Why Unemployment Insurance Fraud Surged During the Pandemic

Report by the Pandemic Response Accountability Committee, dated 2024-04-16, on why unemployment insurance fraud surged during the pandemic. Of the 45 unemployment insurance fraud cases it reviewed, 35 (78 percent) filed claims using a stolen identity. It gives the August 8, 2020 authorization for Lost Wages Assistance as "up to $44 million"; GAO-21-387 gives the presidential memorandum's figure as up to $44 billion.

Full text

1
Why Unemployment
Insurance Fraud Surged
During the Pandemic
The COVID-19 pandemic created unprecedented challenges and disruptions
for individuals, businesses, and governments. As a result of lockdowns, social
distancing, and business shutdowns, the country experienced a significant spike
in permanent and temporary unemployment across the country. This in turn
led to a historic surge in citizens’ demand for unemployment insurance (UI) to fill
their earnings gap. The U.S. Department of Labor (DOL) and state workforce
agencies (SWAs) worked to address this demand and critical need by significantly
expanding UI benefits programs.
Multiple law enforcement and agency program officials reported unprecedented
levels of fraud in UI program benefits during the pandemic. For example, the DOL
Office of the Inspector General’s (OIG) March 2023 semiannual report to
Congress noted more than $888 billion federal and state UI benefits were paid
during the UI pandemic period—March 27, 2020 through September 6, 2021.
The DOL’s Employment and Training Administration (ETA) reported an improper
payment rate during this reporting period of 21 to 36 percent with a significant
portion of those improper payments attributable to fraud.1 Similarly, in September
2023 the Government Accountability Office estimated UI program fraud totals
between $100 and $135 billion, or about 11 to 15 percent of benefits paid
during the pandemic.
Given the widespread nature of pandemic UI fraud, program, congressional, and
oversight officials are questioning how it happened and what can be done to
reduce UI fraud moving forward. To help answer those questions, we identified
a variety of schemes used to defraud pandemic UI benefit programs such as
using stolen identities, recruiting co-conspirators, and abusing debit cards the
government used to pay benefits.
1
In fiscal year 2022, ETA reported an improper payment rate of 21.52 percent for the traditional UI program
as part of the Benefit Accuracy Measurement (BAM) Program. According to DOL, although the pandemic-
related programs, Federal Pandemic Unemployment Compensation (FPUC) and Pandemic Emergency
Unemployment Compensation (PEUC), were not included in the BAM sample, ETA applied the traditional UI
improper payment rate to these pandemic programs based on the underlying similarities in their eligibility
requirements. On August 21, 2023, the DOL reported its estimated improper payment rate for the
Pandemic Unemployment Assistance (PUA) program at 35.9 percent. Although improper payment rates
include underpayments, overpayments and those that could not be determined as valid payments, it is
likely that a significant portion of these improper payments are fraudulent.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
2
Most UI Fraud Involved Collusion and Identity Theft
Of the 45 UI fraud cases we reviewed as part of this project, 35 (78 percent) submitted
falsified claims using a stolen identity while 29 cases (64 percent) included two or more
people conspiring to commit fraud.
The largest fraud case we reviewed was a fraud ring near Atlanta, Georgia, which involved
eight different co-conspirators and over $30 million dollars in stolen UI benefits. In this case,
a healthcare worker who had access to patients’ personally identifiable information (PII)
sold this information to other co-conspirators who then used the stolen identities to file for
pandemic UI benefits.
Background
Created in 1935, UI is a form of social insurance in which most states provide eligible unemployed workers
with income support if they lose their jobs through no fault of their own. Most state UI programs are funded
through taxes collected from employers.
Although the federal DOL ETA oversees the UI system, the program is administered by SWAs whose primary
responsibilities include assessing eligibility and issuing payments.
The UI system changed dramatically in early 2020 at the onset of the pandemic. From February 2020 to April
2020, the national unemployment rate increased from 3.5 percent to 14.7 percent. As a result, the volume
of unemployment claims that states had to process increased exponentially. For example, during the first
three months of the pandemic, states processed 15 times as many claims as compared to the same three
months in 2019.
In December 2021, the PRAC released a key insights report on UI that highlighted the challenges SWAs
faced implementing pandemic UI programs. Based on that review of 44 audit reports across DOL programs
and 16 different State Auditor Offices, we found that UI claims surged to unprecedented levels and that many
SWAs did not have the capacity or sufficient internal control environment to process claims timely without
bypassing safeguards in place to prevent fraud. In response to the surging claims, Congress passed multiple
laws that created, expanded, and extended UI benefits.
At the same time, states struggled to modernize information technology (IT) systems to implement the newly
created pandemic UI programs and hire enough staff to process claims.
See Figure 1 for a historical timeline of unemployment rates over the last 70 years.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
3
Figure 1: History of National Unemployment Rates
During the pandemic, Congress authorized multiple rounds of funding for pandemic UI benefit programs
across four different pieces of legislation. See Figure 2 for more information about the history of federal
pandemic UI benefit funding.
Figure 2: Federal Funding for Pandemic UI Benefit Programs
• March 18, 2020 - Families First Coronavirus Response Act (FFCRA) provided additional administrative
funding and flexibilities to SWAs to respond to the pandemic. For instance, the FFCRA allowed SWAs to
provide unemployment benefits to individuals not actively searching for work and to waive the additional
week individuals must typically wait to receive compensation.
• March 27, 2020 - Coronavirus Aid, Relief, and Economic Security (CARES) Act provided workers
with additional unemployment benefits. The UI provisions in the CARES Act included the creation of
three new UI programs: Pandemic Unemployment Assistance (PUA), Federal Pandemic Unemployment
Compensation (FPUC), and Pandemic Emergency Unemployment Compensation (PEUC).

