Labor Department pumps $240 million into unemployment system to fight ‘terrifying’ fraud

It’s unclear exactly how much money has been lost to theft. The Labor Department’s Office of Inspector General estimates about $87 billion in benefits may ultimately be paid improperly, a significant portion due to fraud, while pandemic-era programs are intact. Those programs are slated to end Sept. 6.

Much of the early fraud had been concentrated around a federal program for the self-employed and others that let applicants self-certify their eligibility for benefits. That feature helped deliver aid more quickly but opened the door to criminals looking to exploit the system.

Now, officials are seeing more fraudsters “hijack” the claims of legitimate applicants who need benefits, Evermore said.

The department is allocating $240 million in grants to help states combat fraud, according to two memos the agency issued Wednesday, $100 million from leftover CARES Act funding and $140 million from the American Rescue Plan.

States may use the money to beef up such measures as identity verification of applicants, fraud detection and prevention, cybersecurity, and efforts related to recovering overpayments.

The funds are part of a broader department effort to improve the U.S. unemployment system, using roughly $2 billion in funding from the American Rescue Plan.

The pandemic exposed significant issues with benefit administration, which differs from state to state. Many use antiquated mainframes that made it difficult to adapt to changing federal rules and programs. States were also faced with the lowest levels of administrative funding in 50 years and record claims for benefits on top of elevated criminal activity, Evermore said.

Many are still struggling to pay benefits to all applicants quickly. Sometimes, new anti-fraud measures states have implemented since last year snag legitimate applications, delaying benefits.

“This isn’t a blame-the-state mentality,” Evermore said. “It’s very hard for states to deal with the onslaught.”

The Department plans to issue another $260 million in equity grants to states. The funds, a first-of-its-kind undertaking for the agency, aim to improve outreach and customer service with an eye toward addressing potential ethnic and racial disparities.

The agency has also deployed teams of consultants in six volunteer states — Colorado, Nevada, Kansas, Virginia, Washington and Wisconsin — which will develop a list of recommended system tweaks.

The Labor Department is allocating $200 million for states to make those fixes, which can then be leveraged by other states with similar issues, Evermore said.

The agency has also begun building centralized technology that any state with outdated features will be able to leverage, Evermore said.

However, revamping some aspects of the U.S. unemployment system would require federal legislation. For example, there have been calls for a federal instead of state system of benefits administration, to address some of the broad regional disparities in areas like weekly benefit amount, duration of benefits and qualification rules.