How the Labor Department is Combatting Unemployment Fraud

The U.S. Labor Department has begun working on ending rampant fraud that has led to at least $40 billion in improper unemployment payments due to the wide array of technology states use.

The systems differ so much that it is difficult to stop cybercriminals responsible for much of the theft, Michele Evermore, deputy policy director for the DOL Office of Unemployment Insurance Modernization, said in an interview. 

“If a fraud ring tries to operate in one state and that state programs a solution, they just move on to the next state,” Evermore said. “You can’t just take the way they blocked the fraud ring in one state and take it to the next state.”

“We’re extremely concerned about fraud. We’ve been doing things to stop it,” she added, citing the new initiative to bring more consistency to oftentimes outdated unemployment systems. 

While still in the early stages, the solution could involve computer code that can be shared between states to provide protection from identity theft that has led cybercriminals as far away as Africa and China to obtain unemployment benefits, or a set of suggestions states can implement, she said.

Evermore spoke to Route Fifty as the department is under fire from congressional Republicans, who say it has not done enough to prevent fraud and that guidance issued in February might make things worse.

Republicans have accused the Biden administration of trying to sweep the problem “under the rug.” In particular, they are taking aim at a February Labor Department guidance that excuses states in more cases from being required to try to recover improper payments and send the money back to the Treasury. 

The department created new blanket waivers that excuse states from tracking down the money in entire categories of cases, like those in which people were paid unemployment despite saying they were not available to find work. Generally, only those able to work and who are jobless can get unemployment, but exemptions were created during the pandemic.

On Tuesday, Republicans on the House Ways and Means Committee wrote in a letter to Rep. Richard Neal, the committee's Democratic chairman, that excusing states from getting back improper payments lets them “off the hook for due diligence and fact-finding for large volumes of suspicious unemployment claims potentially involving billions of fraudulently obtained taxpayer dollars.”

That echoed complaints made by top Republicans on key House and Senate committees in a letter last Friday to Labor Secretary Martin Walsh. The Republican lawmakers also expressed concern that by excusing states from tracking down improper payments will hurt attempts by local and federal authorities to find the fraudsters.

“This action may allow those perpetrating fraud within the [unemployment insurance] system to continue and leaves unresolved hundreds of thousands of claims involving stolen identities belonging to identity theft victims, including first responders, government personnel and school employees,” wrote Sens. Mike Crapo of Idaho, Richard Burr of North Carolina and Rob Portman of Ohio. Rep. Kevin Brady of Texas and Rep. James Comer of Kentucky also signed the letter to Walsh.

Evermore, however, disputed the suggestion that the guidance excuses fraud, and said the waivers are meant to recognize the confusion states have faced navigating new unemployment insurance rules during the pandemic.

“The first step is to determine if it was fraud,” she said.

Evermore said the higher unemployment benefits paid through the 2020 coronavirus relief packages have caused confusion that contributed to the improper payments.

In normal times, unemployment offices check with applicants’ last employer to verify whether they had worked there and how much they made, which is used to determine how much unemployment people receive.

In the urgency to get money in the hands of people, the packages waived the usual requirements on those seeking unemployment to show they had worked enough hours to qualify by allowing people to self certify their information.

A common reason for overpayments, Evermore said, is that the amount the unemployed person receives is based on that person’s net pay after taxes. But in applying for benefits, some reported their higher-gross, before-tax pay, which resulted in them receiving more than they should have.

Others were paid unemployment even though they said they were not available to work. People are required to say they are available to work in order to get benefits. In addition, some reported they couldn’t work because they had Covid, although they were eligible for unemployment. Furthermore, others put down the wrong information because they were unsure if they had been fired or temporarily furloughed, for example from a restaurant, because of the pandemic.

Because of all the difficulties, Evermore said the department created the blanket waivers in response to states’ requests for more flexibility. “We were trying to eliminate some of the administrative complexity for states,” she said.

Even so, she said some states told her during a remote conference call this week that the guidance did not go far enough and there are still too many steps before states can get the waiver.

“We’re not letting states off the hook,” Evermore said.

Stressful Situation for the Unemployed

Another reason the Labor Department created the waivers was the stress on people being asked to repay the extra money they unwittingly received.

“People panicked. There were people selling their houses, selling their cars, dipping into their 401(k)s. We’ve heard anecdotally of people taking their own lives because of this,” Evermore said.

Nevertheless, Republicans object to not going after all the improper payments.

“Expediency is overriding integrity,” the lawmakers wrote in the letter to Walsh. “Now is the time to pursue and prosecute fraudulent actors. Instead, this guidance equates to sweeping under the rug what is possibly the greatest theft of taxpayer dollars in American history.”

But Evermore insisted the Labor Department has been working to reduce fraud, citing $240 million in grants it announced last August to help states bolster their fraud detection and prevention efforts.

Evermore also noted that the department has dispatched “tiger teams” to 18 states to assess and recommend ways to stop unemployment fraud. Plus, it is in the process of negotiating with vendors to offer states identify verification software at a negotiated price.