Report Wa State Auditor Esd Ui Ar1028078 2021 04
Summary
A performance audit report by the Office of the Washington State Auditor, Report Number: 1028078, dated April 13, 2021, on Washington's unemployment benefit programs in 2020. It examines improper payments and service delays at the Employment Security Department (ESD) during the COVID-19 pandemic. The report states that as of December 2020 ESD had identified $647 million in fraudulent payments and that the total is likely greater. It finds that ESD's pre-pandemic fraud detection portfolio could not combat large imposter fraud, and that surging claims strained customer service and slowed payments. The auditor makes no additional formal recommendations but encourages ESD to continue its efforts; the report also includes an agency response and appendices on Initiative 900 and methodology.
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PERFORMANCE
Office of the
Washington
State Auditor
AUDIT Pat McCarthy
Washington’s Unemployment
Benefit Programs in 2020:
Understanding improper payments
and service delays during the
COVID‐19 pandemic
April 13, 2021
Report Number: 1028078
A note about data involved in this audit
In January 2021, the State Auditor’s Office was alerted to a potential
cybersecurity incident involving its third-party file transfer service. Among
the files that may have been compromised was a set of data files provided by
ESD containing personal information of people who received unemployment
benefits in the 2017 to 2020 time period. The data files were provided as part
of our series of audits of the Unemployment Insurance program. We worked
collaboratively with ESD to assess the information included in the files so
we could notify those people whose personal information may have been
compromised. The effort to address the cybersecurity incident involving the data
files was handled separately from the audits themselves, and it did not affect the
findings, conclusions or recommendations of any of the audits.
Washington’s Unemployment Benefits Programs in 2020 | 2
Table of Contents
Executive Summary___________________________________________________________ 4
Background__________________________________________________________________ 7
Audit Results________________________________________________________________ 12
The economic effects of the COVID-19 pandemic dramatically increased
unemployment claims, and efforts to help unemployed workers led to massive
fraud totaling at least $647 million ___________________________________________ 12
ESD’s pre-pandemic fraud detection and prevention portfolio was not capable
of combating a large, sophisticated imposter fraud _______________________________ 24
The explosion of unemployment insurance claims during the pandemic strained
ESD’s ability to maintain its previous level of customer service ______________________ 29
State Auditor’s Conclusions_ ___________________________________________________ 40
Recommendations___________________________________________________________ 41
Agency Response____________________________________________________________ 42
Appendix A: Initiative 900 and Auditing Standards__________________________________ 44
Appendix B: Scope, Objectives and Methodology___________________________________ 46
State Auditor’s Office contacts
State Auditor Pat McCarthy Kathleen Cooper – Director of Communications
564-999-0801, Pat.McCarthy@sao.wa.gov 564-999-0800, Kathleen.Cooper@sao.wa.gov
Scott Frank – Director of Performance and IT Audit
564-999-0809, Scott.Frank@sao.wa.gov To request public records
Public Records Officer
Christopher Cortines, CPA – Assistant Director
564-999-0918, PublicRecords@sao.wa.gov
for Performance Audit
206-355-1546, Christopher.Cortines@sao.wa.gov
Americans with Disabilities
Shauna Good, CPA – Principal Performance Auditor
564-999-0825, Shauna.Good@sao.wa.gov In accordance with the Americans with Disabilities Act,
this document will be made available in alternative
Deborah Stephens – Senior Performance Auditor formats. Please email Webmaster@sao.wa.gov
564-999-0929, Deborah.Stephens@sao.wa.gov for more information.
Performance Audit Team
Patrick Anderson, Corey Crowley-Hall, Tania Fleming,
Holland Kitchell, Lisa Weber
Washington’s Unemployment Benefits Programs in 2020 | 3
Summary
Executive Summary
A note regarding the term “fraud”
The legal term “fraud” describes specific types of criminal acts, and
whether an act constitutes fraud is a legal determination that is
made in a court of law. Our use of the term “fraud” in this report
is not meant to imply an actual legal determination. Rather, we
use the term to be consistent with how the issues with the state’s
unemployment program have been described among the public in
various media reports.
Background (page 7)
The novel coronavirus quickly became a global pandemic in 2020. In March 2020,
Congress passed the CARES Act to help provide support for those affected by
the pandemic. Washington’s Employment Security Department administers the
state’s unemployment compensation program. From early in the pandemic, news
organizations reported on customer service delays and fraud in Washington’s
Unemployment Insurance program. This audit examines the scope of and reasons
behind substantial fraud and customer service delays in the state’s unemployment
benefits program during the COVID-19 pandemic.
The economic effects of the COVID-19 pandemic
dramatically increased unemployment claims,
and efforts to help unemployed workers led to
massive fraud totaling at least $647 million (page 12)
Efforts to slow the spread of COVID-19 affected businesses and their workers,
causing unemployment claims to surge exponentially within weeks of the first
statewide lockdown. Bad actors exploited the spike in unemployment claims and
policies intended to quickly distribute relief funds to commit massive imposter
fraud using stolen personal information. As of December 2020, ESD had identified
Washington’s Unemployment Benefits Programs in 2020 – Executive Summary | 4
Summary
$647 million in fraudulent payments made during the pandemic, but the total is
likely greater. The unemployment insurance fraud could impose some costs on
businesses. Washington was not the only state to experience widespread imposter
fraud in its Unemployment Insurance program during the pandemic.
ESD’s pre-pandemic fraud detection and
prevention portfolio was not capable of combating
a large, sophisticated imposter fraud (page 24)
Prior to the pandemic, ESD lacked a robust anti-fraud unit and the tools
necessary to respond to widespread imposter fraud. Compounding the problem,
some tools within the fraud-prevention portfolio were not working in the first
part of 2020. ESD has since taken steps to resolve many of the issues it faced at the
start of the pandemic.
The explosion of unemployment insurance claims
during the pandemic strained ESD’s ability to
maintain its previous level of customer service
(page 29)
High volumes of claims and efforts to limit fraud caused long delays in benefit
payment times. The need for customer assistance grew as the number of
unemployment claims increased. As the number of claims grew exponentially,
so did the number of customer calls – and the agency still struggles to respond
to them. Other states also struggled to deliver customer service in their
unemployment programs during the pandemic.
State Auditor’s Conclusions (page 40)
COVID-19 and the efforts to control its spread created an unprecedented surge in
unemployment claims, both in Washington and nationwide. State unemployment
agencies across the country were overwhelmed by the volume of claims, and
Washington’s Employment Security Department (ESD) was no different. In the
early stages of the unemployment surge, ESD’s primary focus was on paying claims
quickly in an effort to provide financial relief to Washingtonians who had been
affected economically by the pandemic.
Washington’s Unemployment Benefits Programs in 2020 – Executive Summary | 5
Summary
By the middle of May 2020, ESD realized that bad actors had capitalized on
the surge in claims, the state’s efforts to pay those claims quickly, and looser
requirements for a new federal unemployment benefits program. These factors led
to a massive imposter fraud unlike anything Washington had ever seen. When ESD
implemented new controls to detect suspicious claims, it helped control the fraud
but also significantly increased the time it takes to provide benefits.
A year into the pandemic, ESD still is struggling to manage the customer service
demands it faces. Since late fall of 2020, ESD’s call center has only been able to
handle a small share of the volume of calls it has received from Washingtonians
trying to get answers about their claims. ESD officials have said they are taking steps
to address this, but it has not been enough. With more federal funds for COVID
relief on the way in 2021, another wave of claims seems likely and the agency’s
ability to handle the volume of calls is of concern. Improvements to the customer
service experience are necessary to restore public confidence in the benefit system.
Recommendations (page 41)
ESD has already taken steps to restructure and expand its fraud program and
to hire additional staff to address concerns about customer service. We make no
additional formal recommendations, but strongly encourage ESD to continue its
efforts to address these issues.
Next steps
Our performance audits of state programs and services are reviewed by the Joint
Legislative Audit and Review Committee (JLARC) and/or by other legislative
committees whose members wish to consider findings and recommendations on
specific topics. Representatives of the Office of the State Auditor will review this
audit with JLARC’s Initiative 900 Subcommittee in Olympia. The public will have
the opportunity to comment at this hearing. Please check the JLARC website for
the exact date, time and location (www.leg.wa.gov/JLARC). The Office conducts
periodic follow-up evaluations to assess the status of recommendations and may
conduct follow-up audits at its discretion. See Appendix A, which addresses the
I-900 areas covered in the audit. Appendix B contains information about our
methodology.
Washington’s Unemployment Benefits Programs in 2020 – Executive Summary | 6
Background
Background
The novel coronavirus quickly became a global
pandemic in 2020
The novel coronavirus designated COVID-19 was first identified in Wuhan, China,
in December 2019. The virus spread to the United States early in 2020, and became
a global pandemic. Countries around the world were faced with the greatest health
crisis in a century, while efforts to contain it closed workplaces and put millions of
people out of work. In the U.S., Washington recorded the nation’s first documented
case of COVID-19 in January 2020, and the first coronavirus-related death the
following month.
The virus had a substantial impact on Washington residents throughout the year.
In mid-March, Governor Jay Inslee closed schools and limited large gatherings;
he later directed Washingtonians to stay at home and closed all non-essential
businesses to help prevent the spread of the virus. Beginning in May, the governor
began allowing some businesses to reopen with safety protocols in place.
Washington, like other states, continued to make adjustments throughout the
year, allowing some businesses to remain open while trying to manage the spread
of COVID-19. However, after a large spike in infections in the fall, the governor
signed another order in November to restrict some business activities.
In March 2020, Congress passed the CARES Act
to help provide support for those affected by
the pandemic
As the number of people filing for unemployment benefits nationwide grew
at an unprecedented rate and soon hit record highs, the federal government
approved nearly $2 trillion in aid for states. The federal aid package, known as the
Coronavirus Aid, Relief, and Economic Security (CARES) Act, was designed to
provide support to struggling businesses and nonprofits and funding for vaccine
development and public health measures. It also expanded safety net programs that
supported states’ efforts to help workers affected by the pandemic, including those
not typically eligible for unemployment benefits. Washington received more than
$11 billion in CARES Act funding.
Washington’s Unemployment Benefits Programs in 2020 – Background | 7
Background
The CARES Act created the Pandemic Unemployment Assistance (PUA) program.