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
4
• December 27, 2020 - Continued Assistance Act (CAA) required anyone who received a payment of
PUA on or after December 27, 2020, to submit documentation to substantiate their employment or self-
employment, or planned commencement of employment or self-employment. The CAA also extended
pandemic unemployment benefits created under the CARES Act and created the Mixed Earners
Unemployment Compensation Insurance (MEUC) program.
• March 11, 2021 - American Rescue Plan Act provided additional funding and another extension of
pandemic unemployment benefits created under the CARES Act, increasing the duration claimants could
receive these benefits.
In addition to congressional legislation that created new pandemic UI relief programs, on August 8, 2020,
the President authorized the Federal Emergency Management Agency (FEMA) to spend up to $44 million
from the Disaster Relief Funds (DRF) for wage payments.2 Per the DOL, the DRF payments were to help
bridge the gap of FPUC payments which expired around July 2020, but were then reauthorized months later
under new legislation. Accordingly, the FEMA Administrator provided grants to participating states, territories,
and the District of Columbia to administer the delivery of the Lost Wages Assistance (LWA) program to those
receiving unemployment benefits.3 See Figure 3 for the various types of pandemic UI programs and their
funding amounts.
2
The FEMA DRF is an appropriation against which FEMA can direct, coordinate, manage, and fund eligible response and recovery
efforts associated with major domestic disasters and emergencies that overwhelm states’ resources pursuant to the Robert T. Stafford Disaster
Relief and Emergency Assistance Act.
3
States and territories administer the LWA program through a grant agreement with FEMA. FEMA does not make these payments directly to
individuals. Instead, states and territories distribute the funds through their UI systems as a supplemental payment.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
5
Figure 3: Pandemic UI Programs
UI Program Target Population
PUA
Individuals classified as self-employed, independent contractors, those with limited work history, and
other individuals not traditionally eligible for unemployment benefits or PEUC who are unable to work as
a direct result of the pandemic.
PEUC
Claimants who were still unemployed after exhausting their entitlement to traditional unemployment
benefits in that benefit year, had no rights to traditional unemployment compensation under state and
federal law, were not receiving unemployment benefits under Canadian law, and were able, available,
and actively seeking to work.
FPUC
Claimants who were entitled to at least $1 of other unemployment benefits for a given week.
MEUC
Claimants receiving benefits other than pandemic UI, whose prior earnings included both wages from
traditional employment and at least $5,000 from self-employment.
LWA
Claimants who received at least $100 in benefits from another UI program.
Due to MEUC and LWA including funding amounts beyond pandemic spending, we could not show pandemic-only total dollar
amounts in each respective bar graph.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
6
Common Schemes Used to Commit and Conceal
Pandemic UI Fraud
We identified a set of common factors present in UI fraud schemes by reviewing publicly available court
documents and the Department of Justice press releases for 45 pandemic UI fraud cases from April 2020
through December 2020.4 We also identified common methods used to conceal the schemes. Figure 4
details the fraud schemes identified through our review of these pandemic UI fraud cases.
Figure 4: Schemes and Methods Fraudsters Used to Commit and Conceal Fraud
4
PRAC reviewed a sample of 45 UI cases. The figure represents the common schemes and methods used by fraudsters within the case sample
and is not an exhaustive list of all UI fraud cases that have been perpetrated.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
7
Fraudsters Used Stolen Identities to File for Unemployment in Multiple States
Of the 45 fraud cases we reviewed, 11 (24 percent) noted that fraudsters improperly used
the same information to file for unemployment benefits in multiple states.
In one case, the fraudster used the same stolen identity to falsely file for unemployment in
nine states and recruited co-conspirators to retrieve pre-loaded debit cards from addresses
controlled by the group.
Challenges State Workforce Agencies Faced
UI fraud schemes thrived during the pandemic due to a variety of factors including the processes by
which SWAs administered benefits. While the flaws in several of these processes were exacerbated by the
pandemic, such as the need for limited in-person contact to promote social distancing, other shortcomings in
program operations contributed to the programs’ fraud vulnerability. Generally, to obtain any of the pandemic
UI benefits an individual had to file a claim or application with the SWA in their state. Claims or applications
and certifications for pandemic UI benefits were mostly filed electronically through each SWA’s UI website.
In the application process, the claimant was required to enter personal information such as their name,
date of birth, Social Security number, physical address, email address, and telephone number. Additionally,
claimants had to answer questions that enabled the SWA to determine their eligibility and UI benefit amount,
and to self-certify whether the pandemic had directly and adversely affected their employment. Our prior
work has consistently highlighted the pitfalls of relying on applicant self-certification across pandemic
program benefits distribution, including UI programs.5 Overall, the level of effort individual SWAs performed
to verify the information claimants submitted varied by state and the timing of when the claim was filed.
SWAs offered claimants multiple payment options to receive pandemic UI benefits, as depicted below in
Figure 5. UI claimants could specify a checking or savings account to receive UI pandemic funds or request
payment via a preloaded UI debit card mailed to the address of the claimant’s choice. Claimants also had
the option to request a paper check be mailed to their address.
5
PRAC, Update: Top Challenges in Pandemic Relief and Response, February 3, 2021; Key Insights: State Pandemic Unemployment Insurance
Programs, December 16, 2021.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
8
Figure 5: Methods of UI Benefit Payments
Although SWAs developed processes to provide unemployed individuals with compensation during the
pandemic, they faced challenges in preventing pandemic UI fraud or improper payments. For example, the
PUA program provided unemployment benefits to individuals who, under the traditional UI program, were
typically ineligible (i.e., gig and self- employed workers) for such benefits. During the first nine months of the
PUA program, the CARES Act allowed these individuals to self-certify that they were unemployed because
of the pandemic. According to the DOL, claimants could receive their state’s minimum weekly benefit
amount with such a self-certification; however, to receive additional UI benefits they would need to provide
evidence of prior base earnings. However, SWAs had limited means to verify the income gig or self-employed
individuals reported as part of their UI claim.6
Figure 6 compares the traditional process to verify UI claims versus how they were processed during the first
nine months of the PUA program.
6
According to the DOL, claimants that requested more than the minimum weekly benefit amount had to supply income documentation within
21 days. States did not have information on the prior work and earnings of these individuals, as they were outside the federal-state UI taxation
system. As a result, states were unable to independently access data to confirm monetary eligibility and had no ability to confirm continued
eligibility except for self-attestation.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
9
Figure 6: Process to Verify Traditional UI Claims vs. the First Nine Months of the PUA Program
Pre-Existing Program Issues Contributed to Pandemic
UI Fraud
Based on our review of federal audits, state audits, and other reports, we found several issues that
contributed to the high amount of improper and fraudulent UI payments during the pandemic. These
included pre-existing identified weaknesses in state UI programs—some of which were widely known and
reported on prior to the pandemic—and how these weaknesses were exacerbated during the pandemic.
Tables 1 and 2 outline those issues.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
10
Table 1: Overarching Preexisting Issues in the UI Program
Overarching Issues in
the UI Program
Description
Exacerbating
Factors
High pre-
pandemic
improper
payment rate
The UI program has had an improper payment rate of over
10 percent for 15 of the last 19 years. According to the DOL,
SWA must provide claimants with due process when they find
an eligibility issue and the SWA is only provided a week to resolve
the issue. If the SWA cannot resolve the eligibility issue within this
time, they must pay claimants.
High value
target
Surge in
claims
No waiting
week
Lack of
emergency
planning
The DOL was working with SWAs shortly before the pandemic
to help them develop an emergency plan using the Department
of Homeland Security’s National Response Framework so SWAs
could manage a surge of claims in the event of a future recession.
However, SWAs had not implemented this plan when the
pandemic began in March 2020. If such a plan was implemented,
SWAs may have been more prepared to address the pandemic.
Surge in
claims
Legacy IT
systems
Some state IT systems were not equipped to handle the volume of
claims, and SWA IT systems may not have been easily compatible
with the National Association of State Workforce Agencies
(NASWA) UI Integrity Center’s Integrity Data Hub, hindering SWA’s
ability to detect fraudulent payments. Furthermore, legacy IT
systems result in higher processing time and are more difficult to
modify for changes in federal guidance compared to modernized
systems.
Surge in
claims
Untimely and
unclear
guidance
Low staffing
levels
SWA data
analysis
varied
According to DOL officials, the department does not have authority
to require states to use the databases available in the UI Integrity
Center’s Integrity Data Hub, such as the Identity Verification or
Multi-State Crossmatch databases. While states’ use of these
various data matching tools increased during the pandemic, not
all states are currently using them, according to DOL officials.
Without more consistent use of these tools across states, states
may miss opportunities to identify fraudsters.
Surge in
claims
High value
target

