According to the U.S. Department of Labor, the improper payment rate in fiscal year 2012 for unemployment insurance benefits was 11.4 percent, or $10.3 billion out of $90.2 billion.

The federal-state UI program, created in part by the Social Security Act of 1935, is administered under state law based on federal requirements. The program provides temporary, partial compensation for lost earnings of eligible individuals who become unemployed.

Applicants of UI benefits must have earned at least a certain amount in wages or have worked a certain number of weeks to be eligible. In addition, these individuals must be available for and able to work, and actively search for work.

Most of the overpaid funds end up in the hands of three types of people: those who continue to file claims even though they have returned to work, those who are not actively searching for a job, those who were fired or quit voluntarily.

The UI overpayment typically results from an administrative error.

“Most of the overpayments in the UI system are for reasons of non-fault. Either because there was agency error, employer error, or claimant error,” said Sharon Dietrich, a managing attorney for Philadelphia-based Community Legal Services.

Dietrich said that fewer than one out of four overpayments were found to be fraudulent. She said unemployment compensation fraud cannot be tolerated, but urged that it be examined in the context of overpayments of benefits.

“Sometimes, there is a tendency to conflate fraud with overpayments, the latter of which are all circumstances in which people received UI benefits for which they were later determined to be ineligible. In the vast majority of cases, these overpayments are ‘non-fraud,’ meaning that the worker was not intentionally trying to defraud the system,” Dietrich said.

She said overpayments cover all situations where people receive unemployment compensation benefits for which they are later determined to be ineligible.

Dietrich also noted that overpayment of unemployment compensation benefits is on the rise because of inadequate federal funding for state programs, which leaves administrators and staffers overburdened.

Valerie Melvin, an official at the Government Accountability Office, said that state agencies rely on outdated information technology systems to collect and process the tax revenue that funds the UI program, determine eligibility, and administer benefits.

“The majority of the states’ existing systems for UI operations were developed in the 1970s and 80s. Although some agencies have performed upgrades throughout the years, many systems are reported to be outdated, costly, and difficult to support, and incapable of efficiently handling workload demands,” Melvin said.

Dietrich urged the panel to put an emphasis on improving criminal justice system databases so the information used to identify incarcerated persons is up to date and reliable. Nevertheless, she said there are more significant ways to avoid or reduce UI overpayments.

“While I understand the outrage around people who are incarcerated collecting benefits, clearly this is a small subset of claims that are found to be fraudulent, much less overall overpayment numbers,” she said.