This program offered unemployment assistance to classes of workers not normally
eligible for regular unemployment compensation, such as those who were self-
employed or worked part time. PUA allowed eligibility for those people if they were
not considered able and available to work for reasons related to the coronavirus
pandemic, without some of the typical verifications required for regular
unemployment benefits.
The CARES Act expanded unemployment benefits in some other important
ways as well. The Federal Pandemic Unemployment Compensation (FPUC)
program allowed people receiving regular unemployment or PUA benefits to
have their weekly benefit amount increased by $600. The Pandemic Emergency
Unemployment Compensation (PEUC) program allowed people who had
exhausted their unemployment benefits to claim benefits for an additional
13 weeks. Exhibit 1 summarizes the various unemployment programs mentioned
in this report.
Exhibit 1 – Unemployment programs and abbreviations
in this report
Regular unemployment compensation – Benefits payable to eligible
unemployed workers under state law.
Pandemic Unemployment Assistance (PUA) – Federal unemployment
compensation for unemployed workers not typically eligible for regular
unemployment benefits.
Pandemic Emergency Unemployment Compensation (PEUC) – A temporary
federal program for workers whose regular unemployment benefits have
expired, providing up to 13 weeks of additional benefits.
Federal Pandemic Unemployment Compensation (FPUC) – Expands
certain benefits to eligible people by adding an extra $600 in federal
benefits each week.
Lost Wages Assistance – The FPUC program expired in July 2020, leaving many
claimants with weekly benefit amounts that could not support their needs.
From September 2020, the Lost Wages Assistance program added $300 per
benefit week to restore the lost income.
Within a few weeks of Congress passing the CARES Act, state workforce
agencies worked quickly to introduce these programs in addition to their regular
unemployment insurance programs, so that people could receive emergency relief
payments as soon as possible. Washington was among the first states to implement
the CARES Act programs and start paying these new benefits.
Washington’s Unemployment Benefits Programs in 2020 – Background | 8
Background
Washington’s Employment Security Department
administers the state’s unemployment
compensation program
The regular unemployment compensation program is a joint federal-state program
providing assistance to eligible unemployed people. Each state establishes its own
laws to administer the program while following uniform guidelines established
by federal law. For example, states set eligibility requirements, benefit amounts
and the length of time that benefits can be paid. The U.S. Department of Labor’s
Employment and Training Administration is responsible for providing program
direction and oversight. Unemployment benefits are funded by state employer
taxes, with administrative costs paid by the federal government.
In Washington, the Employment Security Department (ESD) manages the state’s
unemployment program. ESD collects unemployment taxes from Washington’s
businesses and pays benefits to its eligible unemployed workers. When the CARES
Act programs were created, those federal funds were added to the unemployment
taxes collected by ESD.
Workers who are unemployed through no fault of their own file claims for
unemployment benefits through an online application or by telephone. They receive
benefits through prepaid debit cards or by direct deposit to their bank accounts.
Once unemployed workers file for unemployment benefits, they may be referred
to as “claimants.” Claimants must submit weekly claims for each week they are
unemployed to continue receiving benefits.
In Washington, as in most states, claimants are not paid during their first week
of unemployment benefit eligibility; this period is called the “one-week waiting
period.” While not mandated by federal requirements, the waiting period is a
longstanding practice in unemployment insurance programs. In Washington,
however, the waiting period is required by statute.
From early in the pandemic, news organizations
reported on customer service delays and fraud in
Washington’s unemployment program
Close on the heels of the governor’s first stay-at-home order, news organizations
began to report on customer service delays in Washington’s Unemployment
Insurance program. In April and May 2020, the media reported on the problems
people had in filing for unemployment and getting their questions answered.
People told reporters they had trouble accessing ESD’s website after the agency
implemented the new CARES Act programs.
Washington’s Unemployment Benefits Programs in 2020 – Background | 9
Background
Then, in early May, news reports began to emerge about fraud in the
unemployment program, including unemployment claims filed using the personal
information of people who were actually employed. By mid-May, journalists “Imposter fraud” is
reported that ESD had experienced “imposter fraud” by a Nigerian fraud ring the term for fraud
known as Scattered Canary, using personal information likely stolen through data conducted by one
breaches that occurred before the pandemic. Using that information, bad actors person posing as
posed as legitimate unemployed people and filed fraudulent claims in record another, using illegally
numbers. As a result, the media reported that those who did file legitimate claims obtained personal data.
encountered difficulties receiving their unemployment benefits payments. Some
claimants even reported that banks had frozen their bank accounts.
Well into the fall, media reports continued to document the ongoing difficulties
many people experienced while trying to get their questions answered and problems
with their claims resolved, sometimes waiting several months to receive payments.
This audit examines the scope of and reasons
behind substantial fraud and customer service
delays in the state’s unemployment benefits
program during the COVID-19 pandemic
This audit seeks to understand the reasons behind both the payments on fraudulent
claims and the difficulties some legitimate claimants experienced in receiving timely
payments and customer service. The audit also examined whether Washington has
opportunities to learn from these experiences to help avoid problems that result
from a sudden surge in unemployment claims in the future.
This audit answered the following questions:
• What led to the state’s substantial payments to fraudulent unemployment
claimants during the pandemic?
• What was the extent of customer service difficulties for unemployment
claimants during the pandemic, and what were the factors that contributed
to them?
• How did ESD’s pandemic response compare to other states’ workforce
agencies?
This report addresses the first two questions by examining the circumstances
affecting unemployment relief offered to Washingtonians through both the state’s
regular Unemployment Insurance program and the federal pandemic-specific
Washington’s Unemployment Benefits Programs in 2020 – Background | 10
Background
programs in place from mid-April onward. These circumstances, and the decisions
ESD officials made to try and address them, are discussed over the three sections of
this report:
• The economic effects of the COVID-19 pandemic dramatically increased
unemployment claims, and efforts to help unemployed workers led to
massive fraud totaling at least $630 million
• ESD’s pre-pandemic fraud detection and prevention portfolio was not
capable of combating a large, sophisticated imposter fraud
• The explosion of unemployment insurance claims during the pandemic
strained ESD’s ability to maintain its previous level of customer service
In each section, we also compare Washington’s experience to that of other states.
Washington’s Unemployment Benefits Programs in 2020 – Background | 11
Audit Results
Audit Results
The economic effects of the COVID-19 pandemic
dramatically increased unemployment claims,
and efforts to help unemployed workers led to
massive fraud totaling at least $647 million
Results in brief
Efforts to slow the spread of COVID-19 affected businesses and their workers,
causing unemployment claims to surge exponentially within weeks of the first
statewide lockdown. Bad actors exploited the spike in unemployment claims and
policies intended to quickly distribute relief funds to commit massive imposter
fraud using stolen personal information. As of December 2020, ESD had identified
$647 million in fraudulent payments made during the pandemic, but the total is
likely greater. The unemployment insurance fraud could impose some costs on
businesses. Washington was not the only state to experience widespread imposter
fraud in its Unemployment Insurance program during the pandemic.
Efforts to slow the spread of COVID-19
affected businesses and their workers, causing
unemployment claims to surge exponentially
within weeks of the first statewide lockdown
Measures to control the spread of the virus meant businesses
had to shut down, and in some cases close permanently
The pandemic created the world’s largest health and economic crisis in a century.
The urgent need to control the spread of the disease forced Washington’s leadership
into making some difficult decisions. The first steps taken were Governor
Inslee’s mid-March proclamations closing schools as well as all restaurants,
bars and entertainment and recreational facilities for two weeks. They were
followed on March 23 by the “Stay Home, Stay Healthy” order, which prohibited
Washingtonians from leaving their homes except for essential activities. In
addition, it required all non-essential businesses to close their doors. Over the
course of 2020, the governor relaxed some of the requirements, allowing business
openings and gatherings, but often maintaining restrictions in different parts of
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 12
Audit Results
the state. In November, however, as the fall weather drove more people indoors
and caused cases of the coronavirus to climb, the governor signed another order
limiting business activities. These orders took a toll on Washington’s residents and
businesses, and ultimately, the state’s unemployment rate.
In Washington, as happened almost everywhere, many businesses struggled or
closed in the wake of the pandemic. The National Academy of Sciences conducted
a survey of small businesses in May 2020, and reported that as early as a few weeks
into the pandemic, mass layoffs had already taken place. It also reported that effects
of layoffs varied across industries, with arts and entertainment, food services and
hospitality being among the hardest hit. The survey estimated more than 50 percent
of workers in those industries lost their jobs. In Washington, the state’s tourism and
entertainment industries were hit particularly hard. The Washington Hospitality
Association estimated that the impact of COVID-related restaurant closures cost
the state’s restaurant industry alone approximately $10 billion in 2020.
In Washington, unemployment claims skyrocketed to levels
never before seen
As a result of the pandemic and the state’s efforts to manage its spread, unemployed
workers filed unemployment insurance claims in record numbers. Within weeks
of the governor’s stay-at-home orders, the numbers of unemployed people and
applications for unemployment benefits began a swift and steep climb. In one
week in late March, unemployment insurance claims reached more than 180,000.
As a comparison, weekly claims in 2019 exceeded 10,000 only four times all year.
As Exhibit 2 shows, the unemployment rate in Washington spiked to more than
16 percent by April, up from around 4 percent just two months earlier.
Exhibit 2 – Number of new unemployment claims and unemployment rate in Washington in 2020
Number of claims weekly in thousands; Unemployment rate monthly
Number of Unemployment
claims rate (monthly)
180 18.0
Unemployment rate
160 Governor’s 16.0
first stay-at-
140 home order 14.0
120 12.0
100 10.0
80 8.0
60 6.0
40 4.0
Claims
20 2.0
0 0.0
1/11/2020 2/8 2/22 3/7 3/21 4/4 4/18 5/2 5/16 5/30 6/13 6/27 7/11 7/25 8/8 8/22 9/5 9/19 10/3 10/17 11/14 11/28 12/12 12/26/2020
Source: Data provided by Employment Security Department.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 13
Audit Results
The unemployment rate decreased through the remainder of 2020 after its April
spike, but at no point did it drop to levels seen before the pandemic.
