Unemployment insurance fraud during the pandemic cost states $135B—and counting

rob dobi via Getty Images

 

Connecting state and local government leaders

Fraudsters are still finding ways to collect on claims. But there are two crucial ways to get the problem under control, experts say.

COVID-era unemployment insurance fraud is estimated to have cost state governments up to $135 billion, the Government Accountability Office reported last year.

While some states have moved to prevent future waste, fraud and abuse by modernizing their unemployment systems, often taking advantage of federal grants along the way, many state systems still lag behind and remain vulnerable. And although the pandemic and the government aid that accompanied it has ended, multiplying threats from bad actors make benefits fraud an ongoing issue for everyone.

“The pandemic lowered the guardrails,” said James Cotter, director of the Integrity Data Hub at the National Association of State Workforce Agencies, or NASWA. “What we've seen since then is an emergence in fictitious employer schemes, where somebody sets up a fake company, [gets laid off] and thereby collects against multiple [unemployment]  claims.”

To combat the latest schemes, Cotter said continued efforts to modernize state unemployment systems and enhanced information sharing are the two best ways to get the problem under control.

NASWA has tried to bolster information sharing between states, which often have disparate systems. Cotter said the association’s Integrity Data Hub, which allows states to submit unemployment claims to a database and then crossmatches them against other state data, has helped prevent around $4 billion in improper payments, and has conducted more than 64 million identity verifications.

Cotter, who made these remarks at an Amazon Web Services conference in Austin, Texas, this week, said it is “challenging and interesting” given how different each state’s workforce agencies are, even down to where they are housed within the government. 

The hub also offers states a support team that, among other things, tweaks agency websites and makes other fixes to encourage people to “do the right thing,” Cotter said.

States can send their claims to NASWA either daily or weekly. In addition to crossmatching claims, the hub also verifies IP addresses, home addresses, Social Security numbers and bank accounts to see if, for example, someone has tried filing in multiple states—a key indicator of fraudulent activity.

When states submit unemployment claims to the data hub, NASWA notifies them if cases are potentially fraudulent, but leaves it up to individual states to investigate further and prosecute, if necessary. Cotter estimated that 55% of claims submitted to the hub are returned to the states to investigate. The onslaught of referrals turned out to be “overwhelming” for some governments, partly due to a lack of staff to handle them. That prompted NASWA to add tools to help states prioritize cases by sorting and filtering them, making it easier for states to know where to “drill down.”

Meanwhile, progress modernizing unemployment systems varies by state. Some have embraced cloud technology and artificial intelligence. Others still rely on decades-old mainframe technology driven by outdated coding languages.

The North Carolina Division of Employment Security moved away from mainframe technology in 2018 for its benefits administration and then moved its tax system onto the cloud last year. Raju Gadiraju, the agency’s chief information officer, said the strategy has to be one of “continuous evolution” to keep up with advances in technology and fraud.

“It's not a one-time deal,” he said. “It's just not enough to say you’ve modernized it. In order to keep evolving, you can't just have hardware and add on to it, you’ve got to refresh yourself.”

North Carolina struggled during COVID with UI fraud, even with all this technology. The U.S. Department of Labor estimated that the state overpaid more than $200 million in unemployment insurance at a fraud rate of just over 4% in 2020, which was better than many states at that time but still higher than officials would have liked.

The year presented enormous challenges for a state employment agency that had until COVID-19 presided over an unemployment rate of just over 3%. That figure ballooned to over 14% once the pandemic hit, Gadiraju said, while the number of claims received jumped from a typical average of 3,000 per week to 300,000 in just the last three weeks of March 2020. One day, claims hit 54,000, a dramatic and unprecedented uptick.

The human cost was high, too. The agency usually has 600 full-time employees, but the high demand meant it needed to scale up to 2,500, with many borrowed from five other agencies. Those employees had to cope with 150,000 calls a day. Having a modernized system allowed the agency to scale up quickly and embrace strategies like self-service so people could check the status of their claims autonomously.

North Carolina also made use of its centralized Government Data Analytics Center to crossmatch claims and try to fight fraud, as well as tapping into NASWA’s national hub. “Why reinvent the wheel?” Gadiraju said, noting that the Division of Employment Security had considered procuring various data analytics pieces for itself before seeing that NASWA offered them to states for free.

Gadiraju said the state has since added features to improve security like multifactor authentication, and created various “fraud rules” that help analysts identify patterns in the data like home addresses and IP addresses not matching. The agency already has 102 fraud rules, and they are always “evolving,” he said, to keep up with how threats evolve.

“The system we built was a good start,” Gadiraju said.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.