The Labor Department (DoL) estimated this week that the overpayment rate for its Pandemic Unemployment Assistance (PUA) program reached 17 percent between March 2020 and September 2021 as the coronavirus pandemic gripped the nation.

The program ended up paying out $131 billion to self-employed individuals who weren’t eligible for regular unemployment insurance (UI) benefits at the height of the COVID-19 pandemic. Of that amount, nearly $22 billion qualified as over payments, DoL said in a new report in which the agency blamed bad tech and a lack of identity verification tools for the PUA overpayments.

“While PUA provided critical support to workers and communities during a historic pandemic, states faced serious challenges in minimizing improper payments and stewarding federal funds in this entirely new program,” DoL wrote in its Aug. 21 report.

Serious underfunding, and outdated technology systems, limited states’ responsiveness and efficiency, the DoL said.

“While PUA was distinct from the UI program, its implementation relied on the systems used to deliver unemployment benefits,” the report states. “Going into the pandemic, funding for the administration of the UI system was at the lowest level in more than three decades, which left states with insufficient experienced staff to handle the volume of incoming claims and fraud threats.”

Additionally, DoL highlighted that only 22 states had modernized their UI systems away from legacy systems by 2019.

While 17 percent of the $131 billion of the PUA program was classified as overpayment, the department found that more than one-third of payments from the entire program consisted of improper payments.

“The Department has reported to the Office of Management Budget that the PUA program had a total improper payment rate of 35.9 percent,” the report reads.

The DoL clarified that a Federal program’s improper payment rate is a sum of its overpayment, underpayment, and rates of payments that cannot be conclusively determined.

“While fraud due to weakened controls in 2020 may have contributed to overpayments, this analysis focuses on the broader universe of improper payments, does not isolate fraud, and should not be considered a fraud estimate for the PUA program,” the report states.

The report underscores what Federal agencies and watchdogs have long suspected – that pandemic-era programs that didn’t verify the eligibility of applicants were exploited at a particularly high rate by fraudsters.

In the first nine months of the program in 2020, PUA allowed payments to be made based on self-certification of information, without a requirement for individuals to verify their identity.

The Labor Department paid out $131 billion in assistance in 2020, before it put stronger identity-verification measures in place the following year. At least 60 percent of program spending that year went out before Congress added identity verification protections, the report says.

The new report also noted that the high rate of improper payments can be boiled down to states being unprepared to put in place the controls needed to prevent fraud during the pandemic.

“Condition of state UI technologies contributed heavily to the high level of fraud and improper payments in PUA,” DoL wrote. “Because of the design and condition of their technologies and processes, states were unable to implement automated systems and fraud controls during the early months of the pandemic. Given these limitations, states could not pivot and respond effectively to the rapid evolution of fraud threats in 2020.”

Total Pandemic Fraud Numbers Still Unclear

Federal agencies and their watchdogs are still getting to the bottom of the total amount of fraud across more than $5 trillion in COVID-19 emergency spending. While the DoL’s report this week uncovers improper payment rates for its PUA program, the bottom-line number of pandemic-era fraud across the government is yet to be reported – or even fully understood.

Congress created four new UI programs during the pandemic, and evidence from the Government Accountability Office (GAO) suggests the total amount of fraud in these programs was over $60 billion – and could be much higher.

The CARES Act created three Federally funded temporary programs that expanded UI benefit eligibility, enhanced benefits, and extended benefit duration:

  • The PUA;
  • The Federal Pandemic Unemployment Compensation; and
  • The Pandemic Emergency Unemployment Compensation.

In addition, the Consolidated Appropriations Act of 2021 created the Mixed Earner Unemployment Compensation program.

A full dollar amount for the fraud of these programs has not yet been finalized.

U.S. Comptroller General Gene Dodaro, who oversees GAO, testified during the House Oversight and Accountability Committee’s first hearing investigating fraud in the distribution of Federal COVID-19 relief funds on Feb. 1 that it will be some time until the full dollar amount of pandemic fraud can be determined since investigations are currently ongoing.

“This is going to go on for a while,” Dodaro said. “There are definitely indications of widespread fraud, but it’s impossible to estimate right now what the full extent of it will be.”

The Small Business Administration (SBA) – which offered two COVID-19 relief loan programs throughout the pandemic – is also under fire for racking up major fraud payments.

The SBA Office of Inspector General (OIG) issued a report in June estimating that of the $1.2 trillion SBA disbursed through its pandemic assistance loan programs, over $200 billion was potentially fraudulent.

The new figure from the OIG means that at least 17 percent of all COVID-19 Economic Injury Disaster Loan and Paycheck Protection Program funds were potentially fraudulent – specifically, more than $136 billion COVID-19 EIDLs and $64 billion in PPP funds.

The Department of Justice (DoJ) announced this week that it has seized over $1.4 billion in COVID-19 relief funding stolen by criminals since the start of the pandemic, with over $200 million recovered in the past three months.

According to the DoJ, many of the cases in the enforcement action involve charges related to pandemic UI benefit fraud and fraud against the SBA’s pandemic assistance loan programs: the PPP and EIDL.

DoL Taking Action to Make UI Systems More Resilient, Prevent Fraud

In its report released this week, the DoL stated that it is taking a “more aggressive stance” to rectifying the weaknesses that led to pandemic fraud.

“Since January 2021, the Department has taken a series of actions to learn from these challenges and chart a new course for UI programs, investing in stronger tools for fraud prevention, overpayment recovery and more resilient technology and operations that can scale up to meet current and future challenges,” the report states.

The DoL is implementing the GAO’s Fraud Risk framework. The agency said it has developed a UI fraud risk profile to identify and implement additional antifraud strategies to enhance the existing UI Integrity Strategic Plan in accordance with the GAO’s Fraud Risk Framework.

The department noted that it is making $200 million available for grants to improve the resiliency of state IT systems and their ability to respond to changing fraud threats.

“The Department is making its largest investment ever in grants to modernize vulnerable state IT systems, countering decades of underinvestment that led to significant fraud and payment errors,” the report reads. “Grants will primarily support projects that move UI systems into the cloud and implement modular-driven approaches.”

“This approach will improve the overall ability of UI systems to scale up to increases in demand and to become more interoperable with fraud prevention technologies,” it adds. “The result will be IT infrastructure that can better protect the system from fraud, while also providing a mechanism to promote equitable access, increase timely access to benefits and deliver improved customer experience.”

Additionally, the DoL highlighted that it is making government-operated identity verification options available to states.

As part of its UI modernization activities, the department is offering states nationwide identity verification services, including digital identity verification through GSA’s tool, as well as in-person identity verification at local U.S. Postal Service Post Office locations at no cost for two years.

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Cate Burgan
Cate Burgan
Cate Burgan is a MeriTalk Senior Technology Reporter covering the intersection of government and technology.