UNITED STATES
DEPARTMENT OF LABOR

DOL-OIG OVERSIGHT OF THE UNEMPLOYMENT INSURANCE PROGRAM

Page last updated January 3, 2022

BACKGROUND

As the federal agency with primary oversight of the U.S. Department of Labor (DOL), the Office of Inspector General (OIG) remains committed to meeting the challenges created by the coronavirus (COVID-19) pandemic and assisting DOL and Congress in improving the efficiency and integrity of the Unemployment Insurance (UI) program. Strengthening the UI program to prevent improper payments, including fraud, and to detect and recover improper payments that have been made, is key to ensuring unemployed workers expeditiously receive much needed benefits, while safeguarding tax dollars allocated for this goal.

The UI program is a joint federal-state program that acts as an initial economic safety net when individuals lose their jobs through no fault of their own. Each state workforce agency (SWA or state):

• administers a separate UI program under its laws, but follows uniform guidelines established by federal law;
• establishes requirements for eligibility, benefit amounts, and the length of time that benefits can be paid; and
• manages the personnel and system resources to administer their respective programs.

UI benefits are generally funded by state employer taxes with administrative costs funded by the federal government. Extensions and expansions of coverage and benefits, such as those provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and subsequent legislation, are also normally funded by the federal government. DOL’s Employment and Training Administration (ETA) is the federal agency responsible for providing program direction and oversight. The OIG conducts independent oversight of the UI program through audits to strengthen the integrity and efficiency of the program and criminal investigations to detect and combat large-scale fraud.

DOL-OIG SIGNIFICANT CONCERNS

Over the years, the OIG has repeatedly reported significant concerns with DOL and SWAs’ ability to deploy program benefits expeditiously and efficiently while ensuring integrity and adequate oversight, particularly in response to national emergencies and disasters. The OIG has reiterated these concerns following the economic downturn created by the COVID-19 pandemic and the unprecedented levels of federal funding allocated to the UI program, which is currently estimated at approximately $872.5 billion.

To date, DOL has not estimated an improper payment rate for UI benefits provided in response to the COVID-19 pandemic. However, historically the UI program experienced some of the highest improper payment rates among federal government benefit programs. The reported improper payment estimate for the regular UI program has been above 10 percent for 14 of the last 18 years. As of September 30, 2021, Estimates for the CARES Act and its related extensions range up to $872.5 billion; therefore, by program end, $87.3 billion in UI benefits could be paid improperly, with a significant portion attributable to fraud. The OIG’s initial pandemic audit and investigative work indicate that UI program improper payments, including fraudulent payments, will be higher than 10 percent.

DOL-OIG OVERSIGHT WORK

In April 2020, we published our Pandemic Response Oversight Plan detailing how the OIG would conduct its oversight, with a significant focus on the UI program. We structured the work for completion in four phases. Phases 1 and 2, focused on DOL’s plans and initial implementation of administration and oversight activities, are complete. Phase 3 audit work will consist of assessments of program results during the pandemic, including the impact on agency operations, it is ongoing with audit work focused on significant issues the OIG identified during Phase 2, the pandemic’s impact on agency operations at the national and state levels; and agency activities not previously covered during Phases 1 and 2.

At the start of the pandemic, we examined past audits related to the American Recovery and Reinvestment Act of 2009 and the Disaster Unemployment Assistance program, and we assessed comparable lessons learned as they were applicable to the UI program. As a result, in late April 2020, we issued an Advisory Report outlining our initial concerns regarding the implementation of the UI program provisions under the CARES Act. The report summarized dozens of OIG recommendations to implement corrective action in these areas.

Since then, we have issued several other reports and alerts involving the UI program. For example, our assessment of DOL’s CARES Act implementation plan resulted in an Alert Memorandum in May 2020, describing our concerns regarding claimant self-certification in the Pandemic Unemployment Assistance (PUA) program. In our view, reliance on such self-certifications rendered the PUA program highly vulnerable to improper payments and fraud. The OIG’s alert memorandum informed recent COVID-19 legislation, which included provisions to improve SWAs’ abilities to ensure proper claimant eligibility and to mitigate fraud.

