UNITED STATES
DEPARTMENT OF LABOR

OIG OVERSIGHT OF THE UNEMPLOYMENT INSURANCE PROGRAM

Page last updated September 22, 2022

OVERVIEW OF THE UI PROGRAM

The UI program is a joint federal-state program that is the first economic line of defense against the collective impact of unemployment and acts as a safety-net for individuals who lose their jobs through no fault of their own. The UI program is required to make timely benefit payments to provide needed assistance to unemployed workers. It is equally important that the program have sufficient controls in place to quickly determine that benefits are or were paid to the right person in the correct amount. Each State Workforce Agency (SWA or state)¹:

• 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. The UI program requires SWAs to make weekly benefit payments while ensuring claimants meet eligibility requirements. Extensions and expansions of coverage and benefits, such as those provided by the CARES Act and subsequent legislation, are normally funded by the federal government.

DOL’s Employment and Training Administration (ETA) is the federal agency responsible for providing UI 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 deter large-scale fraud. The OIG’s federal criminal investigations are time and resource-intensive and one of the last lines of defense in safeguarding the UI program from fraud.

OIG SIGNIFICANT CONCERNS

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. We have been and remain particularly concerned about deployment of UI benefits in response to emergencies including natural disasters and economic downturns. Most recently, the OIG reiterated these concerns regarding the economic downturn created by the pandemic and the unprecedented levels of federal funding allocated to the UI program, currently estimated at approximately $872.5 billion.

Deploying Benefits Expeditiously and Efficiently

Rapid deployment of CARES Act funding was critical in helping workers in need. However, anticipating and addressing the increased risk that came with the expanded funding was also vital to meeting the intent of the act. As the OIG’s prior audit work has shown, quickly deploying funds can result in shortcomings in the effective and efficient implementation of stimulus programs. For example, a 2011 audit report² found states took over a year to spend most of the American Reinvestment and Recovery Act of 2009 (Recovery Act) funding available for emergency staffing, and at least 40 percent of funding for this purpose was unspent after 15 months.

In addition, a separate audit on the Recovery Act³ found $1.3 billion of the $7 billion DOL provided to states for UI modernization, including IT modernization, would likely not have been spent before the period of availability expired. To access these funds, states had to meet certain UI law modernization criteria; once accessed, the funds could be spent for several purposes including to modernize IT systems. Of the funds spent from the $7 billion, states did not always take advantage of the opportunity to modernize their IT systems.

To implement the new UI programs authorized by the CARES Act in March 2020, states needed sufficient staffing and system resources to manage the extraordinary increases in the number of claims and payments. Since the start of the pandemic, our audit work confirmed the Department and states continued to face challenges in these areas as they endeavored to implement the new temporary UI programs authorized by the CARES Act.

Less than a month after the CARES Act passed, we published an advisory report⁴ outlining areas of concern that ETA and the states should consider as they implemented the UI provisions included in the CARES Act. Our identification of these areas represents years of work relating to DOL’s UI program, including the use of prior stimulus funds and response to past disasters. One of these areas was state preparedness, a long-standing concern underlying many issues noted in prior OIG reports, specifically the issues of staffing and system capabilities.

We also advised ETA to establish methods to detect and recover improper payments, including fraudulent payments. We reported on the program that posed the greatest risk, the Pandemic Unemployment Assistance (PUA) program. PUA’s expanded coverage for a population of claimants who were traditionally ineligible to receive UI benefits⁵ presented significant challenges to states as they designed and implemented processes to determine initial and continued program eligibility. Further, we found the risk of improper payments including fraud was even higher under PUA because claimants could self-certify their eligibility for UI.

Our subsequent reports identified continued programmatic weaknesses that led to workers unemployed through no fault of their own suffering lengthy delays in receiving benefits. For example, the OIG had audited the Disaster Unemployment Assistance (DUA) program and found the Department had not established adequate controls to ensure benefits were paid timely.⁶ Similarly, for PUA, we identified that it took, on average, 38 days for the first payment to be made after the CARES Act passed. Also, we identified delays in the first payments for two other pandemic UI: it took 25 days for the Federal Pandemic Unemployment Compensation (FPUC) program and 50 days for the Pandemic Emergency Unemployment Compensation (PEUC) program.⁷

History of Improper Payments, including Fraud

For more than 20 years, the OIG has reported on the Department’s challenges to measure, report, and reduce improper payments in the UI program. Indeed, the UI program has experienced some of the highest improper payment rates across the federal government. The reported improper payment estimate for the regular UI program has been above 10 percent for 15 of the last 19 years.