Bad actors exploited the spike in unemployment
claims and policies intended to quickly distribute
relief funds to commit massive imposter fraud
using stolen personal information
As unemployment soared in Washington and claims for unemployment benefits
reached record levels, a number of factors converged to allow bad actors
unprecedented access to the state’s unemployment benefits.
Bad actors impersonated eligible claimants using personal
information likely stolen in previous data breaches
Bad actors were able to take rapid action to craft fraudulent unemployment claims
due to the widespread availability of people’s stolen personal information on the
so-called “dark web.” The dark web allows people to use private computer networks
to communicate and conduct business – including the selling and buying of stolen
data – without divulging any identifying information, such as a user’s location.
Since 2017 alone, a number of high-profile, widely reported data breaches have
compromised the personal information of millions of people. Among the most
prominent was the 2017 cyber-attack on the credit reporting agency Equifax, in
which hackers gained access to data that compromised the personal information,
including Social Security numbers, of 145 million Americans. Corporations are
not the only target for bad actors seeking data: since 2016, 11 local governments
have reported breaches to the Washington State Attorney General. Such data
breaches made volumes of personal information available to bad actors for any
variety of cyber-crimes, likely including the unemployment insurance fraud
perpetrated during the pandemic.
Because Washington was ground zero in the U.S. for COVID-19, and took
aggressive public health measures to help prevent its spread, the state’s
Unemployment Insurance program was rapidly swamped with applications, and
thus a tempting target for imposter fraud. From the first weeks of the stay-at-home
orders, ESD faced an exponential climb in both unemployment insurance claims
and calls for customer assistance. As we discuss later (on page 35) in this report,
calls into ESD’s call center spiked to unprecedented levels. ESD investigators were
diverted to help answer the telephones, as were other staff throughout the agency.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 14
Audit Results
Then, in late April, an investigator in ESD’s fraud detection unit learned from
staff at a federal agency that unemployment claims had been made in the names
of people currently employed by the City of Seattle. As the investigator had been
asked to help answer phone calls from claimants, the fraud manager assigned the
issue to a different staff person to investigate. Over the next few days, the same
federal contact reached out to ESD with new reports of what appeared to be similar
imposter fraud claims.
Because ESD management’s attention was focused on answering phones and
processing the flood of unemployment claims, it took several weeks for them to
understand the breadth and severity of what was happening. Over the first two
weeks of May, ESD’s fraud unit received more and more reports of imposter fraud,
reported by both federal and Washington state agency sources. As reports came in,
they were assigned to fraud unit staff on the basis of their availability.
As the number of reports rose, the gravity of the situation became increasingly
clear to ESD management. On May 14, the U.S. Secret Service released an
informational alert regarding imposter fraud targeting unemployment programs
in Washington and other states. The alert specifically mentioned a Nigerian fraud
ring; however, it is likely that other sophisticated and well-organized bad actors
also participated in the attack. By impersonating legitimate claimants, bad actors
submitted fraudulent claims during the tidal wave of applications submitted by real
people affected by the pandemic.
On May 14, the day of the alert, ESD announced that it was suspending payments
for two days to help “validate claims as authentic.” The announcement also
apologized to valid claimants, and provided information about unemployment
imposter fraud and how people should report it if they thought they were victims.
Directives in the federal CARES Act – such as self-certification
of employment and required backdating of claims for
Pandemic Unemployment Assistance funds – contributed to
fraudulent claims
Federal programs aimed at providing relief to workers affected by the pandemic
also played a key role in enabling the imposter fraud. When Congress passed
the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it provided
coverage through the Pandemic Unemployment Assistance (PUA) program to
some people not normally eligible for regular unemployment insurance benefits,
such as self-employed workers and those who work part time. Applicants for
PUA funds did not undergo the employment scrutiny that a person applying for
regular unemployment undergoes. In fact, the CARES Act specifically allowed self-
certification of employment as sufficient for eligibility. This means self-employed
people applying for PUA could self-certify their employment or attest that they
were able and available to work but unemployed due to COVID-19 simply by
checking a box on the application.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 15
Audit Results
A person applying for regular unemployment compensation in Washington
undergoes a much more rigorous screening. For example, ESD automatically
verifies the applicant’s wages, hours and employer at the time of separation using
records employers submit to ESD for tax purposes. In addition to verifying wages
and hours, ESD sends the employer a request for confirmation of the claimant’s
reason for separation within one day of receiving the application.
With PUA’s negligible requirements around certifying employment, bad actors
could easily submit fraudulent claims through the PUA program. The U.S.
Department of Labor’s Office of Inspector General recognized this risk and issued
an alert memorandum in late May, warning that the self-certification provision of
the CARES Act would likely increase the risk of fraud. The memorandum pointed
out conflicting interpretations of the self-certification requirements and asked
Congress to clarify them. Guidance from the Department of Labor urged states
to implement proactive measures such as cross-matching employment and wage
data to detect and prevent improper payments and fraud. ESD already had some of
these measures in place before the pandemic and added other measures once the
magnitude of the fraud became known.
An audit of all states conducted by the Inspector General in October 2020
confirmed the risks it previously identified. State workforce agencies reported that
the self-certification provision of PUA was indeed a top fraud vulnerability. When
Congress extended the PUA program at the end of December 2020, it revised the
policy, requiring all PUA claimants to provide documentation of their employment,
such as pay stubs or tax records.
Another provision of the CARES Act that exposed even greater sums of money
to the risk of fraud was its requirement that all PUA claims be backdated to the
date of reported termination. When an individual files for regular unemployment
benefits, he or she may request that the claim be backdated to an earlier time when
the person was eligible but did not file a claim. Under state law, this can only be
done if the claimant can show good cause for why they could not file during that
earlier time of unemployment. Backdating on claims for regular unemployment
compensation is not automatic, and typically requires an unemployment insurance
specialist to review the information and apply the backdate manually. In the
case of PUA claims, however, the claimant automatically received payment for
all unemployed days back to the self-certified date of unemployment caused by
COVID-19. Like the self-certification of employment, required backdating likely
made fraudulent payments higher than they would have been.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 16
Audit Results
The CARES Act gave states a financial incentive
to eliminate the one-week waiting period for regular
unemployment benefits, likely increasing the dollar value
of fraudulent payments
In announcing federal assistance to states during the pandemic, Congress
urged states that use a “one-week waiting period” for regular unemployment
compensation to waive it, in an effort to provide relief to affected workers more
quickly. The one-week waiting period means that a claimant does not receive
payment at the end of the first week of eligibility: that first payment occurs after the
second eligible week. Claimants do not exactly lose that week of benefits, but rather,
it will take that person one extra week to be paid their full allowable amount. For
example, in Washington, the law allows unemployment benefits to be paid for a
maximum of 26 consecutive weeks. This means a person must be unemployed and
eligible for 27 weeks to receive the entire 26 weeks of allowed benefit payments.
As an incentive for states to waive their waiting week, the CARES Act authorized
full federal funding for that first week of payment – effectively, all a state had to do
to receive the money was sign an agreement with the U.S. Department of Labor. The
CARES Act meant that regular unemployment claimants were paid immediately
– in the first week of eligibility. In Washington, it meant that a claimant needed to
be eligible and unemployed for only 26 weeks to receive the 26-weeks of maximum
allowed benefits, with the first week paid with federal funding.
The waiting week is not a federal requirement, although it is a common practice
in state workforce agencies. Washington, however, codified it as a requirement in
the 1940s.
The waiting week serves several purposes. First, it serves as a cost-saving measure
to the state’s unemployment program. When an unemployed worker goes back
to work at any time before receiving the maximum benefits, they are paid for one
week less than the duration of their eligible unemployment benefits. For example, a
person returning to work after 15 weeks of unemployment insurance eligibility will
have collected payments for only 14 of those weeks. Second, the waiting week can
allow a state workforce agency additional time to conduct data matches and apply
other tools to verify claims for benefits. This helps the agency identify and respond
to a fraudulent claim before issuing the claimant’s first benefit payment.
Governor Inslee had already issued an emergency proclamation authorizing ESD
to temporarily waive the waiting period on March 18, 2020, nine days before the
CARES Act was signed into law.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 17
Audit Results
Waiving the waiting week in Washington likely was not a key factor affecting
the number of fraudulent claimants that received benefit payments. The primary
way that waiving the one-week waiting period would affect the number of paid
fraudulent claimants in a state’s unemployment program is that it reduces the time a
workforce agency has to apply its fraud detection tools. In the case of ESD, one key
factor—the ability of ESD’s pre-pandemic fraud detection and prevention tools—
contributed to our conclusion that waiving the waiting week likely was not a key
factor affecting the number of paid fraudulent claimants.
ESD uses various tools to help assess a claimant’s eligibility, including the tools it
uses to help detect and prevent fraud. The tools ESD had in place at the start of
the pandemic were simply not able to detect and prevent the imposter fraud that
occurred. The bad actors conducting the fraud used stolen personal information to
file for benefits in the unemployment insurance system as legitimate unemployed
workers. They targeted their claims using information about people in sectors of the
economy that had likely never been laid off and therefore never applied for benefits.
In addition, the tactics they used to apply were sophisticated, such as hiring people
to type information into the system rather than populating application information
automatically. As a result, the applications could have avoided detection with or
without the waiting week.
Identifying imposter fraud is extremely difficult even with the best online tools.
ESD has made strides in doing so, as discussed later in this report.
Waiving the waiting week likely did affect the dollar value of fraudulent
payments made by ESD. The CARES Act and the governor’s orders ensured that all
claimants were paid during the first week of eligibility. Had the waiting week been
in place, all claimants, including fraudsters, would have waited until their second
week of eligibility to receive their first benefit payment. This means that fraudulent
claimants received more money – at least one week’s worth – than they otherwise
would have.
As of December 2020, ESD had identified
$647 million in fraudulent payments made during
the pandemic, but the total is likely greater
ESD analyzes claims submitted through its electronic software system for possible
fraudulent activity. The agency conducts further analysis in the form of matching
submitted claimant information to various external data sources. For example, it
checks for specific indicators of fraudulent activity, such as multiple claims sharing
the same contact information or bank account. For claims submitted by telephone,
ESD said that in addition to the normal fraud checks, it verifies the person’s identity
at the time of the call.
