How Much Unemployment Benefits Fraud Is There, Really?

Last week, 30 House Republicans asked the Acting Inspector General of the US Department of Labor (DOL) to identify how much of the approximately $900 billion in unemployment benefit payments made during the pandemic has been lost to fraud. In a July 8 letter asking for a “comprehensive official audit” of unemployment benefit fraud, they note:

As a result of this mismanagement by states, the IG office predicts that $89 billion of the estimated $896 billion in federal unemployment program funds could have been paid improperly, basing the prediction on a historic improper payment rate of at least 10%. However, the security company ID.me estimates that possibly 50% of all claims equaling more than $400 billion have been paid improperly through fraud or errors since March 2020. This amount of fraud would account for almost 2% of annual GDP. Even President Biden stated that ‘[t]here is perhaps no oversight issue inherited by my Administration that is as serious as the exploitation of relief programs by criminal syndicates using stolen identities to steal government benefits, Last year, this type of criminal behavior robbed American families of billions of dollars that should have gone to support small businesses and workers who had lost their jobs.’

Coauthored by Reps. Doug Lamborn (R-CO) and Michelle Steel (R-CA), the letter was signed by eight of the 11 Republican members of California’s House delegation. California has been especially hard hit by unemployment fraud, with state officials admitting in January that potentially 27 percent of benefits paid there since the pandemic struck could have been fraudulent. In all, California has paid $157 billion in state and federal unemployment benefits since March 2020; if 27 percent were in error, that would equal over $40 billion in losses in California alone. Such massive fraud, abysmal customer service, and other dysfunction at California’s state agency responsible for paying unemployment benefits have contributed to the current recall campaign against Governor Gavin Newsom.

Federal lawmakers are hardly blameless for the fraud inflicted on pandemic programs they created. The DOL Inspector General warned lawmakers in May 2020 and again in October 2020 that the design of temporary federal benefit programs — embedded in the March 2020 legislative language that created them — contributed to their vulnerability. For example, the IG’s October report described how states found the “legislative self-certification process” in the temporary federal Pandemic Unemployment Assistance (PUA) program left it wide open to abuse:

States cited PUA self-certification requirement as a top fraud vulnerability. Despite strategies and tools for mitigating fraud, 53 percent of respondents still cited fraud vulnerabilities within the PUA program. Ninety one percent of respondents said that they use a variety of tools to detect and deter fraud, such as predictive analytics and cross-matching with other databases to verify eligibility. In addition, 89 percent of respondents said their state requires applicants to acknowledge that his/her self-certification is subject to penalty of perjury. However, states reported inherent vulnerability in the legislative self-certification process, systems issues, and inadequate fraud screening tools.

Senior Republicans introduced legislation last summer fixing flaws in the design of the PUA program, and some modest changes were included in December 2020 legislation. But self-certification of eligibility continues, now over a year after the IG started warning lawmakers that “reliance on self-certifications alone to ensure eligibility for PUA will lead to increased improper payments and fraud.” With federal pandemic programs scheduled to expire on Labor Day, this failing has transitioned into a very expensive lesson in policies not to repeat in the future, instead of something Congress might realistically fix now.