The UI program requires states to make weekly benefit payments while ensuring claimants meet eligibility requirements. A SWA may determine a payment is improper after a claimant receives benefits based on new information that was unavailable when the SWA approved the benefit payment or as a result of the requirement that claimants be provided with due process prior to stopping payment of benefits. The leading causes of improper payments have historically been:

• Claimants Do Not Meet Work Search Requirements⁸ – Claimants who fail to demonstrate they meet state requirements for work search;
• Benefit Year Earnings – Claimants who continue to claim benefits after they return to work, or who misreport earnings during a week in which benefits are claimed;
• Employers Do Not Timely Report Employees’ Separation – Employers or their third-party administrators who fail to provide timely and adequate information about why individuals separated from their employment; and
• Fraud – Claims based on fraudulent schemes, such as those perpetrated during the pandemic.⁹

A Perfect Storm

Following the start of the pandemic in the United States in early 2020, unemployment compensation claims rose exponentially to historically unprecedented levels. Prior to the pandemic, numbers of UI claims were historically low. On March 14, 2020, the Department reported 282,000 initial claims. Within 2 to 3 weeks, initial claims rose to 10 times pre-pandemic levels, far higher than state systems were designed to handle. Within 5 months, through August 15, 2020, the Department reported 57.4 million initial claims, the largest increase since the Department began tracking UI data in 1967.

The CARES Act provided significant funding to the federal-state UI program, which resulted in hundreds of billions of dollars in additional payments. New UI programs under the CARES Act meant more workers qualified.¹⁰ Further, unemployed workers received a supplement per week in addition to their regular benefit amount, and individuals who exhausted their regular unemployment benefits were provided additional weeks of unemployment compensation. Also, UI claims could be backdated to the beginning of the eligibility period. With the legislative extensions, claimants could receive up to 79 weeks of pandemic-related UI payments.

In June 2020, the OIG provided a member briefing¹¹ and a statement for the record¹² to Congress highlighting challenges DOL and SWAs faced in administering and overseeing the UI program as well as the substantially increased fraud risk. The expanded coverage offered under the PUA program posed significant challenges to states as they implemented processes to determine initial and continued program eligibility for participants. The reliance solely on claimant self-certifications without evidence of eligibility and wages during the program’s first 9 months rendered the PUA program extremely susceptible to improper payments including fraud.

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. Because many states were not prepared to process the extraordinary volume of new UI claims and struggled to implement new UI programs, some internal controls that had been traditionally used or recommended for the processing of UI claims were not initially implemented. This created a high-reward target where an individual could make a fraudulent claim with relatively low risk of being caught. As time went on, one fraudster could have been issued several UI debit cards, with tens of thousands of dollars on each card.

Estimating the overall improper payment rate for the pandemic UI programs is critical for the efficient operation of the program. ETA and the SWAs, under their program operating responsibilities, must determine the improper payment rate, including the fraud rate, for pandemic UI programs. In August 2020, we recommended that ETA estimate the improper payment rate for pandemic UI programs. In December 2021, consistent with our recommendation, ETA reported an improper payment rate of 18.71 percent for 2021, which ETA applied to two of three pandemic UI programs, PEUC and FPUC. ETA states it will report the third program, PUA, in 2022.

Applying the 18.71 percent to the estimated $872.5 billion in pandemic UI funding,¹³ at least $163 billion in pandemic UI benefits could have been paid improperly, with a significant portion attributable to fraud. Based on our audit and investigative work, the improper payment rate for pandemic UI programs is likely higher.

For example, the OIG has identified¹⁴ $45.6 billion of potentially fraudulent UI benefits paid from March 2020 to April 2022 in four specific high-risk areas, to individuals with Social Security numbers: (1) filed in multiple states, (2) of deceased persons, (3) of federal prisoners, and (4) used to file UI claims with suspicious email accounts.

OIG PANDEMIC INVESTIGATIVE WORK

The volume of UI investigative matters currently under review is unprecedented. Prior to the pandemic, the OIG opened approximately 120 UI investigative matters annually. Since the pandemic started, the OIG has opened more than 190,000 investigative matters concerning UI fraud. That is an increase of more than 1,000 times in the volume of UI work that we are facing. UI investigations now account for approximately 96 percent of the OIG investigative case inventory, compared to approximately 11 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 onboard; 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 Unemployment Insurance Fraud Task Force (National UI Fraud Task Force),¹⁵ alongside 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 (CIGIE), Pandemic Response Accountability Committee (PRAC);
• collaborated with states’ auditors to help develop their audit strategies for the CARES Act UI programs; and
• joined the DOJ COVID-19 Fraud Enforcement Task Force;¹⁶
• 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;¹⁷ and
• joined the Department of Justice’s Pandemic Fraud Strike Force teams initiative.¹⁸

