News & Politics

Massive Fraud Running Rampant in State Unemployment Programs

AP Photo/J. Scott Applewhite

California may have lost up to $30 billion in unemployment benefits fraud. Other states are just now taking stock and finding tens of billions more. And the federal government is readying another pandemic relief package that will include another several hundred billion for the unemployed.

Organized criminal gangs, scam artists, foreign mafias, terrorists, and drug cartels are all cashing in on the bonanza of an American unemployment benefits system that has proven itself unequal to the task of safeguarding taxpayer money from fraud.

The fraud is mind-boggling. Many states won’t even report the number of fraudulent benefits. State officials say it’s because they don’t want to encourage criminals from exploiting the situation further. The real reason is plain old-fashioned political embarrassment at the incompetence on display.

One of the big beneficiaries of the fraudulent payments has been inmates incarcerated in prisons. They are stealing the money from right under the noses of state officials and laughing all the way to the bank.

Associated Press:

Among states that have been hardest hit are those participating in the Pandemic Unemployment Assistance program adopted by Congress last year. It has been a lifeline for out-of-work freelancers and gig workers who normally don’t qualify for unemployment insurance, but it’s also been a boon for criminals who use stolen identities to make claims. Nearly 800,000 of the 1.4 million claims Ohio has received through this program have been tagged for potential fraud.

The AP reports that the “nationwide fraud has fed on twin vulnerabilities: a flood of jobless benefit applications since the pandemic began that has overwhelmed state unemployment agencies and antiquated benefit systems that are easy prey for crafty and persistent criminals.”

These state unemployment offices are under enormous pressure to process claims as quickly as possible, given the dire need of many people. But somewhere along the line, the system broke under the strain and fraudsters moved in en masse to claim a fat portion of the money.

In Indiana, Kentucky and Maryland, officials have said that for certain weeks in the new year at least two-thirds of the claims they received were classified as suspicious due to problems verifying identities. It’s not the first brush with serious fraud for Maryland. In July, officials said they’d discovered a massive criminal enterprise that had stolen more than $500 million in unemployment benefits.

Among states that have been hardest hit are those participating in the Pandemic Unemployment Assistance program adopted by Congress last year. It has been a lifeline for out-of-work freelancers and gig workers who normally don’t qualify for unemployment insurance, but it’s also been a boon for criminals who use stolen identities to make claims. Nearly 800,000 of the 1.4 million claims Ohio has received through this program have been tagged for potential fraud.

The Justice Department has been forced to hire more prosecutors. In New York, the Department of Labor referred “hundreds of thousands of fraud cases” to federal prosecutors.

As it turns out, there’s at least a partial solution to the fraud problem.

In its memo this past week, the U.S. Department of Labor’s Office of Inspector General said that by the end of last year, 22 of the 54 state and territorial workforce agencies were still not following its repeated recommendation to join a data exchange run by the National Association of State Workforce Agencies.

That system is designed to check Social Security numbers used in claims to see if they are being used in multiple states, or are linked to dead people or other scam methods. The office said it had found $5.4 billion in fraudulent payments from March through October.

With there still being 20 million Americans collecting unemployment benefits the fraud won’t end anytime soon. That doesn’t make it acceptable or normal. This is a gigantic failure of the government to perform its most basic, fundamental task of safeguarding the public purse.