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Between January and December 2020, ESD estimated it paid $647 million in what it
determined were fraudulent claims. During the weeks of May 9 and 16, the agency
identified more than $570 million, or about 90 percent of the total $647 million,
in fraudulent payments. The roughly $570 million paid during that two-week
period was spent on more than 100,000 claims. Exhibit 3 shows that the wave of
fraudulent payments was made when ESD was already struggling to manage the
first wave of pandemic-related claims. The graph also shows that ESD did not
make significant payments to fraudsters after that time despite high demand for
unemployment assistance throughout 2020.
Exhibit 3 – Total payments on unemployment insurance claims compared to payments
Exhibit
on 3 – Totalclaims
fraudulent payments on Unemployment Insurance claims compared to payments on fraudulent claims
Dollars in millions
$1,000
Federal Pandemic Lost Wages
Governor’s Unemployment Assistance
first stay-at- Compensation Program
$800 home order program ends (9/21/20)
(7/31/20)
Valid Fraudulent
$600 claims claims
$400
$200
0
1/4/2020 1/18 2/1 2/15 2/29 3/14 3/28 4/11 4/25 5/9 5/23 6/6 6/20 7/4 7/18 8/1 8/15 8/29 9/12 9/26 10/10 10/24
Source:
Source:Data
Dataprovided
providedbyby
Employment Security
Employment Department.
Security Department.
The actual dollar value of the fraud is likely to be greater than
the reported amount
While the amount of fraudulent payments during the pandemic was substantial,
the actual size of the fraud is likely even greater, as ESD may not have caught all
of the fraudulent activity that occurred early in the pandemic. Numerous times
throughout 2020, the agency improved the fraud detection tools it uses in its claims
processing software. Those improvements likely helped ESD stop additional fraud,
particularly that which would have been caused by imposters.
However, staff did not run earlier claims through the improved tools once they were
implemented. ESD managers said the agency does not currently have a mechanism
in place to do so easily. Even if such a process were in place, staff said it could flag
accounts that had already been investigated and cleared as not fraudulent.
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Furthermore, claimant records are fluid, meaning that a claim has information
added or changed many times over its lifetime. For that reason, ESD officials said, it
would be difficult to replicate old claims as they stood on any given day and apply
new tools to those claims. Presuming ESD could determine which payments were
likely fraudulent, the agency would still need to investigate the claims. Finally, even
if an old claim is determined to be fraudulent, tracking down and recovering the
money would be extremely difficult so many months after the claim was paid.
The unemployment insurance fraud could impose
some costs on businesses
As of March 2021, ESD had recovered $370 million in known
fraudulent payments
Fraudulent payments can result in increased taxes to businesses if ESD has not
detected them. Recoveries of known stolen funds can reduce the amount the state
may need to collect from businesses. ESD has recovered about 57 percent of the
$647 million in known fraudulent payments it made in 2020. As of March 2021,
the agency had recovered $370 million in known fraudulent payments and an
additional $4 million that had not yet been applied to individual accounts.
ESD’s primary method of retrieving fraudulent payments has been via checks
returned by financial institutions. A bank may return an unemployment insurance
payment before it can be deposited if, for example, it is in the name of a person
not listed on the account. Banks may also freeze a transaction if they believe it is
suspicious. Retrieving funds from frozen transactions could increase collections
even further. However, according to ESD, some banks have been reluctant to return
the funds from frozen transactions for fear of liability if the transaction is not
fraudulent. ESD is continuing to work with financial institutions at a national level
and estimates that it may take at least until summer 2021 before any additional
funds are returned from these accounts.
A secondary method for ESD to recover fraudulent payments is through the efforts
of law enforcement agencies. ESD staff said that the FBI, Secret Service and other
agencies are working to track down and seize additional fraudulent payments, but
the agency has not yet received such money. They estimate the amount that could
be recovered through law enforcement to be at least $3 million.
Finally, ESD staff said that a handful of people have come forward directly to ESD
to return fraudulently obtained funds.
Acknowledging that these are unprecedented times, ESD estimates it could recover
about 13 percent of the remaining fraudulent payments through these three
methods. Officials base that estimate on the percentage of inappropriate payments
the agency typically recovers.
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Although the federal government has not confirmed whether
it will seek to recoup fraudulent payments from states, ESD
does not expect it will be required to pay them back
Most of the fraud loss that occurred during the pandemic likely came from federal
CARES Act money. Overall, from March 8 to the end of November 2020, ESD paid
$12.5 billion in unemployment benefits, of which about $4 billion was drawn from
the state’s Unemployment Insurance Trust Fund. The CARES Act created several
entirely federally-funded programs that brought a large infusion of federal money
into the unemployment system, exposing primarily federal dollars to the imposter
fraud. The PUA program, which provided unemployment benefits to workers not
typically eligible for unemployment, was entirely federally funded, as was the Federal
Pandemic Unemployment Compensation program, which added $600 to each
unemployment claim. In addition, through the agreement to waive the waiting
week, federal funds paid for the first week of all regular unemployment benefits.
Federal regulations for unemployment insurance programs in place before the
pandemic require state workforce agencies to recover and return overpayments
and improper payments from federal programs “to the extent possible.” No existing
regulations explicitly say that states are required to repay the federal government
for any amount that they cannot recover. Because the loss of federal funds during
the pandemic was so high, the federal government may or may not adhere to
its previous policies. The federal government has not yet released guidance on
recovering overpayments and improper payments specific to the CARES Act, but
ESD officials said that, based on prior practice, the agency does not expect it will be
required to pay back any federal funding it cannot recover.
Washington’s lawmakers have already acted to mitigate
the impact of the pandemic on future business tax rates
Unemployment insurance is funded through taxes paid by employers. These
business taxes are based on three components: an experience rating, a social tax
and a solvency surcharge.
• The experience rating charges employers for the claims made by
their employees.
• The social tax portion of the rate is the shared statewide cost of benefits
paid that cannot be attributed to specific employers, typically because some
businesses close permanently and cannot be charged for their experience
rating. Prior to the 2021 legislative session, the social tax rate was projected
to be set at its statutory maximum of 1.22 percent.
• The solvency surcharge adds a charge for all businesses to keep the
Unemployment Insurance Trust Fund solvent when it has less than seven
months of reserves remaining. In mid-December 2020, Governor Inslee
waived the solvency surcharge for businesses.
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Prior to the 2021 legislative session, ESD estimated that businesses would pay
higher unemployment insurance taxes as a result of the pandemic. However, during
its 2021 session, Washington’s Legislature passed and the governor signed into law a
bill to help limit the extent of those tax increases. The bill, ESSB 5061, reduced taxes
on employers over the next few years relative to what they otherwise would have
been, and expanded benefits for unemployed people. The specific provisions of the
legislation that provide relief to businesses include:
• Reducing the statutory maximum social tax rate from 1.22 percent
to 0.5 percent in 2021, scaling up to 0.9 percent in 2025
• Suspending the solvency surcharge through 2025
• Prohibiting ESD from charging businesses for benefits claimed during
a waiting week partially or fully reimbursed by the federal government
• Allowing employers to request that temporary layoffs or curtailed operations
resulting from the presence of any dangerous, contagious or infectious
disease that is the subject of a public health emergency not count against
their experience rating
Washington was not the only state to experience
widespread imposter fraud in its Unemployment
Insurance program during the pandemic
While Washington was the first state to report massive unemployment insurance
fraud during the pandemic, many other states also experienced fraud in their
programs. In January 2021, California’s Employment Development Department
reported that it had paid more than $11 billion in fraudulent unemployment
insurance payments during the pandemic. As of November 2020, Massachusetts
identified more than 170,000 fraudulent unemployment claims and reported it
recovered more than $242 million of fraudulent payments. Michigan’s workforce
agency reported that unemployment fraud is likely to be in the hundreds of
millions of dollars. Colorado and Hawaii have reported losing between $35 million
and $40 million each.
Some states have reported the number of fraudulent claims they stopped, but not the
fraudulent payment amounts. Other states may have also experienced fraud in their
unemployment programs, but have chosen not to discuss their losses publicly. The
U.S. Department of Labor’s Office of Inspector General estimates that the total value
of fraud during the pandemic is at least $63 billion nationally as of the end of 2020.
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States responded to fraud in their unemployment insurance programs by increasing
their staffing and investing in additional tools to combat fraud. For example, several
states added employees dedicated to processing claims and investigating potentially
fraudulent claims. More than 20 have implemented ID.me – an online portal that
allows people to securely prove and share their identities – to verify the identities
of claimants. Hawaii adopted a location app to verify that claims are filed by people
living in the state. Some states have also started using artificial intelligence to
identify emerging fraud trends.
Washington also increased its staffing and added new tools to combat imposter
fraud, as discussed in the next section of this report.
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ESD’s pre-pandemic fraud detection and
prevention portfolio was not capable of
combating a large, sophisticated imposter fraud
Results in brief
Prior to the pandemic, ESD lacked a robust anti-fraud unit and the tools necessary
to respond to widespread imposter fraud. Compounding the problem, some tools
within the fraud-prevention portfolio were not working in the first part of 2020.
ESD has since taken steps to resolve many of the issues it faced at the start of the
pandemic.
Prior to the pandemic, ESD lacked a robust
anti-fraud unit and the tools necessary to respond
to widespread imposter fraud
ESD’s pre-pandemic fraud detection unit was focused
primarily on investigating claimant fraud
As 2020 opened, ESD’s internal anti-fraud unit, the Office of Special Investigations
and Collections, was not capable of many essential aspects of identifying and
preventing fraud before it happened. The office structure was split between
fraud investigations and collections of fraudulently made payments. The office
was composed of one manager, four supervisors and 44 full-time staff. Two of
the supervisors and 20 full-time staff were assigned to the fraud detection and
prevention unit; two supervisors and 24 full time staff worked in the collections unit.
Fraud investigators focused primarily on claimant fraud. In claimant fraud, the
person filing for benefits is who they say they are but intentionally misreports or
withholds information to receive benefits he or she is not entitled to. Examples
of claimant fraud include knowingly submitting false information, continuing
to collect benefits when no longer eligible, or collecting full benefits while not
reporting other wages or income. ESD considered this type of fraud its highest
risk, as it had historically been the most common type in the state’s Unemployment
Insurance program. Investigators examined potentially fraudulent claims as they
became known, either through the tools the agency used at the time or from
information provided by tipsters.