During the execution of a UI fraud search warrant, OIG agents recovered approximately 30 UI debit cards, over $500,000 in cash, and several notebooks containing PII. When the OIG identifies anti-fraud measures that may help the program detect and stop fraud, we share them with the Department and SWAs as appropriate. For example, in alert memoranda issued in February 2021,¹⁹ in June 2021,²⁰ and in September 2022,²¹ our investigators, auditors, and data scientists collaborated to identify nearly $45.6 billion of potentially fraudulent UI benefits paid in four high risk areas to individuals with Social Security numbers: (1) filed in multiple states, (2) of deceased persons (3) of federal prisoners, and (4) used to file UI claims with suspicious email accounts. We shared our methodology and underlying data²² with the Department for further dissemination to the SWAs, and we recommended they establish effective controls to mitigate fraud and other improper payments to ineligible claimants. We plan to examine whether SWAs took effective measures to address these four high-risk areas.

As of September 2022, our UI investigations have resulted in: more than 600 search warrants executed, more than 1,000 individuals being charged with crimes involving UI fraud,²³ 400 convictions, and over $865 million in investigative monetary results. We have also referred over 19,000 fraud matters that do not meet federal prosecution guidelines back to the SWAs for further action.

In one recent OIG investigation, 11 members and associates of the Brooklyn-based Woo Gang were charged with a multi-million-dollar pandemic UI fraud scheme.²⁴ In another recent OIG investigation, a former California Employment Development Department employee was sentenced to more than 5 years in prison for fraudulently obtaining nearly $4.3 million in pandemic relief funds.²⁵

Working with Domestic and International Law Enforcement Partners

Early in the pandemic, the OIG worked with the DOJ to create the National UI Fraud Task Force, a nine-agency federal task force focused on law enforcement intelligence sharing, deconfliction, joint national and regional messaging, and the effective use of investigative and prosecutorial resources. The National UI Fraud Task Force has also worked closely with partners at the International Organized Crime Intelligence and Operations Center (IOC-2) to develop a deconfliction process to coordinate investigative information across federal law enforcement agencies. Through data analytics and a leads generation process, the National UI Fraud Task Force and IOC-2 partner agencies have identified significant fraud being committed against the UI program by domestic and international criminal organizations. Many of these include street-level criminal organizations with ties to illegal guns and drugs. These investigations are ongoing and actively being investigated through the National UI Fraud Task Force, COVID-19 Fraud Enforcement Task Force, and the COVID-19 Strike Force team initiative.

The OIG has been very engaged on DOJ’s COVID-19 Fraud Enforcement Task Force. We have representation on COVID-19 Fraud Enforcement Task Force subcommittees involving communication, forfeiture, and data, and we co-chair the task force’s criminal enterprise subcommittee. Recently, the OIG joined the DOJ Pandemic Fraud Strike Force program (strike force program).

The OIG has also participated in other initiatives that have fallen outside the framework of the National UI Fraud Task Force and COVID-19 Fraud Enforcement Task Force. For example, in 2020 and 2021, the OIG supported DOJ’s annual Money Mule Initiative,²⁶ which aimed to raise awareness about and suppress money mule activity. The OIG conducted extensive internal and external outreach regarding money mules and identified and targeted money mules in coordination with DOJ and other partner agencies.

In addition, the OIG issued alerts to financial institutions about UI fraud both on its own and jointly with its partners, such as the U.S. Secret Service (Secret Service), Financial Crimes Enforcement Network (FinCEN), and National UI Fraud Task Force. One such joint OIG/Secret Server alert served²⁷ as a framework for the recovery of millions of dollars of fraudulent UI funds being held by financial institutions. Later, in 2021, the OIG authored a National UI Fraud Task Force alert issued through FinCEN to financial institutions requesting that they identify funds they froze due to suspicion of fraud. The OIG created a process with DOJ and the Secret Service to collect that data and work with those financial institutions to return fraudulent funds to SWAs. The OIG and its law enforcement partners are working with more than 350 financial institutions in response to our request.

The PRAC has also played a pivotal role in amplifying the ability of OIGs to share information and conduct internal and external outreach to stakeholders that have been impacted by pandemic fraud. For example, the OIG worked with the PRAC on social media tool kits related to money mule activity and erroneous Forms 1099-G that were issued to victims of UI fraud. The OIG has also worked with the PRAC, DOJ, and Secret Service to create a web-based survey where financial institutions can more broadly report UI and other types of pandemic fraud. This information is being collected by the PRAC, analyzed by its partners, and, if appropriate, sent to field personnel for further action.

