Unemployment Insurance Is Rife With Fraud And Abuse, And States Are Putting A Stop To It
Key Findings
- Unemployment insurance (UI) is plagued by improper payments.
- Weak verification requirements have made UI programs more susceptible to fraud and abuse.
- More than a dozen states require reporting on UI fraud, which has exposed billions in fraudulent payments.
- Program integrity measures can stop fraud before it happens.
Background
UI is designed to provide temporary benefits to workers who lose their job through no fault of their own.1 It is meant to be short-term support while an individual searches for and secures employment.2
Unemployment insurance is a joint federal-state program, and each state administers a separate UI program.3 Eligibility criteria, the amount of benefits, and the duration of benefits vary by state, but in general, an individual qualifies for UI if they have sufficient work history and are unemployed due to circumstances other than being fired for cause or quitting.4
UI has long been a target for fraud and abuse and is considered a high-risk program for improper payments.5 Individuals defraud the program by claiming benefits despite being ineligible, not accepting work or searching for work while receiving benefits, not reporting income or employment while receiving benefits, or using a stolen identity to claim benefits.6 In 2024, the estimated improper payment rate for unemployment insurance was nearly 16 percent, which is more than $5.6 billion.7 The improper payment rate has only dropped below 10 percent three times since 2004, and has never been lower than nine percent.8
In 2020, utilization of UI surged because of the impact of government-imposed lockdowns on the economy.9 UI benefits were enhanced, allowing many people to earn more by claiming unemployment benefits than they would have by working.10 Fraud and overpayments skyrocketed as a result.11
In 2020, UI had a 7.3 percent payment error rate, which climbed to 23.7 percent by the spring of 2021.12 Between April 2020 and May 2023, the Government Accountability Office estimates that $135 billion were lost to fraud across all UI programs.13 In one state, 90 percent of UI claims made during the pandemic were fraudulent.14 But even before pandemic-era policies caused fraud to surge, unemployment insurance was rife with overpayments. In 2019, more than a third of states had overpayment rates of more than 10 percent, with one state reporting one out of every three dollars as improper.15
Now, years after the pandemic is over, state reports continue to confirm that UI programs across the nation are plagued by fraud and misuse.
State-mandated reports on UI fraud have revealed billions in overpayments
To enforce accountability within UI programs, more than a dozen states have passed laws that require agencies to report to policymakers on program integrity measures and overpayments. These reports promote transparency and highlight the shortcomings that result in billions of dollars’ worth of fraudulent UI claims each year. In addition, state-mandated reporting allows agencies to highlight their successful efforts to recover stolen taxpayer dollars, along with the tools to detect and prevent fraud from happening in the first place.
These reports reveal that UI fraud is rampant across the country. In Arizona, $30.1 million in fraudulent UI payments were recovered in 2024 alone, bringing the total pandemic-related recoveries to $1.2 billion.16 Wisconsin also detected nearly 5,000 cases of fraud in 2024, totaling $7.8 million in stolen benefits.17 Of these, 78 percent of cases were committed in previous years.18 Virginia prevented $1.7 billion in overpayments from being paid in 2024 due to questionable identities, among other eligibility issues.19
But not all states publish data on overpayments or program integrity measures. Some of the worst fraud likely goes undetected because of a lack of reporting and accountability. For example, an audit of California’s Employment Development Department revealed that estimates for overpayments in 2022 were unreliable and incomplete.20 States that choose not to report on these failures keep the abuse hidden, leaving the door to fraud wide open.
Program integrity measures help to prevent fraud and waste
States should crack down on UI fraud and ensure that resources are preserved for the truly needy by implementing program integrity measures.
States can make unemployment insurance less attractive to fraudsters and more successful in helping people get back to work quickly by strengthening work-search requirements. This ensures that recipients are truly looking for work, not just checking a box. Recipients should have to perform four or more work-search activities each week and report these activities to the unemployment agency.
Additionally, employers should report to the state agency when an applicant fails to show up for an interview or accept an offered position, and recipients should be penalized for ghosting interviews or declining an offer of employment. Louisiana requires employers to report interview ghosting, requires at least five work-search activities per week, and disqualifies an individual from benefits if he or she declines a job offer or fails to show up for a scheduled interview.21 Arkansas, Idaho, Kansas, and Tennessee have passed similar laws.22-26
States should also implement data cross-checks to prevent fraud. States should cross-check UI beneficiaries with new-hire records to ensure that those who are employed are not receiving benefits. Additionally, states should review UI applications with duplicate, foreign, or out-of-state IP addresses to prevent fraudsters from using stolen identities or making claims in multiple states and use the data available through the Integrity Data Hub to prevent fraud. States like Arkansas, Idaho, Louisiana, Montana, Ohio, Oklahoma, South Dakota, Tennessee, and West Virginia have enhanced program integrity by implementing data cross-checks.27-34
Another way to make UI less susceptible to fraud and overpayments is to limit benefit duration. States should set a low maximum duration of UI benefits or index the number of weeks that someone may receive benefits to a state’s unemployment rate. When the unemployment rate is high, individuals would have longer to find work. When unemployment is low and jobs are plentiful, individuals would cycle out of the program more quickly. States like Florida, Georgia, Kansas, Louisiana, North Carolina, and Tennessee have indexed UI benefit duration to the unemployment rate. 35-38
States that have implemented UI reforms have seen results
The results of implementing these reforms speak for themselves. In 2023, Arkansas reduced the maximum benefit duration to 12 weeks and reduced employer taxes.39 Arkansas lawmakers also strengthened work-search requirements and penalized those who fail to show up to a scheduled interview.40 As a result, from 2023 to 2025, the average time a beneficiary spent on UI in Arkansas fell by a full week to 8.6 weeks, the second shortest length of time in the nation.41 The recipiency rate also fell, and the trust fund balance increased by 6.3 percent even as employer taxes were lowered. In states without UI reforms, trust fund balances fell, and benefit duration was reduced by less than one percent over the same period, making Arkansas the envy of other states.42
In Tennessee, following reforms to its UI program, the average time a beneficiary received UI benefits fell by 13 percent.43 The trust fund balance increased by five percent in the same timeframe.44
Iowa lowered the maximum UI benefit duration to four months.45 Additionally, Governor Kim Reynolds took executive action to enhance work-search requirements.46 As a result, Iowans found employment more quickly than UI recipients in neighboring states.47 The UI recipiency rate and the average number of weeks that an individual received benefits both plummeted compared to neighboring states and Iowa’s UI trust fund was replenished quickly following the pandemic even while taxes on employers were lowered.48
Other states have successfully guarded their UI programs from abuse as well. When North Carolina began indexing UI benefit duration to unemployment, program costs dropped by 87 percent.49 After Florida implemented indexing, the average number of weeks that enrollees received benefits was cut in half, meaning that individuals were back to work and contributing to the economy more quickly.50
States across the country have successfully improved program integrity for UI, and more states should follow suit.
The Bottom Line:
States should implement program integrity measures like robust work-search requirements, reduced benefit duration, and data cross-checks to help stop UI fraud.
Unemployment insurance is an important tool to help people who are out of work find employment and achieve self-sufficiency. However, it is only effective if benefits are reserved for those who truly need them, not fraudsters trying to game the system. Reports on UI fraud by state agencies have shown that the UI program is a consistent target for fraud and abuse. By defending UI programs against fraud, states can ensure that their UI trust funds are robust and able to weather an economic downturn. The tools exist for states to rigorously cross-check UI claims and prevent identity theft, fraud, and overpayment, and states should take advantage of them.
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