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Although ESD had some tools to detect imposter fraud,
it was unprepared for the massive imposter fraud that
occurred in 2020
Whereas claimant fraud involves a legitimate person trying to get benefits they are
not entitled to, imposter fraud involves a person filing an unemployment insurance
claim under someone else’s stolen identity. Benefit payments are usually diverted
to existing or new accounts in the name of the stolen identity but controlled by
the bad actor. In 2014, following some imposter fraud that occurred in other
states, ESD staff said it improved its software tools to help detect that type of fraud
specifically. However, the agency was wholly unprepared for the massive degree of
imposter fraud committed in 2020. Its existing tools were simply not able to prevent
or even detect the fraud from the outset.
By late August 2020, the national scale of the unemployment insurance fraud
prompted the U.S. Department of Labor (DOL) to remind states of its fraud
management requirements and the tools, strategies, and services available to states.
DOL emphasized that some of the most effective tools against fraud are contained
in the National Association of State Workforce Agencies’ Integrity Data Hub. This
multi-state data system allows participating state unemployment agencies to submit
claims for cross-matching, provides a national fraud alert system to states, and
supports data analytics on multi-state claims.
However, when the agency considered joining the Data Hub prior to 2020, there
were few other participating states. Participation is free but involves data-sharing
agreements. ESD said that the complexity of integrating the Data Hub with its
unemployment benefits system prevented the agency from participating until the
fall of 2020.
ESD also lacked a consistent process for monitoring trends
that could have alerted it to widespread imposter fraud
Aside from the existing software tools’ inability to detect or prevent the
sophisticated imposter fraud, ESD’s fraud unit lacked employees dedicated to
conducting data analytics that might have alerted the agency to the emergence
of a broader fraud attack. Data mining – the process of identifying trends in data
using computer science and statistical methods – can be used to spot patterns of
suspicious behavior, including those that suggest fraudulent activity. Over time,
information gained from data mining exercises can also help inform the agency
about new types of fraud, allowing it to improve its software tools proactively.
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Compounding the problem, some tools within
the fraud-prevention portfolio were not working
in the first part of 2020
Until mid-May, when the imposter fraud became evident,
the software tools ESD used to identify suspicious claims did
not run until the day after the agency made payments on
many of those claims
Up until the imposter fraud become known, the results of the electronic software
tool designed to help ESD identify fraudulent activity in the unemployment
insurance system were not completed until the day after an individual filed a
claim. One component in the software tool, which the agency felt was critical,
required information that took a full day to obtain. When the waiting week was in
place, an eligible claimant was not typically paid within that time, so the next-day
completion was not a concern.
However, when the waiting week was eliminated on March 18, it became feasible that
some claims could be paid as early as the day following the date of an application. For
those claims, the results of the fraud detection tool were not known until after the
claim had already been paid. ESD management did not recognize this risk until mid-
May; in response, the agency revised its system to complete the fraud detection tool’s
analysis on the same day a claim was filed. By that time, however, some payments had
already been made to an unknown number of fraudulent claimants.
Similarly, ESD did not use tools that cross-match
unemployment claims to records of people incarcerated
in Washington for 2019 and most of 2020
Many states cross-match people applying for unemployment benefits to people in
jails and prisons; the latter may not be able and available for work and so should
not receive these benefits. The identities of those incarcerated can also be stolen
and then used by imposters. California, one of the states that has not historically
conducted such a match, reported in 2020 that people committing fraud primarily
from inside the state’s prisons may have stolen more than $1 billion dollars from the
state’s unemployment insurance program.
Unlike California, ESD has typically performed such a cross-match. However,
beginning in late 2018, a change in the format of data the agency used created
problems with match software and ESD stopped performing this match through
2019 and 2020. ESD did conduct the cross-match once, in late 2020, and found
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 26
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that over the nine-month period evaluated, around 1,500 incarcerated people
received unemployment benefits they may not have been eligible for. We conducted
comparable analysis and found similar results, validating ESD’s match.
ESD employees said they are in the process of investigating those 1,500 claims to
determine whether claimants were eligible to receive benefits or were victims of
imposter fraud.
The state disabled some additional controls temporarily to
speed claims processing, but these changes do not appear to
have significantly affected the fraud
Delinking Social Security numbers in Secure Access Washington (SAW). SAW is
a centralized portal that allows individuals to access online services at a number of
state agencies, including unemployment benefits through ESD. SAW is managed by
the state’s consolidated technology services agency, WaTech. Once a person enters
through SAW, ESD’s system for submitting unemployment benefit claims only
allows a person with one SAW account associated with one Social Security number
to apply.
Beginning in March 2020, many people were unable to access their SAW
accounts, primarily because those people had forgotten their login credentials.
The unprecedented volume of unemployment benefit claims meant that many of
those people were unable to reach ESD’s customer service phone lines to help them
resolve the issue. From April 7 until May 7, 2020, ESD adapted its benefit payment
system to temporarily allow people with an existing unemployment insurance
account filing for new benefits to create another SAW account to access their
existing account. In other words, ESD “de-linked” Social Security numbers in SAW.
Delinking the Social Security numbers created the potential for additional fraud
because it allowed bad actors to file an unemployment claim in someone else’s
name as long as they knew that person’s Social Security number, even if that person
already had an account. ESD’s auditors conducted an analysis to determine whether
the vulnerability created by the temporary fix was a significant factor in the fraud.
The ESD auditors’ analysis concluded that it was not a significant factor, based
primarily on two findings. First, the analysis showed that the bulk of the known
fraud took place in the weeks of May 16 and May 23, after the control on SAW
accounts had been restored and the vulnerability no longer existed. Second, the
auditors reviewed a sample of known or suspected fraudulent claims and found that
only about 2 percent of them were associated with accounts that had been created
when the Social Security numbers were delinked.
Disabling multi-factor authentication (MFA). WaTech typically requires users
to log in to SAW accounts through MFA, which provides greater assurance that
the user is not an imposter. WaTech requires a user to authenticate their identity
on a separate device, such as through a text message sent to a cellphone number
that issues the user a verification code. In March, the volume of claims at ESD was
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 27
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so high that it was slowing down the SAW system’s ability to send those codes.
WATech reported that many users, not just those applying for unemployment
benefits through ESD’s system but also those trying to access programs in other
agencies, did not receive the MFA messages until after the code had already
expired. As a result, everyone trying to access a SAW account found it difficult or
impossible to do so. In response to the problem, WaTech temporarily disabled MFA
for ESD on March 27.
It appears unlikely that disabling MFA contributed significantly to the imposter
fraud, primarily because the tool is designed to protect existing accounts rather
than prevent the creation of new accounts. In the case of imposter fraud, when bad
actors create new accounts using stolen personal information, they can circumvent
MFA by having the authentication code sent to their own device. For that reason,
it appears unlikely that leaving MFA enabled would have significantly reduced the
amount of imposter fraud that happened.
ESD has since taken steps to resolve many of
the issues it faced at the start of the pandemic
By December 2020, ESD had already taken a number of steps to resolve many of
the issues that it faced at the pandemic’s outset. Beginning in May, shortly after the
agency gained a better understanding of the scale of the imposter fraud, ESD hired
a consultant to help it improve its fraud detection and prevention portfolio. As part
of that contract, ESD updated and improved its electronic tools numerous times
throughout the year. ESD also hired another contractor to determine whether its
online benefits system itself had been breached, and learned it had not.
ESD is in the process of building a more robust anti-fraud staffing structure that
will include a Fraud Chief, an Operations Manager and an Analytics Manager, as
well as more than doubling the number of employees in that office. The agency also
recently added a data analytics unit to look for patterns and trends in claims that
may signal additional indicators of potential fraud.
As already discussed, the agency is now running same-day analytics on claims to
prevent payments prior to the application of its electronic software tools.
Finally, as the Integrity Data Hub has increased the number of participating states
and continues to add new tools available to states, ESD is now a participating
member, allowing access to a broader range of multi-state matches and alerts, as the
Department of Labor recommended all states do.
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The explosion of unemployment insurance
claims during the pandemic strained ESD’s
ability to maintain its previous level of
customer service
Results in brief
High volumes of claims and efforts to limit fraud caused long delays in benefit
payment times. The need for customer assistance grew as the number of
unemployment claims increased. As the number of claims grew exponentially,
so did the number of customer calls – and the agency still struggles to respond
to them. Other states also struggled to deliver customer service in their
unemployment programs during the pandemic.
High volumes of claims and efforts to limit fraud
caused long delays in benefit payment times
Benefit payment times can vary for a number of reasons
Payment times for unemployment insurance benefits vary depending on many
factors. Payment time refers to the time elapsed between when a claimant files
an initial claim and when he or she receives the first benefit payment. When
claimants provide complete and accurate information and ESD claims processors
can easily verify the claimant’s identity and wages, initial claims can be processed
promptly. In these cases, claims can be paid within a week. If questions arise
about a claimant’s eligibility for benefits after the first payment has been made,
and the issues do not involve the claimant’s identity, ESD will continue to make
“conditional payments” until it resolves the issue.
However, when questions around eligibility arise during the initial application
process, payments on the claim are delayed. Questions about a claimant’s identity
also delay payment until an investigator can examine and resolve them. The
duration of an investigation depends on the total number of claims flagged for
investigation at any given time and the availability of investigators.
During the early months of the pandemic, ESD did not have enough trained staff
to meet the unprecedented spike in workload brought about by the high number
of eligibility issues and suspected imposter fraud. Staff efforts to investigate claims
were soon overwhelmed, which led to long payment delays. In late May 2020,
ESD enacted an emergency rule to allow suspension of payments pending an
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 29
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investigation if it suspects the claimant is an imposter, even if the first payment has
already been made.
Some cases may require adjudication to resolve the claim. Adjudication refers to
a formal and detailed review of the claim, often involving requests for additional
information from the claimant to determine eligibility. The time it takes for the
claimant to respond or the quality of the information he or she provides can
affect how quickly the claim is paid. Adjudication results in the approval or
denial of the claim. When the claim is denied, the claimant can file an appeal,
likely delaying payment even further. Appeals are handled by the Office of
Administrative Hearings, where parties can provide evidence and make a case for
their viewpoints.