The OIG, through its membership in IOC-2, has also been engaged with several allied national police agencies to strategize about pandemic-related fraud and how to best establish practices to share information. The issue of pandemic fraud has not only been an issue for the United States, but it has also negatively impacted our foreign partners’ pandemic programs. We have conducted outreach and education related to pandemic fraud, including UI fraud, with our Five Eyes partner countries as participants on the International Public Sector Fraud Forum.²⁸

The OIG, IOC-2, and our federal law enforcement partners have identified numerous instances of international organized criminal groups engaged in UI fraud. We will continue to work with our domestic and international law enforcement partners on these matters.

OIG PANDEMIC OVERSIGHT WORK

In April 2020, shortly after CARES Act enactment, we published our Pandemic Response Oversight Plan²⁹ detailing how the OIG would conduct its pandemic oversight, with a significant focus on the UI program. We designed our four-phased pandemic response oversight plan to provide recommendations to DOL to address current and emerging vulnerabilities with the pandemic response and to prevent similar vulnerabilities from hampering preparedness for future emergencies. Phases 1 and 2, which are complete, focused on DOL’s plans, guidance, and initial implementation of administration and oversight activities. Phase 3 audit work, assessing program results and more, is ongoing. Our Phase 4 work plans include summarizing our pandemic response oversight work and reporting on lessons learned related to UI, worker safety and health, and employment and training. We published two plan updates, most recently on March 21, 2022.

At the start of the pandemic, we examined past audits including those related to the Recovery Act and the DUA program, and we assessed comparable lessons learned. As a result, in April 2020, we issued the previously noted advisory report³⁰ identifying six initial areas of concern for ETA and the states to consider while implementing CARES Act UI provisions: (1) state preparedness (specifically the issues of staffing and systems capabilities), (2) initial eligibility determination, (3) benefit amount, (4) return to work, (5) improper payment detection and recovery, and (6) program monitoring. Our identification of these areas represents at least 16 years of work relating to DOL’s UI program, including the response to past disasters. The advisory report summarized dozens of OIG recommendations to implement corrective action in these areas.

We have issued several subsequent alert memoranda for urgent concerns, and other reports involving the UI program, including:

• May 2020, we issued an alert memorandum³¹ describing our concerns regarding claimant self-certification in the PUA program. In our view, reliance on such self-certifications rendered the PUA program highly vulnerable to improper payments and fraud. Subsequent to our work, Congress took action to require supporting documentation to improve SWAs’ abilities to ensure proper claimant eligibility and to mitigate fraud.
• In August 2020, we reported³² states did not use existing tools effectively to combat fraud and other improper payments. We also stated ETA should work with the OIG to obtain access to state claimant data that could be used to identify and disrupt fraudulent schemes that threaten the integrity of UI programs, including those under the CARES Act.
• In May 2021, we reported³³ that DOL and states struggled to implement the three pandemic UI programs that posed the greatest risk for fraud, waste, and abuse: PUA, PEUC, and FPUC. 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’ information technology (IT) systems were not modernized, staffing resources were insufficient to manage the increased number of new claims, and, according to state officials, ETA’s guidance was untimely and unclear.
• In November 2021, we issued³⁴ the Department qualified opinion, for the first time in 25 years, on its consolidated financial statements and reported one material weakness related to UI COVID-19 funding. There were two primary causes for this issue: (1) the Department being unable to support $47.3 billion it estimated for UI claims in appeal or unprocessed as of September 30, 2021, and (2) unreliable reporting of $4.4 billion in UI benefit overpayments due to certain states’ non-reporting of UI overpayment activity.
• In July 2022, we reported³⁵ that the Department did not meet the requirements for compliance with the Payment Integrity Information Act (PIIA) for FY 2021. PIIA requires federal agencies to identify programs susceptible to significant improper payments, estimate the improper payments for those programs, and report on actions to reduce the improper payments in those programs. While DOL met three of the six compliance requirements for UI programs, we found DOL did not meet the three others. DOL did not publish all improper payment estimates as required, did not demonstrate improvement from the improper target rate published in FY 2020, and did not report an improper payment rate of less than 10 percent as required.
• In August 2022, we issued an alert memorandum³⁶ describing our concerns regarding states either not submitting required CARES Act UI program reports to ETA or reporting zero activity. We found the reporting to be deficient for the eight reports we examined. For the PUA program, which was highly susceptible to improper payments including fraud, seven states reported zero overpayments for all months during the entire program period of March 2020 through September 2021. Without accurate state performance information, Congress and ETA are not able to: fully assess state activities, mitigate the risk of overpayments and fraud, identify program weaknesses, or establish lessons learned that may be leveraged to improve states’ performance under similar, future temporary programs.
• As of September 2022, we have issued three alert memoranda³⁷ that identified a total of $45.6 billion of potentially fraudulent UI benefits paid from March 2020 through April 2022 in the four specific high-risk areas as previously mentioned—to individuals with Social Security numbers: (1) filed in multiple states, (2) of deceased persons, (3) of federal prisoners, and (4) used to file UI claims with suspicious email accounts. We recommended in our June 2021 memorandum that ETA amend 20 C.F.R. Part 603 and update its guidance to provide the OIG with unfettered access to SWA UI data; ETA has not taken sufficient corrective action.