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
11
Table 2: Factors Exacerbating Preexisting Issues
Exacerbating
Issues
Description
Overarching Issues in the
Unemployment Program
No waiting
week
The DOL encouraged states to temporarily suspend the
existing waiting period for benefits and the CARES Act
generally provided full federal funding for the first week
of traditional UI benefits to states that did so. According
to NASWA officials, waiving the waiting period meant
that some states had less time to employ tools for fraud
prevention and detection.
• High pre-pandemic
improper payment rate
Surge in
claims
SWAs had to process 15 times as many claims in the first
three months of the pandemic than the same months
in the previous year. Unfortunately, the surge of claims
exacerbated previous issues SWAs faced. Specifically,
SWAs did not have enough staff to work on these many
claims even though they hired temporary staff, and
reassigned staff from other units to process claims (i.e.,
Benefit Payment Control). Furthermore, some SWAs’
antiquated IT systems faced challenges processing the
high number of claims and some states had not completed
their emergency planning with the DOL to handle such
a surge.
• Legacy IT systems
• Lack of emergency
planning
• SWA data analysis
varied
• High pre-pandemic
improper payment rate
High value
target
The DOL Inspector General testified in March 2022
that the unprecedented infusion of federal COVID-19
relief funds into UI programs during the pandemic gave
individuals and organized crime groups a high value
target to exploit. These criminals would steal individuals’
identities to fraudulently apply for benefits under this
program and the already high improper payment rate for
this program increased even more.
• Identity theft
• High pre-pandemic
improper payment rate
Untimely and
unclear
guidance
from the DOL
The DOL OIG interviewed states about their experience
implementing and administering COVID-19 related
programs. States cited that they received untimely and
unclear guidance from DOL to make decisions about initial
and continued eligibility. Because of the insufficient time
to get up to speed on the new PUA program, SWAs had
a difficult time developing controls around the program
prior to its launch. States said that clearer, earlier, and
more detailed guidance from DOL might have rendered
a more efficient implementation process that would have
prevented significant overpayments to claimants.
• Legacy IT systems

