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Fraud had big role in $163 billion pandemic unemployment system leak

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Greater than $163 billion in advantages likely leaked from the unemployment system through the pandemic, with a “good portion” attributable to fraud, based on a U.S. Department of Labor report.

Congress created many recent programs in March 2020 to support thousands and thousands of people that lost their jobs from the Covid-19 fallout. Together, the programs raised weekly advantages, increased their duration and expanded the pool of employees eligible for payments. They ended last September, though many states opted out sooner.

In that point, the federal government issued almost $873 billion in total unemployment payments, the Labor Department said in a semiannual report to Congress released Thursday.

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“The unprecedented infusion of federal funds into the [unemployment insurance] program gave individuals and arranged criminal groups a high-value goal to take advantage of,” based on the report.

Criminals were capable of defraud the system because of program weaknesses and simply stolen personally identifiable information, the agency said.

Many states weren’t prepared to process the crush of latest claims for advantages and struggled to implement the newly created programs — and plenty of traditional internal fraud controls weren’t used because of this.

Criminals could make a fraudulent claim for advantages with relatively low risk of being caught, potentially getting tens of hundreds of dollars, the Labor Department said.

Much criminal activity targeted the temporary Pandemic Unemployment Assistance program for gig, self-employed and other employees. Lawmakers initially let program applicants self-attest their qualification for advantages; they later rescinded that feature and added fraud safeguards, as did states.

The Labor Department has also taken additional fraud-prevention measures, including grant money to assist states upgrade their administrative systems.

The amount of [unemployment] investigative matters currently under review is unprecedented within the OIG’s history.

U.S. Labor Department’s Office of Inspector General

Some argue that less red tape was critical to pump financial aid into households quickly amid a deep crisis.

Even with rules that were initially laxer, it took states weeks (sometimes months) to begin issuing Pandemic Unemployment Assistance. For instance, early PUA checks corresponded to delays of six or seven weeks, based on a recent report from The Hamilton Project, a part of the Brookings Institution.

“These delays were consequential when it comes to consumer welfare,” the report said, mentioning an inability to pay bills, increased bank card debt, high rate of interest borrowing, depleted savings, food scarcity and homelessness.

So-called “improper payments” occurred even before the pandemic. This is not all due to fraud; some could also be from processing errors by state labor agencies or application mistakes from claimants.

In December, the Labor Department reported that 18.7% of profit payments in 2021 were issued improperly. By applying the 2021 rate to the $873 billion of total pandemic-era unemployment advantages, the Labor Department derived its recent estimate that at the least $163 billion could have been issued improperly.

Before the pandemic, the Labor Department’s Office of Inspector General opened about 120 investigations every year related to unemployment insurance. Within the pandemic era, the Office has gotten greater than 144,000 unemployment fraud complaints from the U.S. Department of Justice and has independently opened greater than 39,000 fraud investigations — a rise in volume by an element of greater than 1,000, it said.

“The amount of investigative matters currently under review is unprecedented within the OIG’s history,” its report said.

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