In June 2020, the OIG provided a member briefing and a statement for the record to Congress highlighting challenges DOL and SWAs face in administering and overseeing the UI program. As the OIG reported, the unprecedented infusion of federal funds into the UI program gave individuals and organized criminal groups a high-value target to exploit. That, combined with easily attainable stolen personally identifiable information and continuing UI program weaknesses identified by the OIG over the last several years, allowed criminals to defraud the system.

Indeed, following the passage of the CARES Act, fraud against the UI program exploded. Working with our federal and state partners, we have been able to identify billions in potential UI fraud nationwide. Since the start of the pandemic, the OIG has opened more than 31,000 investigative matters relating to UI benefits paid under the CARES Act and subsequent legislation. We are in the process of reviewing an additional 137,000 complaints from the National Center for Disaster Fraud. As a result of the surge in complaints, UI investigations now account for 92 percent of the OIG’s investigative case inventory, compared with 12 percent prior to the pandemic. In response to the extraordinary increase in oversight demands, the OIG hired additional criminal investigators; increased the caseload of investigators already on-board; deployed federal and contract staff to review DOL and SWAs’ efforts; and strengthened our data analytics program. In addition, we took several other actions to augment our efforts, including the following:

• initiated the development of a National UI Fraud Task Force, alongside the U.S. Department of Justice (DOJ);
• collaborated with DOJ on the strategic assignment of 12 term-appointed Assistant United States Attorneys assigned solely to prosecute UI fraud;
• established a multi-disciplinary Pandemic Rapid Response Team within the OIG;
• appointed a National UI Fraud Coordinator to manage our national investigative response to UI fraud;
• appointed seven Regional UI Fraud Coordinators to partner with SWAs and federal, state, and local law enforcement on UI fraud matters in their geographic areas of responsibility;
• leveraged resources from the Council of the Inspectors General on Integrity and Efficiency, Pandemic Response Accountability Committee;
• collaborated with States’ Auditors to help develop their audit strategies for the CARES Act UI programs; and
• implemented an extensive outreach and education program targeted to SWAs, the Department, financial institutions and their associations, law enforcement agencies, and the public to inform and raise awareness regarding fraud trends, best practices, red flags, and more.

Since the start of the pandemic, OIG investigations have led to more than 845 indictments and 347 convictions. In a recent OIG case, U.S. v. Brandi Hawkins, in the Eastern District of Michigan, a defendant who was a SWA Contract employee was sentenced to 58 months in prison for her role in a scheme that fraudulently stole more than $3.5 million in UI benefits.

Our efforts to date have directly resulted in the identification and recovery of more than $225 million in fraud involving the UI program. We have also assisted other federal and state agencies identify and recover more than $565 million in fraudulent UI benefits. Moreover, in the Alert Memoranda we issued in February and June 2021, our investigators and auditors collaborated to identify $17 billion of potentially fraudulent UI benefits paid to individuals with social security numbers filed in multiple states, to individuals with social security numbers of deceased persons and federal inmates, and to individuals with social security numbers used to file for UI claims with suspicious email accounts. We recommended that the Department and SWAs establish effective controls to mitigate fraud and other improper payments to ineligible claimants, including the four high-risk areas identified in the memoranda.

In May 2021, we recently issued a report detailing our review of DOL and SWAs’ implementation of the three key new UI programs that posed the greatest risk for fraud, waste, and abuse: Pandemic Unemployment Assistance, Pandemic Emergency Unemployment Compensation, and Federal Pandemic Unemployment Compensation. To perform our review, we selected 12 states based on a risk-assessment process that included several risk factors, including the states’ improper payment rates, fraud allegations received, average weekly UI claims, previous audit findings, as well as congressional and public interest. We also administered surveys to the states that were not included in the in-depth analysis. Our review found that DOL and the states struggled to implement the three key CARES Act UI programs. Specifically, DOL’s guidance and oversight did not ensure states implemented the programs and paid benefits promptly; performed required and recommended improper payment detection and recovery activities; and reported accurate and complete program activities. This occurred primarily because states’ IT systems were not modernized, staffing resources were insufficient to manage the increased number of new claims, and according to state officials, guidance from DOL’s Employment and Training Administration (ETA) was untimely and unclear. In addition, many states did not perform required or recommended improper payment detection and recovery activities: 40 percent of states did not perform required detection cross-matches, 88 percent did not perform the recommended detection cross-matches, and 38 percent did not perform required recovery activities. Further, 42 percent of states did not report CARES Act UI program overpayments to ETA as required. States that did report overpayments understated the total amount reported by an estimated 89 percent

