Unemployment insurance programs created by Congress and administered by the Labor Department to support workers during the COVID pandemic became a gold mine for fraudsters to the tune of tens of billions of dollars, according to a new report.
The Government Accountability Office (GAO) estimated that total fraud in four federally-run COVID relief programs was over $60 billion “and perhaps much higher” during the pandemic, adding that the Labor Department has yet to implement an appropriate anti-fraud strategy to combat the problem.
From April 2020 through September 2022, expenditures across the unemployment insurance system totaled about $878 billion, according to Labor Department data. This included four new federal programs created by Congress to help workers amid the pandemic.
Three of these programs — Pandemic Unemployment Assistance, Federal Pandemic Unemployment Compensation and Pandemic Emergency Unemployment Compensation — were enacted through passage of the CARES Act in 2020. The fourth program, Mixed Earner Unemployment Compensation, was enacted by legislation in 2021.
A man walks past a retail store going out of business due to the coronavirus pandemic in Winnetka, Ill., June 23, 2020. (AP Photo/Nam Y. Huh)
Most of these funds went to the correct place with the correct amount, according to the GAO. However, unprecedented demand for unemployment benefits and greater administrative flexibility in trying to meet that demand made the situation ripe for fraud. Billions of dollars were paid improperly, including benefits going to people who sought to defraud unemployment relief programs.
The GAO estimated that over $60 billion in fraudulent unemployment insurance payments went to applicants. That may be a low estimate, though, as the report noted the GAO’s method of calculation “has inherent limitations and should be interpreted with caution.” Plus, because fraud is deceptive in its nature, estimating its full extent can be challenging.
While noting the unprecedented challenges presented by COVID, the GAO also placed blame on the Labor Department, chiding its leadership for being insufficiently prepared.
“Because of shortcomings in managing risk strategically, including lack of appropriate internal controls, DOL [the Labor Department] and the states were not adequately prepared to handle UI [unemployment insurance] fraud risks when the pandemic began,” the report stated, adding that the department should adopt an anti-fraud strategy consistent with leading practices from GAO’s Fraud Risk Framework.
“While DOL has taken steps to address UI fraud risks, its approach has not been strategically organized and targeted at prioritized risks,” according to the GAO. “Specifically, we found that it has not designed and implemented an anti-fraud strategy to guide its actions based on a fraud risk profile in alignment with leading practices in our Fraud Risk Framework.”
Secretary of Labor Marty Walsh (Tom Williams)
The GAO’s report came out on the same day the Labor Department’s Office of Inspector General told the House Ways and Means Committee that “at least” $191 billion in emergency unemployment benefits paid out during the pandemic were likely lost to fraudsters.
The flood of COVID relief money from the federal government in 2020 overwhelmed state agencies charged with doling it out, according to Larry Turner, the inspector general. He said COVID created a “perfect storm” for fraud, explaining people were allowed to self-certify that they were eligible to receive Pandemic Unemployment Assistance, which went to millions of people who were not traditionally eligible for unemployment insurance.
However, the problem extended beyond the pandemic.
“The expediting of COVID-19 relief funding exacerbated an underlying improper-payment problem in the federal government, including UI, which predated the pandemic,” the GAO report stated. “For example, DOL reported an increase in estimated improper payments from $8.0 billion (9.2% estimated improper payment rate) for fiscal year 2020 to $78.1 billion (18.9% estimated improper payment rate) for fiscal year 2021. For fiscal year 2022, DOL reported estimated improper payments of $18.9 billion (22.2% estimated improper payment rate).”
PPP loan concept (iStock)
MAINE MAN PLEADS GUILTY TO SUBMITTING FRAUDULENT PAYCHECK PROTECTION LOAN APPLICATIONS
Fox News Digital has reached out to the Labor Department for comment for this story.
The issue of defrauding COVID relief has extended beyond just unemployment benefits. For example, fraudulent activity also occurred through the Small Business Administration, the agency charged with overseeing the Paycheck Protection Program (PPP), which provides forgivable loans to assist businesses during the pandemic.
About 15% of the total funds that Congress appropriated in total for PPP was projected to have been obtained fraudulently, according to a 2021 study.
That same year, the House Coronavirus Oversight Committee found that some $84 billion in PPP loans were potentially fraudulent.
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Rampant fraud and abuse of pandemic relief led the Justice Department to create the COVID-19 Fraud Enforcement Task Force. The department has charged hundreds of individuals, most of whom were accused of defrauding the PPP.
On Wednesday, Fox News Digital reported a Maine man pleaded guilty to submitting fraudulent PPP loan applications for which he received more than $1 million, some of which was used for a down payment on a sailboat. He faces up to 30 years in prison.