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
12
Table 2: Factors Exacerbating Preexisting Issues
Low staffing
levels
SWAs lacked adequate staffing resources to properly
implement the CARES Act UI programs, including
processing claims. According to the DOL OIG, SWA staffing
levels are determined on the basis of claim volume levels
in previous years. At the start of the pandemic, many state
UI programs had been experiencing their lowest claims
volume, and thus their lowest staffing and funding levels,
since the 1970s. According to the DOL OIG, to process the
high volume of claims after the pandemic began, many
states reassigned benefit payment control staff to claims
processing, with the result that few staff were working
to prevent and detect fraud. Furthermore, SWAs’ legacy
unemployment systems prevented staff from streamlining
and prioritizing claims to work and were more burdensome
to change for the newer pandemic unemployment
programs which, in turn, required more time from staff to
administer pandemic unemployment programs and work
associated claims.
• Legacy IT systems
Options to Improve the UI Program
While pandemic UI fraud has been unprecedented, a body of oversight work identified recommendations
to reduce its occurrence in the future. Specifically, the DOL OIG has made several recommendations that
are critical to program integrity, and we encourage stakeholders to implement these recommendations and
continue to proactively address known program vulnerabilities.
DOL OIG High-Priority Recommendations for Congress
• Extend the statute of limitations for fraud involving pandemic-related UI programs.
• Ensure the DOL and the DOL OIG have ongoing, timely, and complete access to UI claimant data and
wage records.
• Grant the DOL OIG statutory authority to participate in asset forfeiture funds to combat fraud and other
crime.
• Ensure effective payment integrity controls to reduce improper payments in all UI programs including
temporary ones, such as through broader requirements for mandatory cross-matching.