Also, in September 2021, we issued a report on our assessment of DOL and states strategies to reduce UI overpayments related to work search–the leading cause of improper payments prior to the pandemic. ETA estimated $2.9 billion, or 10.6 percent, of the $26.2 billion in UI benefits paid for the period July 1, 2018, through June 30, 2019, were paid improperly. The chief cause was overpayments, with states paying $878 million to UI claimants who had not complied with state work search requirements in accordance with the Middle Class Tax Relief and Job Creation Act of 2012. In part, the Act requires individuals to actively seek work in order to be eligible for UI benefits in a given week. We found ETA and state strategies did not consistently reduce UI overpayments related to work search, primarily because states had varying work search laws and requirements, with some more stringent than others. For example, one state uses a system that approves a payment after it detects a claimant has accessed the system and selected at least two job postings per week. In our review of system records for Program Year (PY) 2018, we determined that, on average, a claimant could complete one valid work search contact in as few as 11 seconds, which does not appear to be sufficient time to conduct a valid work search. We also found ETA’s improper payment estimates inappropriately excluded certain types of overpayments for the UI program. Contrary to federal law and Office of Management and Budget requirements, ETA did not include the benefits paid to claimants who had not substantiated compliance with states’ work search requirements in its UI improper payment rate calculations. UI claimants in at least 17 states received state formal warnings after failing to conduct or document adequate work searches. As a result, UI improper payments were understated by billions of dollars in Annual Financial Reports (AFR) for FY 2017 through FY 2020. For example, ETA excluded $2 billion (58.8 percent) of the $3.4 billion work search overpayments identified by states’ Benefit Accuracy Measurement (BAM) staff during PY 2018. As such, the estimated 13.1 percent improper payment rate reported in the FY 2018 AFR would have been more accurately reported at 19.8 percent. Similarly, in FY 2019, work search overpayments were understated by $1.5 billion, and the reported improper payment rate of 10.6 percent would have been more accurately reported at 15.9 percent.

DOL'S PROGRESS

While concerns persist within the UI program, DOL has instituted efforts to focus on program integrity when implementing the CARES Act and other pandemic-related UI programs. These efforts include putting agreements in place with states to comply with all applicable requirements to receive funds, issuing operating guidance, and providing technical assistance to SWAs individually and through webinars. DOL has included requirements for SWAs to focus on program integrity in guidance related to pandemic-related UI funds. In addition, DOL has reinforced the need for SWAs to actively partner with the OIG to address fraud in the UI program.

Further, the UI Integrity Center, established by DOL through a grant and operated by the National Association of State Workforce Agencies (NASWA), has continued to develop the Integrity Data Hub (IDH) to serve as a secure portal for SWAs to cross-match public and private sources of data, including new tools that will help prevent improper payments. DOL is working with NASWA’s Integrity Center to further enhance SWA participation in and use of NASWA’s IDH through additional guidance and regular communication with SWAs.

DOL-OIG RECOMMENDATIONS

The OIG has made several recommendations to improve the efficiency and integrity of the UI program. Specifically, DOL needs to:

• facilitate the OIG’s access to UI claim data for audit and investigative oversight purposes through the issuance of Unemployment Insurance Program Letters;
• continue to work with states to develop, operate, and maintain a modular set of technological capabilities to modernize the delivery of UI benefits that is sufficient to manage and process sudden spikes in claims volume during emergencies or high unemployment;
• further enhance SWA participation in and use of IDH operated by the National Association of State Workforce Agencies;
• work with SWAs to ensure that sufficient staffing and system resources are in place to manage sudden increases in the number of UI claims and payments to meet the continued requirements of the CARES Act, and similar future legislation;
• identify and implement strategies designed to reduce the UI improper payment rate, including sharing best practices identified among SWAs;
• ensure that SWAs are enforcing UI claimants’ requirements to meet the conditions of UI eligibility, including: (1) being available for work; (2) actively seeking work; and (3) accepting suitable and safe work when offered;
• create a rapid response team consisting of federal and state officials capable of providing technical and other assistance to SWAs impacted by major disasters;
• establish effective controls, in collaboration with SWAs, to mitigate fraud and other improper payments to ineligible claimants, including UI benefits paid to: multi-state claimants, claimants who used social security numbers of deceased individuals, potentially ineligible federal inmates, and claimants with suspicious email accounts;
• work with Congress to establish legislation requiring SWAs to cross-match in high-risk areas, including the four areas identified in the February 22, 2021, Alert Memorandum;
• conduct a study to assess the technological needs of the UI programs to determine the capabilities that need to be upgraded or replaced; the features necessary to effectively respond to rapid changes in the volume of claims in times of emergency or high unemployment; the capabilities needed to ensure effective and equitable delivery of benefits; and the capabilities to minimize fraudulent activities;
• • assist states with claims, overpayment, and fraud reporting to create clear and accurate information, and then use the overpayment and fraud reporting to prioritize and assist states with fraud detection and recovery;
• develop standards for providing clear and reasonable timeframes to implement temporary programs to establish expectations for prompt benefit payments to claimants;
• develop and implement cause-level reduction targets to gauge and monitor the effectiveness of strategies implemented by states to reduce work search overpayments;
• examine the effectiveness of BAM’s contact verification process to ensure it reflects the current methods claimants use to seek work;
• inform states that formal and informal warnings are not permissible under Federal law;
• include in the UI improper payment estimate: (1) overpayments related to work search formal/ informal warnings and payments to claimants who provide no or insufficient documentation to support eligibility with respect to work search; and
• incorporate the impact of UI improper payments related to temporary programs, such as those created by the CARES Act, into the traditionally estimated improper payment rate calculations.

In addition, Congress should consider legislative proposals included in prior budget requests and pass legislation to improve UI program integrity. These legislative proposals are consistent with previous OIG findings and recommendations to improve the UI program. The proposals include the following:

• allow the Secretary of Labor greater authority to require SWAs to implement UI corrective actions related to performance and integrity;
• require SWAs to use the NASWA’s IDH and the State Information Data Exchange System;
• require SWAs to cross match UI claims against the National Directory of New Hires;
• require SWAs to cross match UI claims with the U.S. Social Security Administration’s prisoner database and other repositories of prisoner information;
• allow SWAs to retain 5 percent of UI overpayment recoveries for program integrity purposes; and
• require SWAs to use UI penalty and interest collections solely for UI administration.

Finally, Congress should consider legislative action to allow DOL and the OIG to have direct access to UI claimant data and wage records for its oversight responsibilities. Real-time direct access to SWA UI claimant data and wage records systems would further enable the OIG to quickly identify large-scale fraud and expand its current efforts to share emerging fraud trends with ETA and SWAs in order to strengthen the UI program and likely prevent fraud before it occurs. In addition, the data analytics based on the direct access would further enable our auditors to identify program weakness and recommend corrective action that will improve the timeliness of UI benefit payments and the integrity of the UI program.

DOL-OIG ONGOING AND PLANNED WORK

The OIG’s efforts to strengthen and protect the UI program continue. In addition to working with our law enforcement partners to combat fraud in the program, we will be issuing additional reports covering critical areas of concern and opportunities for program improvement. These will include reports on:

• the capability of SWAs’ legacy IT systems to process UI benefit claims timely and accurately;
• the effectiveness of SWAs’ controls to ensure UI benefit payments are timely and made to only eligible claimants;
• DOL and SWAs’ efforts to prevent and detect overpayments;
• the impact of CARES Act and subsequent legislation provisions on nontraditional UI claimants;
• SWAs’ use of pandemic legislation UI administrative funds;
• the sufficiency of SWAs’ staffing resources to support implementation of pandemic UI programs;
• DOL efforts to ensure SWAs met full federal funding of first week compensation program requirements;
• reimbursements flexibility to employers under the Emergency Unemployment Relief for Government Entities and Non-profit Organizations;
• DOL and SWAs efforts to ensure UI claimants comply with return to work requirements;
• DOL controls to ensure states met the Short-Time Compensation program requirements;
• DOL and SWAs’ effectiveness in identifying UI claimants who refused to return to work; and
• DOL and states’ use of Equity Grants in addressing the potential racial and ethnic disparities in the UI program.

For more information about the OIG's work, please visit our Pandemic Response Portal.