Payment times were actually faster during the early weeks
of the pandemic, in large part because the state eliminated
the waiting week
In 2019, the year prior to the pandemic, claimants filing initial claims for regular
unemployment compensation waited an average of 35 days for their first payment,
including the one-week waiting period. In that year, less than 20 percent of claims
took more than 49 days to be paid, and at least 60 percent were paid in less than
21 days.
After ESD enacted the governor’s one-week waiting period waiver on March 18,
claimants generally began receiving their initial payments more quickly. Claimants
who were paid the week ending March 14 waited an average of 34 days for their
payments. The following week, the average payment time fell to 19 days. By the
time ESD saw its highest volume of claims, during the week of March 28, payment
times had dropped to an average of just nine days. These fast payment times were
temporary: Once the fraud was exposed in mid-May and ESD put new controls in
place, average payment times began to slow once again.
As the scale of fraud was revealed, the additional controls
ESD put in place slowed payment times
Once ESD recognized the magnitude of the imposter fraud, the actions the agency
took to control the fraud had the effect of slowing payment times. On May 12, ESD
temporarily suspended payments on all claims for two days to allow agency officials
time to gain control of the fraud. Two weeks later, on May 29, ESD again imposed a
two-day hold on all claims before paying them to provide time to check claims for
potential fraud.
Another action that affected payment times was that on May 26, ESD began
conducting fraud reviews on all backdated claims before payment. As discussed
on page 16 of this report, PUA claims are automatically backdated to the date
of reported termination. Backdating on claims for regular unemployment
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compensation is not automatic, and typically requires an unemployment insurance
specialist to review the information and apply the backdate manually. The fraud
reviews allowed ESD to more carefully scrutinize backdating requests before paying
them but also had the effect of slowing payment times.
As Exhibit 4 shows, by the first week of June, average payment times had returned
to their pre-pandemic average of 30 to 40 days. Payment times then grew steadily
longer, so claimants receiving payments in early August had waited an average of
70 days or longer. These very long payment times were associated with applications
filed in mid-May, a time when claims were filed in record numbers and the agency
had put its additional fraud prevention controls in place. Although ESD continued
to hire staff to deal with the backlog of claims, it nonetheless took time and training
to bring them up to full capacity. As a result, average payment times remained
higher than 50 days in August and September, with about one-third of those claims
being paid after more than 70 days.
Exhibit 4 – Washington average time between initial claim and payment, 2019 compared to 2020
January through mid-October
Number of days
80
70 “Waiting week”
period waived
60
50
2020
40
30
20 ESD suspended
2019 payments for
two days
10
0
1/5 1/19 2/2 2/16 3/2 3/16 3/30 4/13 4/27 5/11 5/25 6/8 6/22 7/16 7/20 8/3 8/17 8/31 9/14 9/28 10/12
Source: Data provided by Employment Security Department.
Although the average payment time was 22 days during
the height of the pandemic, 13 percent of the claims took
longer than 49 days
Between April and October 2020, the average unemployment claim was resolved
fairly quickly and was paid within 22 days. However, some claims took longer to
resolve: 13 percent took longer than 49 days, and 8 percent took longer than 70 days.
To get a better understanding of why some claims take several months to be
completed, we reviewed in detail two claims that took longer than 70 days to be
paid. The first was delayed because the claimant reported being “suspended” from
work when the person was actually laid off due to suspended operations. This
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triggered a question about the reason for separation, and the claimant took a long
time to respond to questions about the issue. In the end, this claim took nearly 200
days before it was finally resolved.
The second claimant had been denied benefits multiple times following numerous
rounds of adjudication. During the final appeal, the claimant provided new
evidence that conclusively resolved the case with an approval and eventual payment
after more than 220 days. In both of these examples, payment was significantly
delayed because there was a dispute about the claimant’s eligibility that ESD and the
claimant worked through to resolve.
Washington’s average payment times throughout the
pandemic were largely consistent with those in states
processing comparable numbers of claims
Using regular unemployment compensation data collected from all states by the
U.S. Department of Labor, we compared Washington’s benefit payment times The six comparison
during the pandemic with those in other states. We selected six states (listed in the states
sidebar) with total monthly unemployment claims similar to Washington’s during
2020. Washington processed nearly 700,000 claims during that time; the other six Arizona, Georgia,
states ranged from 340,000 to 1 million claims. DOL’s data were limited to regular North Carolina,
unemployment claims and did not include Pandemic Unemployment Assistance New Jersey,
claims. We also did not take into consideration the various laws and regulations Tennessee, Virginia
related to unemployment programs in the other states, which certainly could affect
their payment times.
Overall, Washington’s benefit payment times for initial regular unemployment
insurance claims during 2020 were similar to those of the other six states, as shown
in Exhibit 5. Washington paid about the same percentage of initial claims in 21
days or less – around 75 percent – as most states in the sample. On the other hand,
Washington had a slightly higher rate of initial claims paid in more than 70 days
than comparison states, 6 percent versus 2 percent to 4 percent (not shown in the
exhibit). In Washington, it took at least 70 days to pay more than 30,000 regular
unemployment claims.
Exhibit 5 – Percent of regular unemployment claims paid within 21 days by state
Average of all 2020 claims
92%
78% 81%
76% 76% 77% 77%
Georgia North Arizona New Washington Tennessee Virginia
Carolina Jersey
Source: U.S. Department of Labor.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 32
Audit Results
The need for customer assistance grew as the
number of unemployment claims increased
ESD responded by mobilizing existing employees and hiring
new ones to handle claims processing and customer support
ESD responded to the flood of claims by moving staff from other divisions, hiring
new permanent and temporary staff, hiring contractors, bringing back retired staff,
and even borrowing people from other agencies and the National Guard. Overall,
from early March to early October, ESD increased its total staffing by more than
50 percent, from about 1,600 full time equivalent (FTE) employees to more than
2,500. Some 2020 hiring was unrelated to the pandemic surge in claims: ESD had
already planned to hire new staff as it prepared to implement the Paid Family
Medical Leave program. Nevertheless, the greater part of ESD’s hiring was focused
on handling the surge of unemployment claims and the fraud.
As Exhibit 6 shows, from March to October 2020, ESD tripled the number of
Unemployment Insurance Specialists, responsible for processing claims, from about
250 to around 850, and quadrupled the number of investigators from 18 to 75.
However, hiring and training new employees takes time, so the benefit gained by
additional staffing was gradual. ESD said it also faced challenges in onboarding new
employees for teleworking, revising training programs for telework and working
with the union.
Exhibit 6 – Changes in ESD staffing levels over 2020 for three relevant positions: Unemployment Insurance
Specialists, administrative assistants, investigators
Number of FTEs
900
800 Governor’s
first stay-at-
700 home order
600
500 Unemployment
400 Insurance
Specialists
300
200 Admin assistants
Investigators
100
0
1/4/2020 2/4 3/4 4/4 5/4 6/4 7/4 8/4 9/4 10/4 11/4 12/4/2020
Source: Data provided by Employment Security Department.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 33
Audit Results
Aside from hiring additional staff, ESD also dramatically increased its use of
overtime, which rose agency wide by more than tenfold from late March to August.
Although the use of overtime declined through the end of the year, it still remained
more than five times its pre-pandemic level.
The number of initial claims each unemployment insurance
specialist had to process increased by nearly 30 times during
the early stages of the pandemic
The staggering increase in claims had a profound effect on the workload of those
Unemployment Insurance Specialists tasked with processing them. Prior to the
pandemic, ESD received roughly 23 initial unemployment claims per Specialist
each week. The week of March 28, 2020, initial unemployment claims increased
beyond 180,000, translating to roughly 684 initial claims per Specialist. Over the
following months, initial unemployment claims dropped somewhat but remained
high as ESD rushed to add staff. By June, the additional employees and decreasing
number of initial claims combined to return the per-Specialist workload to close to
previous levels (shown in Exhibit 7).
Exhibit 7 – Number of new unemployment claims per Full Time Equivalent (FTE) Unemployment Insurance
Specialists in 2020
Number of initial
Number of FTEs claims per FTE
900 900
800 Governor’s 800
Claims per Specialist
first stay-at-
700 home order 700
600 600
500 500
Unemployment
400 Insurance 400
Specialists
300 300
200 200
100 100
0 0
1/4/2020 2/4 3/4 4/4 5/4 6/4 7/4 8/4 9/4 10/4 11/4 12/4/2020
Source: Data provided by Employment Security Department.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 34
Audit Results
As the number of claims grew exponentially,
so did the number of customer calls – and the
agency still struggles to respond to them
Weekly customer calls to ESD’s call center exceeded a quarter
of a million at one point during the pandemic
ESD runs a call center to answer claimants’ questions about their unemployment
situation or their claims. Prior to the pandemic, the call center averaged 13,000 calls
a week. As the number of initial unemployment claims soared in the early days of
the pandemic, so did the number of calls.
As Exhibit 8 shows, the center received more than 250,000 calls during the week
of March 28. The number of calls likely represents fewer callers, as one person may
make multiple calls, particularly if their first call was not answered. The number of
calls varied widely throughout 2020, although the number each week diminished
into September. Calls spiked again in late September and December, as people
responded to different assistance programs and restrictions on businesses. To
help with the volume of calls, ESD said it implemented several strategies, such as
extending weekday hours and adding hours on Saturday.
Exhibit 8 – Total calls received weekly at ESD’s call center, 2019 compared to 2020
Number of calls weekly in thousands, showing peak calls in each year
Number of calls
in thousands
300
254,255
calls
Governor’s
first stay-at-
250 home order
2020
200
150
28,768
calls
100 2019
0
1/4/2020 2/4 3/4 4/4 5/4 6/4 7/4 8/4 9/4 10/4 11/4 12/4/2020
Source: Data provided by Employment Security Department.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 35
Audit Results
Exhibit 9 shows the effect these key events had on the ability of ESD staff to
respond to calls. In particular, it shows the number of calls abandoned by callers
rose sharply in periods closely related to these events.
