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U.S. watchdog warns unemployment benefits are at ‘high risk’ of fraud, abuse

A hiring sign is displayed outside a retail store in Vernon Hills, Ill., on Nov. 13, 2021.  (S-R wire file photo )
By Tony Romm Washington Post

WASHINGTON – A top U.S. government watchdog warned on Tuesday that the nation’s unemployment insurance system remains at “high risk” for waste, fraud and abuse, revealing that federal authorities already have opened more than 38,000 “investigative matters” that potentially involve stolen funds during the pandemic.

The stark message from the Government Accountability Office came amid a raft of new reports that laid bare the challenges facing the country’s jobless aid program, which remains underfunded, inadequately staffed and plagued by such poor technology that states have struggled to assist Americans in need, even resulting in “substantial racial and ethnic disparities.”

To GAO, the primary challenge facing the federal government is keeping track of its own spending, two years after the coronavirus pandemic left millions of Americans out of work and struggling to obtain aid.

In the prior fiscal year, states made an estimated $78.1 billion in improper unemployment payments, a figure that includes money stolen by criminals and erroneous sums paid to innocent Americans.

By mid-March, the inspector general for the Labor Department had opened “more than 38,000 investigative matters” involving alleged benefits fraud, the GAO revealed Tuesday.

But the scope of the potential problem may still be far greater, added the watchdog, which raised concerns that state and federal data remain inaccurate and inadequate. An investigation by the Washington Post earlier this year found that the total number of wrongful payments could exceed $163 billion nationally.

With fraud, criminals around the world stole innocent Americans’ personal information and obtained benefits in real workers’ names, relying on sophisticated tactics to outmaneuver states, the Post reported.

The conclusions prompted GAO to place the unemployment program on its “high risk” list, a formal designation meant to raise awareness among federal lawmakers and government regulators in the hopes of addressing its deficiencies.

In doing so, the oversight agency used its reports to call on Congress and the Biden administration to modernize the country’s jobless benefits programs as well as the oversight of them, particularly to safeguard them in the event of future crises.

“While expanded jobless benefits saved millions of families from financial ruin during the pandemic, the GAO’s reports make clear the unemployment system is broken – both in terms of program administration and benefit policy,” Sen. Ron Wyden, D-Ore., chairman of the tax-focused Senate Finance Committee, said in a statement to the Post.

“The historic action Congress took – expanding benefits and covering gig and part-time workers – papered over deep problems that need to be addressed before the next economic downturn.”

The GAO’s findings underscore the immense task facing Washington as it attempts to keep watch over the roughly $5 trillion in emergency aid it approved since the start of the pandemic.

The historic, generous financial support saved the U.S. economy from collapse amid the worst crisis since the Great Depression, but it also became a wellspring for criminal activity and other forms of abuse, saddling the federal government with years of work to get lost money back.

“The widespread problems plaguing the Unemployment Insurance system are extremely troubling,” said Gene Dodaro, the head of the GAO, in a statement accompanying the report.

“Not only is the system falling short in meeting the needs of workers and the broader economy, but the potential for huge financial losses could undermine public confidence in the stewardship of government funds.”

Democrats and Republicans in Congress had banded together to approve many of the stimulus packages, and in recent weeks, lawmakers have started to set aside their political differences in an attempt to pursue pandemic fraud.

The House is set to vote on two bipartisan bills that would make it easier for the U.S. government to probe and punish criminal activities targeting the nation’s small-business stimulus programs.

The measures – one from Rep. Nydia Velázquez, D-N.Y., the other from Rep. Blaine Luetkemeyer, R-Mo., who lead the House Small Business Committee – seek to satisfy federal watchdogs’ requests for more time to complete their intricate investigations.

An earlier Post investigation found these programs, totaling more than $1 trillion at the Small Business Administration, became ripe targets for fraud and identity theft.

At various turns, government watchdogs have raised concerns about billions of dollars sent to ineligible businesses, including those that appeared on a special federal “Do Not Pay” anti-fraud list.

One of the initiatives, known as the Payment Protection Program, may have even provided loans to ineligible businesses – then forgiven those same loans even before SBA fully reviewed them.

With unemployment insurance, the problems appear to be more widespread, since the federal government oversees a patchwork benefits system largely managed by the states.

Each local government maintains its own rules for applying for aid and manages its own computer systems for evaluating and paying out-of-work Americans, opening the door for immense waste, fraud and abuse, especially earlier in the pandemic.

Facing a crush of applicants in 2020 – with unemployment claims at times reaching 1 million per day – states found themselves without the staff and technology to review and vet Americans speedily and accurately.

Even at the end of last year, 32 of 53 states and territories were “still using legacy IT systems” to support unemployment or tax benefit systems, according to GAO.

Some states attributed the digital deficiencies, including their use of technology nearly half a century old, to historically inadequate funding, which GAO found had also inhibited their ability to implement new pandemic programs swiftly.

One of those initiatives, known as Pandemic Unemployment Assistance, sought to provide help to Uber drivers, DoorDash deliverers and other self-employed workers and participants in the gig economy – typically a category of Americans who are ineligible for jobless benefits.

Those applicants in some cases faced immense delays as states struggled to implement their systems, and in some parts of the country, the disruptions fell hardest on Black and Hispanic workers.

A second GAO report, also released Tuesday, shed fresh light on the disparity.

In North Dakota and Wisconsin, two of four states studied, the percentage of Black applicants receiving benefits was about half that of White applicants through April 2021.

The same proved true for Hispanic and American Indian applicants in Wisconsin – the percentage of their claims receiving benefits was also “substantially lower” than White applicants.

GAO cautioned that the causes are unclear, stemming perhaps from technical glitches or “individual biases.”

Still, it raised concerns the problem could be far greater in scope, pointing to other surveys that suggest “the present of racial and ethnic disparities” across unemployment programs nationwide.

The revelations come as the Biden administration has trained its attention on the unemployment insurance program, looking to modernize systems and improve Americans’ access to benefits.

In recent months, the federal government has dispatched tech teams to states to help them complete computer upgrades.

The White House has been laboring on an executive order that aims to combat identity theft targeting federal programs, while U.S. prosecutors have started bringing cases against suspected fraudsters.

On Capitol Hill, meanwhile, Wyden and Sen. Michael Bennet, D-Colo., have continued to call for long-stalled legislation that would overhaul the country’s unemployment program – including the way it provides benefits.

Wyden stressed it would “address many of the problems GAO identifies” in its reports.

“These reports demonstrate that we need to better protect workers of color, who are less likely to be protected by our UI system, and permanently expand jobless protections for workers, such as gig workers and new labor market entrants, who were excluded from benefits at the outset of the pandemic,” Bennet added in a statement to the Post.