Feds wasted ‘at least’ $191 billion on fake COVID unemployment claims, says Labor Department watchdog

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Hundreds of billions of dollars in emergency unemployment benefits paid out during the COVID pandemic were likely lost to fraudsters, according to the Labor Department’s Office of Inspector General (OIG), which said losses were "at least" $191 billion and were probably higher.

Labor’s OIG gave that estimate to the House Ways and Means Committee Wednesday morning, just hours after President Biden said he’s looking to pursue people who used the pandemic to steal billions of dollars in COVID aid.

"As we emerge from this crisis stronger, I’m also doubling down on prosecuting criminals who stole relief money meant to keep workers and small businesses afloat during the pandemic," Biden said in his Tuesday night State of the Union address. "Now, let’s triple our anti-fraud strike forces going after these criminals, double the statute of limitations on these crimes, and crack down on identity fraud by criminal syndicates stealing billions of dollars from the American people."

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President Biden called for a crackdown on COVID fraud, and his government said at least $191 billion was lost to fake unemployment claims. Photographer: Nathan Howard/Bloomberg via Getty Images

According to Larry Turner, the Labor Department’s Inspector General, the flood of COVID relief money from the federal government in 2020 overwhelmed state agencies charged with doling it out. He said COVID created a "perfect storm" for fraud, as people were allowed to self-certify that they were eligible to receive Pandemic Unemployment Assistance (PUA), which went to millions of people who were not traditionally eligible for unemployment benefits.

"The reliance solely on claimant self-certifications without evidence of eligibility and wages during the program’s first 9 months rendered the PUA program extremely susceptible to improper payments, including fraud," Turner said in his prepared remarks to the Ways and Means Committee.

Turner said the normal improper payment rate for unemployment insurance was above 10% for the last two decades. But after COVID hit, the improper payment rate was much higher – somewhere between 18.71% and 21.52%.

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Unemployment claims are administered by states but overseen by the Department of Labor, which is led by Secretary Marty Walsh. (Photo By Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams)

Applying that rate to the $888 billion paid out in federal and state unemployment benefits during the pandemic, that means "at least $191 billion in pandemic UI payments could have been improper payments, with a significant portion attributable to fraud," Turner said in his remarks.

He said that number is likely a low estimate, as the improper payment rate for pandemic-era unemployment programs was "likely higher than 21.52%."

At the same hearing, Michael Horowitz, who chairs the Pandemic Response Accountability Committee in the Department of Justice’s OIG, said fraud was rampant because the state workforce agencies [SWAs] that handle unemployment insurance (UI) were not prepared to handle the rush of claims.

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It's unclear how much of the wasted money can be recovered, despite Biden's push for accountability. (REUTERS/Kevin Lamarque/File Photo)

"Internal controls within SWAs’ unemployment programs were often reduced to handle the influx or were simply not effective enough to properly detect the high levels of fraud occurring," he said. He also gave several examples of fraud within several states.

"A report from the Arizona Auditor General found that the Arizona SWA paid $1.6 billion in federal UI benefits to individuals who used stolen identities in Fiscal Year 2020," Horowitz said.

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"Data from Michigan’s SWA revealed that they had provided $3.9 billion in overpayments to ineligible claimants," he added. "Michigan’s Auditor General emphasized that the SWA will likely be unable to recover the overpayments because the SWA was at fault, not the claimants."