Exhibit 9 – Total calls to ESD call center by outcome: Answered, abandoned, terminated with high volume message
Number of
calls in thousands
300 Governor’s Lost Wages New stay-at-
first stay-at- Assistance starts home orders
home order
250 6/24-7/17: 10/19-11/16:
Main phone lines are Call Center
closed to catch hours
4/8: 2nd phone up on claims reduced
200 line added
150
• 9/11: 2nd phone
Calls terminated line closed
100
with high volume
50
message Calls abandoned
by callers •
Calls answered
0
1/4/2020 1/18 2/1 2/15 2/29 3/14 3/28 4/11 4/25 5/9 5/23 6/6 6/20 7/4 7/18 8/1 8/15 8/29 9/12 9/26 10/10 10/24 11/7 11/21 12/5 12/19
Source: Data provided by Employment Security Department.
In early April, ESD set up a secondary call line to quickly help callers with fairly
simple questions. That line was staffed by contractors and some ESD employees.
If the caller’s question was more complicated, he or she would be transferred over
to phones through the main call center. This secondary call center was open from
April 8 to September 11.
Just a few weeks after ESD closed the secondary call line in early September, the
federal Lost Wages Assistance program was launched. This program replaced
some of the federal unemployment compensation for programs that had expired.
Once the new funding became available, calls began rising almost immediately
and quickly reached nearly 200,000 a week. Through the end of the year, call
volume varied considerably but remained at an elevated level. Call volume again
reached nearly 200,000 calls in late November after the governor announced new
restrictions on gatherings, travel and businesses to prevent the spread of COVID-19
around the holiday season.
ESD’s main call center is staffed by the same people who processed unemployment
insurance claims. The more calls these people answered, the less time they had
to process claims. To give staff time to catch up on claims, ESD decided to shut
down the main call center to incoming calls from June 24 to July 17. Other lines,
including the secondary call line and the Secure Access Washington accounts help
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 36
Audit Results
line, remained open. ESD took a similar measure in October, when it reduced call
center hours to allow staff to work on processing claims.
To mitigate some of these issues, ESD added a “request callback” option to its call
center. This feature allowed call center staff to offer callers who needed complex
assistance the opportunity to request a callback later. The number of people offered
this was capped at 500 requests a day. This feature allowed more people to get
through by slightly reducing the time other callers remained on hold.
ESD opened a new claims center in November. Managers said they moved some
existing specialists from the other claims centers to work in the new center.
In addition, they hire new staff every two to four weeks. The Consolidated
Appropriations Act, 2021 (also known as the CARES Act 2), which was passed
by Congress on December 21, 2020, means ESD expects to see call numbers once
again spike and then fall.
At the same time, online queries through the ESD website
increased by more than 30 times
ESD also operated a web message service to help people who could not reach an
agent by telephone. Mirroring the increase in calls, the volume of incoming web
messages increased by more than 3,000 percent from March 7 to April 25. By late
August, web message response times exceeded 60 days, meaning that the average
message responded to on August 22 had been sent to ESD in late June.
The huge increase in call volume caused long hold times
or prevented telephone access entirely
Hold times were long through most of 2020
The increase in call volume led to long hold times and limited people’s ability to
reach ESD to ask their questions. Average hold times for weeks in 2019 and early
2020 were typically around 15 minutes, though there was considerable variance;
weekly average hold times ranged from two minutes to nearly 60 minutes. From
March 7 to 21, hold times increased nearly 600 percent to an average of more
than 100 minutes. Hold times continued to rise for several weeks afterward before
peaking at 140 minutes – just over two hours – on April 18.
As Exhibit 10 on the following page shows, hold times eventually returned to more
normal levels at the end of the year, and were actually less than the same period in
2019 in early December. However, this was not necessarily because fewer people
called, but because ESD chose to prioritize shorter hold times over the number
of calls actually getting through to an agent. ESD sets an algorithm for the call
center based on the number of people answering phones, and adjusts that ratio
periodically to either increase or decrease the number of calls the system will allow
into the hold queue. While this resulted in shorter hold times for those who got
through, it meant fewer people got into the queue.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 37
Audit Results
Exhibit 10 – Average time customers spent on hold at ESD Call Center, 2019 compared to 2020
Minutes
on hold
140
120 Governor’s
first stay-at-
home order
100
80 2020
2019
60
40
20
0
1/4/2020 2/4 3/4 4/4 5/4 6/4 7/4 8/4 9/4 10/4 11/4 12/4/2020
Source: Data provided by Employment Security Department.
However, because the number of calls exceeded the call center’s technical
capacity, most calls in early and late 2020 were never answered
High call volumes also led to a huge drop in the percentage of callers who were
actually able to speak to an agent. Some callers simply gave up and abandoned the
call. Most calls resulted in a recorded message informing the caller that ESD was
experiencing high call volumes and could not take their call. The answered-call rate
dropped from around 85 percent in early March to only 6 percent by March 21. As
ESD increased staffing and the number of incoming calls fell, the answered-call rate
rose through the summer, but it dropped again from September through the end
of the year. This coincided with ESD’s decision to prioritize shorter hold times and
elimination of the secondary call center.
The majority of callers who were unable to speak to an agent were not placed in
a queue because the number of callers exceeded the capacity of ESD’s call center
holding queue. The number of callers placed into the queue is determined by how
many staff are available to handle calls and the duration of calls. During some of
the peak periods, more than 90 percent of all calls resulted in people not able to
get through at all. Even as ESD increased staffing, its preference for managing wait
times held the answered-call rate down. Further affecting the issue of unanswered
calls, ESD had begun returning staff who do not usually work on claims out of the
call center back into their normal jobs by the late fall.
ESD said the agency is continuing to hire staff as long as the need exists. However,
because new employees process claims in addition to answering calls, it takes
time to ensure they have the knowledge and expertise to give claimants correct
information about new or changing programs.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 38
Audit Results
Other states also struggled to deliver customer
service in their unemployment programs during
the pandemic
Many other states also experienced dramatic increases in the number of calls as
the number of unemployed people skyrocketed. Many states reported insufficient
resources to handle the volume of claims when the surge in claims began. For
example, calls to Iowa’s state workforce agency rose from 800 to 28,000 a day over
the course of March, while Michigan’s agency received 150,000 calls a day at its
peak. An audit in Wisconsin found that less than 1 percent of the 41 million calls to
its workforce agency call centers were answered.
States responded to the increase in demand for help by adding more staff,
expanding call center hours, using virtual assistant tools, and asking customers to
call on certain days. Some implemented callback systems to have their employees
call claimants with complex issues directly. They did so to ensure that experienced
employees were devoted to processing claims, allowing newer staff to focus on more
basic tasks that could be completed quickly.
Washington’s Unemployment Benefits Programs in 2020 – Audit Results | 39
Conclusions
State Auditor’s Conclusions
COVID-19 and the efforts to control its spread created an unprecedented surge in
unemployment claims, both in Washington and nationwide. State unemployment
agencies across the country were overwhelmed by the volume of claims, and
Washington’s Employment Security Department (ESD) was no different. In the
early stages of the unemployment surge, ESD’s primary focus was on paying claims
quickly in an effort to provide financial relief to Washingtonians who had been
affected economically by the pandemic.
By the middle of May 2020, ESD realized that bad actors had capitalized on
the surge in claims, the state’s efforts to pay those claims quickly, and looser
requirements for a new federal unemployment benefits program. These factors led
to a massive imposter fraud unlike anything Washington had ever seen. When ESD
implemented new controls to detect suspicious claims, it helped control the fraud
but also significantly increased the time it takes to provide benefits.
A year into the pandemic, ESD still is struggling to manage the customer service
demands it faces. Since late fall of 2020, ESD’s call center has only been able to
handle a small share of the volume of calls it has received from Washingtonians
trying to get answers about their claims. ESD officials have said they are taking
steps to address this, but it has not been enough. With more federal funds for
COVID relief on the way in 2021, another wave of claims seems likely and the
agency’s ability to handle the volume of calls is of concern. Improvements to the
customer service experience are necessary to restore public confidence in the
benefit system.
Washington’s Unemployment Benefits Programs in 2020 – State Auditor’s Conclusions | 40
Recommendations
Recommendations
ESD has already taken steps to restructure and expand its fraud program and
to hire additional staff to address concerns about customer service. We make no
additional formal recommendations, but strongly encourage ESD to continue its
efforts to address these issues.
Washington’s Unemployment Benefits Programs in 2020 – Recommendations | 41
Response
Agency Response
STATE OF WASHINGTON
April 12, 2021
The Honorable Pat McCarthy
Washington State Auditor
P.O. Box 40021
Olympia, WA 98504-0021
Dear Auditor McCarthy:
Thank you for the opportunity to review and respond to the State Auditor’s Office performance audit
report on Washington’s Unemployment Benefit Programs in 2020: Understanding improper payments
and service delays during the COVID‐19 pandemic. The Employment Security Department (ESD) and
Office of Financial Management (OFM) worked together to provide this response.
We appreciate that the performance audit report recognizes the extreme scope, scale and complexities
of challenges the pandemic posed for unemployment insurance systems across the country. We also
appreciate that the audit team spent considerable time and effort to fully understand the difficult
situation the pandemic created here in Washington.
Some of the factors that contributed to the fraud were unintended consequences of decisions made to
help those in need of relief – such as using the financial incentives provided in the federal CARES Act
that required payment of pandemic unemployment assistance (PUA) upon claimants’ self-certification
and without documentation.
As the report acknowledges, while Washington was the first state to report massive UI fraud, many other
states experienced fraud in their programs. Some states only reported the number of claims stopped, and
not the fraudulent payment amounts. Other states chose not to discuss their losses publicly at all.
We are proud of the transparency ESD has provided throughout this crisis — to the public and to the
SAO, the U.S. Department of Labor and its Office of Inspector General (OIG), the Social Security
Administration’s OIG, the Federal Bureau of Investigation, the Washington State Attorney General’s
Office, the National Association of State Workforce Agencies, and financial institutions in Washington
and across the country. As your previous audit noted, ESD played a national leadership role both in
preventing further unemployment fraud loss in Washington and in assisting the federal government and
other states in preventing the loss of billions of dollars in benefits.
It’s also important to note that, as we review what took place and take corrective actions, our estimates
of how much money was stolen through fraudulent claims and how much was recovered will continue
to change. In addition, while the report also states that the unemployment insurance fraud could create
some costs for businesses, we believe that is unknown at this point.
