UIPL 16-20 4/5/2020 instructions for the PUA program.
To provide questions and answers and
6. UIPL 16-20 Change 1 4/27/2020 additional guidance for the PUA program.
To provide operating, financial and reporting
7. UIPL 17-20 4/10/2020 instructions for the PEUC program.
To provide questions and answers and
8. UIPL 17-20 Change 1 5/13/2020 additional guidance for the PEUC program.
To provide instructions to states for
implementation of the emergency
unemployment relief for state and local
entities, certain non-profit organizations,
9. UIPL 18-20 4/27/2020 and federally recognized Indian tribes.
To provide operating, financial, and
10. UIPL 20-20 4/30/2020 reporting instructions for the TFFF program.
To provide states with an overview of the
11. UIPL 21-20 5/3/2020 Short-Time Compensation (STC) program.
To encourage and assist states apply for
12. UIPL 22-20 5/10/2020 STC grant funds.
To remind states of program integrity
requirements for regular UI programs and
additional requirements for CARES Act UI
13. UIPL 23-20 5/11/2020 programs.
To provide guidance and respond to state
inquiries related to the Federal-State EB
14. UIPL 24-20 5/14/2020 program
To provide guidance to State Workforce
Agencies on changes in the operation of the
15. UIPL 25-20 6/15/2020 BAM program
Source: OIG analysis of UIPLs on ETA’s website.
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EXHIBIT 2: REQUIRED REPORTING FROM CARES ACT UIPLS
No. Report Title Frequency of Reporting
ETA 538 – Advance Weekly Initial and Continued
1. Claims Weekly
ETA 539 – Weekly Claims and Extended Benefits
2. Trigger Weekly
3. ETA 2112 – UI Financial Transaction Summary Monthly
4. ETA 902 – Pandemic Unemployment Assistance Monthly
5. ETA 5130 – Benefit Appeals Monthly
6. ETA 207 – Nonmonetary Determination Activities Quarterly
7. ETA 218 - Benefit Rights and Experience r Quarterly
ETA 8403 – Summary of Financial Transactions,
8. Title IX Bi-Monthly
9. ETA 5159 – Claims and Payment Activities Monthly
10. UI-3 - Quarterly UI Above-Base Earnings Report Quarterly
ETA 227 – Overpayment Detection and Recovery
11. Activities Quarterly
12. ETA 9178 – Quarterly Narrative Progress Quarterly
13. ETA 9130 – Federal Financial Report Quarterly
14. STC Quarterly Grant Report Quarterly
Non-specific report to be created by ETA, which
establishes reporting requirements for states,
number of averted layoffs, and the number of
15. participating employers and workers. To be determined
Source: OIG analysis of UIPLs on ETA’s website.
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APPENDIX A: SCOPE, METHODOLOGY, & CRITERIA
SCOPE
The audit covered ETA’s plans for administration and oversight of CARES Act UI
provisions from March 27, 2020, to June 30, 2020. Our work was conducted
remotely with ETA headquarters personnel located in Washington, DC.
METHODOLOGY
We conducted this performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit objective.
We believe the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
To answer our audit objective, we reviewed the CARES Act, ETA guidance, state
agreements, program funding, information technology assistance, ETA oversight
and fraud prevention plans, challenges in implementing the CARES Act, training
provided to states, and additional controls implemented. We interviewed ETA
officials to obtain an understanding of the program and the provisions, funding,
and requirements included in the CARES Act. We questioned officials about the
process to advise and monitor states on program implementation.
We did not use sampling on this audit. We analyzed all summary data available
from the states on UI claims and funding. We examined all 15 UIPLs and
associated webinars issued by ETA in response to the CARES Act.
RELIABILITY ASSESSMENT
We did not perform a data reliability assessment. Our audit was limited to a
review of the administration and oversight of the CARES ACT UI provisions. We
did not require any data to address the audit objective. Any data on claims or
funding was reported as provided by ETA.
INTERNAL CONTROLS
In planning and performing our audit, we considered ETA’s internal controls
relevant to our audit objective by obtaining an understanding of those controls,
and assessing control risks for achieving our objective. The objective of our audit
was not to provide assurance of the internal controls; therefore, we did not
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express an opinion on ETA’s internal controls. Our consideration of internal
controls for administering the accountability of the program would not necessarily
disclose all matters that might be significant deficiencies. Because of the inherent
limitations on internal controls, misstatements or noncompliance may occur and
not be detected.
CRITERIA
• CARES Act, Public Law 116-136 (March 27, 2020)
• Code of Federal Regulations, Title 20, Employee Benefits, Chapter 5, Part
604 (January 16, 2007)
• Code of Federal Regulations, Title 20, Employee Benefits, Chapter 5, Part
625 (September 16, 1977)
• Federal-State Extended Unemployment Compensation Act of 1970
(August 10, 1970)
• Improper Payments Information Act of 2002, Public Law 107-300 as
amended, (November 26, 2002)
• Appendix C to OMB Circular A-123, Requirements for Payment Integrity
Improvement (June 26, 2018)
• Social Security Act of 1935 (April 5, 1935)
• Unemployment Insurance Program Letter 16-20, Coronavirus Aid, Relief,
and Economic Security (CARES) Act of 2020 – Pandemic Unemployment
Assistance (PUA) Program Operating, Financial, and Reporting
Instructions (April 5, 2020)
• Unemployment Insurance Program Letter 23-20, Program Integrity for the
Unemployment Insurance (UI) Program and the UI Programs Authorized
by the Coronavirus Aid, Relief, and Economic Security Act of 2020 -
Federal Pandemic Unemployment Compensation, Pandemic
Unemployment Assistance, and Pandemic Emergency Unemployment
Compensation Programs (May 11, 2020)
• GAO-14-704G, Standards for Internal Control in the Federal Government
(September 2014)
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APPENDIX B: AGENCY’S RESPONSE TO THE REPORT
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APPENDIX C: ACKNOWLEDGEMENTS
Key contributors to this report were:
Dwight Gates, Audit Director
Betty Norwood, Lead-Audit Manager
Mark Sanderson, Audit Manager
Nick Cumby, Lead-Auditor
Velma Ivey, Auditor
Chaze Williams-Bey, Auditor
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REPORT FRAUD, WASTE, OR ABUSE
TO THE DEPARTMENT OF LABOR
Online
http://www.oig.dol.gov/hotline.htm
Telephone
(800) 347-3756 or (202) 693-6999
Fax
(202) 693-7020
Address
Office of Inspector General
U.S. Department of Labor
200 Constitution Avenue, NW
Room S-5506
Washington, DC 20210
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