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Foiling Fraudsters: New Tools to Stop Improper UI Payments

By Zaakary Barnes  |  January 5, 2023

The COVID-19 pandemic unleashed an onslaught of unemployment insurance fraud. Now states are looking to new data collection and analysis systems to stop the next wave.

Today’s UI programs are the result of the unique federal-state relationship created in the Social Security Act. The federal government levies a tax on employers through the Federal Unemployment Tax Act to finance administrative costs, and each state is free to determine eligibility and work search requirements, as well as levy their own taxes to fund the benefits.

During the pandemic recession, which began in response to the sharp contraction of economic activity and huge job losses in early 2020, this partnership formed the basis for three new unemployment programs created by Congress: Federal Pandemic Unemployment Compensation gave individuals an additional $600 per week, before being lowered to $300. Pandemic Emergency Unemployment Compensation let individuals claim benefits for up to 79 weeks. And Pandemic Unemployment Assistance expanded eligibility of benefits to more workers, including self-employed and gig workers, and let them claim these benefits longer.

All told, these programs accounted for more than $665 billion of the total $872.5 billion in pandemic unemployment funding. But among the three programs, an estimated $163 billion in benefits was paid improperly.

Although fraud gets the most media coverage, “improper payments” include a wide range of payments that may have been made in error. These can include overpayment of benefits due to eligibility issues or agency error and even underpayment of benefits.

According to the Labor Department’s Office of the Inspector General, the leading causes of improper payments are claimants not meeting work search requirements; claimants misreporting their earnings; lack of timely reports of employee separation by employers; and intentional fraud.

Determining whether an improper payment is the claimant’s fault  dictates a state workforce agency’s next steps. If an individual is not at fault and the payment is the result of an agency error, state and federal rules often permit claimants to keep the misallocated money. However, identifying fraudulent payments remains a challenge for many states. The OIG report identified four high-risk areas in which potentially fraudulent benefits have been paid to individuals with Social Security numbers: filed in multiple states; of deceased persons; of federal prisoners; and used to file claims with suspicious email accounts. As of November 2022, the office estimated that $45.6 billion of the $163 billion in improper payments were potentially fraudulent.

As legislatures begin coming back into session, some are already taking stock of how many UI payments may have been fraudulent. This critical first step will be key to implementing policies tailored to their unemployment insurance programs’ structures and needs.

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