And while we may have different assessments on some items — for example, the role the waiting week
played in the overall fraud — we generally agree on the conclusions. The controls, countermeasures
and steps the department has taken to adapt to this ever-changing crisis and address the unprecedented
impostor fraud attack were the right ones. We will continue to review and improve these measures.
These steps have limited the fraud and improved the customer experience for people filing unemployment
claims, who continue to be our highest priority.
Washington’s Unemployment BenefitsSafe
Programs
Data in
Disposal:
2020 –State
Agency
Reduces
Response
Risks | 42
Response
Cabinet Response to SAO Performance Audit
April 12, 2021
Page 2 of 2
Please thank your team for their collaborative approach throughout this performance audit.
Sincerely,
Cami Feek David Schumacher
Acting Commissioner Director
Employment Security Department Office of Financial Management
cc: Jamila Thomas, Chief of Staff, Office of the Governor
Kelly Wicker, Deputy Chief of Staff, Office of the Governor
Keith Phillips, Director of Executive Policy Office, Office of the Governor
Patricia Lashway, Deputy Director, Office of Financial Management
Christine Bezanson, Director, Results Washington, Office of the Governor
Tammy Firkins, Performance Audit Liaison, Results Washington, Office of the Governor
Scott Frank, Director of Performance Audit, Office of the Washington State Auditor
Phil Castle, Interim Deputy Commissioner, Employment Security Department
Washington’s Unemployment Benefits Programs in 2020 – Agency Response | 43
Appendix A
Appendix A: Initiative 900 and
Auditing Standards
Initiative 900 requirements
Initiative 900, approved by Washington voters in 2005 and enacted into state law in 2006, authorized
the State Auditor’s Office to conduct independent, comprehensive performance audits of state and
local governments.
Specifically, the law directs the Auditor’s Office to “review and analyze the economy, efficiency, and
effectiveness of the policies, management, fiscal affairs, and operations of state and local governments,
agencies, programs, and accounts.” Performance audits are to be conducted according to U.S.
Government Accountability Office government auditing standards.
In addition, the law identifies nine elements that are to be considered within the scope of each
performance audit. The State Auditor’s Office evaluates the relevance of all nine elements to each audit.
The table below indicates which elements are addressed in the audit. Specific issues are discussed in the
Results and Recommendations sections of this report.
I-900 element Addressed in the audit
1. Identify cost savings No. While this audit did not estimate potential cost savings, it
does help to inform the Employment Security Department (ESD)
of ways to prevent the loss of funds in the future.
2. Identify services that can be reduced No. Unemployment benefits are a federal requirement and
or eliminated cannot be eliminated.
3. Identify programs or services that can be No. The audit identified factors contributing to delayed and
transferred to the private sector improper payments, but did not perform an entire program
review or make recommendations that programs or services be
transferred to the private sector.
4. Analyze gaps or overlaps in programs or Yes. Although the audit did not issue recommendations, it
services and provide recommendations to reviewed agency policies and procedures to identify gaps and
correct them overlaps that contributed to fraudulent unemployment payments.
5. Assess feasibility of pooling information No. The audit is focused on a specific and unique program, which
technology systems within the uses one large IT system to manage operations.
department
Adaptive Management Program – Appendix A | 44
Appendix A
I-900 element Addressed in the audit
6. Analyze departmental roles and functions, No. The audit did not address roles or functions of the
and provide recommendations to change Unemployment Insurance program.
or eliminate them
7. Provide recommendations for statutory or No. The audit does not make recommendations; rather, it
regulatory changes that may be necessary provides a discussion of the causes of the fraud and customer
for the department to properly carry out its service delays that occurred in the Unemployment Insurance
functions program during the pandemic.
8. Analyze departmental performance data, Yes. The audit examined customer service data to understand
performance measures and self-assessment delays in payments and call center responses.
systems
9. Identify relevant best practices No. The audit did not look at best practices to improve agency
efficiency or effectiveness.
Compliance with generally accepted government
auditing standards
We conducted this performance audit under the authority of state law (RCW 43.09.470), approved as
Initiative 900 by Washington voters in 2005, and in accordance with generally accepted government
auditing standards as published in Government Auditing Standards (July 2018 revision) issued by the U.S.
Government Accountability Office. 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 objectives. We believe that the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
The mission of the Office of the Washington State Auditor
To provide citizens with independent and transparent examinations of how state and local governments use
public funds, and develop strategies that make government more efficient and effective. The results of our
work are widely distributed through a variety of reports, which are available on our website and through
our free, electronic subscription service. We take our role as partners in accountability seriously. We provide
training and technical assistance to governments and have an extensive quality assurance program. For
more information about the State Auditor’s Office, visit www.sao.wa.gov.
Washington’s Unemployment Benefits Programs in 2020 – Appendix A | 45
Appendix B
Appendix B: Scope, Objectives
and Methodology
Scope
This audit evaluated the response of the Employment Security Department (ESD) to the surge in
unemployment claims that occurred during the COVID-19 pandemic. In particular, we focused our
analysis on the large scale fraud that occurred, and the customer service response to an unprecedented
volume of claims beginning in March 2020.
The audit period included March to December 2020, and we obtained information and data from
calendar year 2019 for comparison purposes. Our audit evidence came from data analysis, interviews,
and review of documents provided by ESD.
Objectives
This audit sought to understand the reasons behind both the payments on fraudulent claims and the
difficulties some claimants experienced in receiving timely disbursements and customer service. The
audit examined whether Washington has opportunities to learn from these experiences to help avoid
problems that result from a sudden surge in unemployment claims in the future. The audit answered the
following questions:
1. What led to the state’s substantial payments to fraudulent unemployment claimants
during the pandemic?
2. What was the extent of customer service difficulties for unemployment claimants during
the pandemic, and what were the factors that contributed to them?
3. How did ESD’s pandemic response compare to other state workforce agencies?
Methodology
Objective 1: What led to the state’s substantial payments to fraudulent
unemployment claimants during the pandemic?
To address this objective, we sought to understand what tools ESD had in place before, during and after
imposter fraud was discovered, any changes to those tools made during the audit period, and the extent
of imposter fraud that occurred. To do this, we completed the following tasks.
Washington’s Unemployment Benefits Programs in 2020 – Appendix B | 46
Appendix B
• To understand what controls were in place before, during and after imposter fraud, we conducted
interviews with ESD and file reviews.
• We reviewed state and federal guidance during the audit period that affected ESD’s controls to
prevent and detect fraud.
• We analyzed data provided by ESD on known and probable fraudulent payments from March
through November 2020. We also analyzed data from January 2019 through February 2020 to
compare the amount of fraud that occurred prior to and during the audit period.
Objective 2: What was the extent of customer service difficulties for
unemployment claimants during the pandemic, and what were the
factors that contributed to them?
To address this objective, we looked at ESD’s staffing, call center data, and claims data. We sought to
understand how adequately ESD was staffed to handle the surge in claims, what customers experienced
when they called in for help with their filings, and the time it took for ESD to make payments.
To understand how adequately ESD was staffed, we conducted interviews with ESD leadership to
understand how staff were shifted around the agency and borrowed from other agencies to respond
to the surge in claims and fraud in 2020 and how decisions were made on staffing. We also analyzed
state human resources data to understand how extensively ESD used overtime and new hires. We used
that same human resources data to determine which job types ESD increased hiring in, including both
job classes and the distribution of temporary and permanent staff. We also compared those staffing
levels to publicly available information on the total number of new claims to estimate the workload per
employee.
To understand the operations of the call center, we interviewed ESD staff who run the call centers, and
asked ESD for its data representing the number of calls made to ESD, the number answered, and the
hold times that customers experienced. These were weekly totals and do not reflect what may have been
the case at any given moment. We also acquired information on the web messages sent and received and
the time of the average responses for each week.
To understand how quickly ESD made payments to recipients, we acquired data similar to data
that ESD had sent to the U.S. Department of Labor for payment times that included the dates of the
first payment made and the date that the person applied for unemployment. We calculated the days
between those two dates and categorized each claim into a payment week to determine how many fell
into payment time categories consistent with categories used by the Department of Labor. Unlike the
information put out by the Department of Labor, this included Pandemic Unemployment Assistance
(PUA) payments. We observed that some of this data included payments that appear to have been
made prior to the application. This was because when a person’s claim changes from one program
or claim to another, the ESD claims management system moves the initial claim date to the date of
the reclassification. Because of this, we dropped the negative payment times from the analysis. This
constituted less than 1 percent of claims. We also observed that this happened in some claims that had
positive payment times. We cannot, however, be certain of the full extent of this issue on the overall
dataset because we could not identify all the claims that were reclassified. As part of this analysis, we
also interviewed ESD staff about the reasons that some claims take a long time and the types of factors
that can slow down the payment of a claim.
Washington’s Unemployment Benefits Programs in 2020 – Appendix B | 47
Appendix B
Objective 3: How did ESD’s pandemic response compare to other state
workforce agencies?
To address this objective, we sought to understand how other states were affected by increasing claims,
imposter fraud and customer service issues during the pandemic. To do this, we reviewed media articles
on other state unemployment insurance programs from March through December 2020. We also
analyzed data from the Department of Labor to understand how increasing claims affected payment
timeliness in Washington and other states.
Work on internal controls
Internal controls were significant for only Objective 1. For that objective, we looked at the various tools
ESD uses to detect and prevent fraud in its Unemployment Insurance program. We found these internal
controls to be insufficient to combat imposter fraud as described on pages 24-28. Additional internal
control work relevant to this audit objective was addressed by our IT Audit team; their report will be
published in spring 2021.
Reporting confidential or sensitive information
We have excluded some details of the fraud controls ESD uses to detect and prevent fraud, including
additional measures the agency added after discovering widespread imposter fraud. This information
was excluded from the report to avoid potential vulnerabilities that could be exploited by bad actors.
The exclusion of these details should not have a significant effect on readers’ interpretations of the
evidence or the conclusions they might draw.
Washington’s Unemployment Benefits Programs in 2020 – Appendix B | 48
“Our vision is to increase
trust in government.
We are the public’s
window into how tax
money is spent.”
– Pat McCarthy, State Auditor
Washington State Auditor’s Office
P.O. Box 40031 Olympia WA 98504
www.sao.wa.gov
1-564-999-0950
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