States Can Save Billions with UI Fraud Crackdown—Here’s How

A new report from the Foundation for Government Accountability (FGA) highlights a rampant problem with a price tag of $400 billion: widespread fraud in the unemployment insurance (UI) system. 

Rampant COVID unemployment fraud might be the single biggest waste of taxpayer dollars in American history: As much as half of COVID unemployment benefits may have been stolen, up to $400 billion. COVID blew a hole in an already problematic program: A congressional report in February found that improper payments in UI have exceeded 10 percent for 15 of the past 19 years.

At a time when American businesses are starving for good workers, the time for UI reform is now. Here’s the good news: States that want to get serious about their workforce and reforming their broken UI systems have solutions available—solutions that are already at work in states across the country.

Key findings from the report:

• Fraudulent claims and unemployment overpayments are plaguing states around the country.
• Program integrity measures—which states can put in place on their own—can crack down on the problem. 
• States have already saved untold amounts with unemployment program integrity measures.

Problem: UI fraud has cost states billions, while businesses are starved for workers

The unemployment system was created as a temporary lifeline between jobs, not a paycheck replacement for able-bodied people who choose not to work. 

In 2020, the COVID-19 pandemic upended state-level UI systems throughout the country with expanded payments ($600 per week) and temporary restrictions on program integrity. As a result, payouts skyrocketed, and criminals immediately took advantage. 

A few examples:

• In the first year of the pandemic alone, $3.5 billion in improper payments went out the door to claimants using more than 225,000 fraudulent Social Security numbers, running the same scam in multiple states. In one case, an individual applied for unemployment in 40 states using the same Social Security number and received more than $220,000 from 29 states.
• Individual states were hit hard: Michigan paid out more than $8.5 billion in improper unemployment payments during the pandemic, forcing its trust fund down by 75 percent. At one point during the pandemic, nearly 90 percent of Vermont UI claims were fraudulent. 
• In fact, some federal workers received UI benefits while working from home—while they continued to cash a taxpayer paycheck. Some even applied for jobless benefits from their work computers. 

Solution: State-level crackdown with state-level tools

The solution to fraud is enforcement. That means strong systems in place to prevent fraud in the first place, and zero-tolerance crackdowns on criminals who take advantage of the system.

The FGA report highlights several available solutions:

• Data cross-checks: By sharing information with other state agencies such as new hire records, incarceration records, and death records, states can cross-check claims against data they already have. States are also able to tap into the National Association of Workforce Agency’s Integrity Data Hub to check for multi-state claimant schemes and other fraudulent activity.
• Flagging suspicious activity: One of the easiest things states can do is check for suspicious activity by requiring multi-factor authentication, reviewing claims from duplicate IP addresses, mailing addresses, and bank accounts, and monitoring potential ineligible claims for applicants who do not perform weekly job searches or are no-shows for prospective employers providing interviews.
• Prosecuting fraud and recovering overpayments: States are able to recover improper payments with benefit and tax refund offsets and have the ability to claw back improper overpayments. 
• Better oversight with checks and balances: State legislatures can demand transparency and accountability of UI programs with annual reports on program integrity, along with recommendations on how to fix problems that are identified. 

These and other enforcement mechanisms have been working for years, even before the pandemic. 

• When Minnesota began utilizing the state directory of new hires in 2019, it flagged more than 1,500 new hire issues equaling nearly $1.2 million in claims.
• When the state of Washington began using the national directory of new hires in 2017, it detected nearly 4,200 cases of new hire matches between 2017 and 2019, totaling up to nearly $3 million in claims. 
• New Jersey also identified nearly 275,000 “hits” over three years after implementing its use of the national directory of new hires, saving more than $320 million in fraudulent claims.
• When Florida implemented data cross-checks, it detected more than 60,000 cases of unemployment fraud in less than a year, with a savings of more than $500 million.
• At least a dozen states have passed significant unemployment program integrity legislation to reduce waste, fraud, and abuse, including Ohio, Virginia, Montana, and many others. This is an opportunity for states to take what’s worked elsewhere and benefit from it.

The time for real reform and program integrity is now, not after a recession hits. One of the lasting lessons of the COVID pandemic is that pushing money out the door is not a recipe for program integrity, and policymakers aren’t always able to institute the necessary safeguards or oversight when time is of the essence. 

At the end of the day, it’s important to remember the real purpose of the unemployment insurance program: helping people get back to work as a temporary safety net, not a permanent income replacement.

Read more:

FGA Report: To Restore Confidence in Unemployment Systems, States Must Pass Commonsense Reforms

FGA Research: Top Five Unemployment Insurance Fraud Schemes—And How to Stop Them