Pandemic Response Accountability Committee
Why Unemployment Insurance Fraud Surged During the Pandemic
  www.PandemicOversight.gov  |  April 2024
13
Additional Information
The pandemic caused unprecedented surges in unemployment as businesses closed to prevent the spread
of the disease. Congress created new UI programs to ease the impacts of the surge in unemployment.
However, implementing these new programs caused emergent challenges for states. It is important for
stakeholders to understand how UI fraud occurred during the pandemic so that we can be better prepared
for future emergencies.
The DOL OIG operates a hotline to receive
and process allegations of fraud, waste, and
abuse concerning DOL grants, contracts,
programs, and operations.  If you suspect
wrongdoing in DOL programs or operations,
please contact the hotline at:
Website: www.oig.dol.gov
Telephone: 202-693-6999
or 1-800-347-3756
Scan QR Code to Report Fraud,
Waste, and Abuse Now!
  DOL OIG Hotline

The PRAC connects partners across all levels of government to share fraud prevention techniques and other
best practices that can improve program integrity.  If you are a policy maker, program official, oversight
professional, or law enforcement officer who seeks to learn more about fraud prevention, contact:
Lisa Reijula
Associate Director of Outreach and Engagement, PRAC
Lisa.Reijula@cigie.gov
Visit us at:
PandemicOversight.gov
Follow us at:
Report Fraud, Waste, Abuse, or Misconduct:
To report allegations of fraud, waste, abuse, or
misconduct regarding pandemic relief funds or programs
please go to the PRAC website at
PandemicOversight.gov.
A Committee of the
Council of the Inspectors General
on Integrity and Efficiency

File and source

File

2024-04-16-why-unemployment-insurance-fraud-surged.pdf

Size

5,112,094 bytes

SHA-256

1680db5d4aa3865e8e65ac303490fbb5c88529aa3f300028c09ee86dad70f024

Our copy

2024-04-16-why-unemployment-insurance-fraud-surged.pdf

Original

www.oversight.gov