OIG RECOMMENDATIONS

The OIG has made several recommendations to DOL and Congress to improve the efficiency and integrity of the UI program. While action has been taken to resolve some recommendations, further action is needed to close them. Summaries of key recommendations that remain open follow.

OIG Recommendations to DOL

OIG Access to Claim and Wage Data

• Implement immediate measures to ensure ongoing OIG access to UI claim data for audit and investigative purposes
• Expedite regulatory updates to require ongoing disclosures of UI information to the OIG for audits and investigations of federal programs
• Take immediate action to require the National Association of State Workforce Agencies (NASWA) to refer information to ETA and the OIG on suspected fraud, waste, abuse, mismanagement, or misconduct

Staffing and Systems for Prompt Payments during Emergencies

• Continue to work with states to develop, operate, and maintain a modular set of technological capabilities (i.e., staffing and replacing IT legacy systems) to modernize the delivery of UI benefits that is sufficient to manage and process sudden spikes in claims volume during emergencies or high unemployment
• Create a rapid response team consisting of federal and state officials capable of providing technical and other assistance to SWAs impacted by major disasters
• 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
• Develop standards for providing clear and reasonable timeframes to implement temporary programs to establish expectations for prompt benefit payments to claimants

Controls for Improper Payments

• Establish effective controls, in collaboration with SWAs, to mitigate fraud and other improper payments to potentially ineligible claimants, including multistate claimants, claimants who used Social Security numbers of deceased persons and federal prisoners, and claimants with suspicious email accounts
• Include in the UI improper payment estimate: (1) overpayments related to work search formal/ informal warnings; and (2) payments to claimants who provide no or insufficient documentation to support eligibility with respect to work search
• 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
• Develop policies and procedures to coordinate with SWAs to obtain the necessary UI program information needed (for DOL financial statements) to support related balances and assumptions, and to perform benchmarking and/or other analyses to validate new assumptions

Guidance and Assistance to States

• 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
• Examine the effectiveness of the Benefit Accuracy Measurement (BAM)³⁸ program 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 work search law

Coordination with Congress

• Work with Congress to establish legislation requiring SWAs to cross-match in high-risk areas, including to individuals with Social Security numbers: filed in multiple states, of deceased persons, of federal prisoners, and with suspicious email accounts

Recommendations to Congress

In addition, Congress should consider legislative proposals included in prior DOL budget requests and pass legislation to improve UI program integrity. The DOL 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 cross-match UI claims against the National Directory of New Hires (NDNH);
• 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.

These legislative proposals are consistent with previous OIG findings and recommendations to improve the UI program. In addition, the OIG recommended to Congress that it ensure DOL and the OIG have unfettered access to UI claimant data and wage records for our respective oversight responsibilities and authorize OIG participation in asset forfeiture funds to combat UI fraud and other crimes.

DOL’S PROGRESS

DOL has instituted efforts to focus on program integrity when implementing the CARES Act and other pandemic-related UI programs. These efforts include establishing agreements 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 relevant to pandemic-related UI funds. In addition, DOL has reinforced the need for SWAs to actively work with the OIG to address fraud in the UI program.

The Department has facilitated the OIG’s access to UI data but only for benefit weeks covered by CARES Act programs and related extensions. In addition, ETA has required grant recipients to share state UI data with the OIG as a condition of the fraud prevention grants offered under the American Rescue Plan Act of 2021 (ARPA), which will provide such access through December 31, 2023. However, a few states will not receive the grants, and the data provided to the OIG will be incomplete. The OIG needs access to all UI program data to effectively do its job.

On August 31, 2021, the Department announced the establishment of the Office of Unemployment Insurance Modernization to provide oversight and management of the $2 billion appropriated to UI initiatives by ARPA. The funding is aimed at preventing and detecting fraud, promoting equitable access, ensuring timely benefits payments, and reducing backlogs. Of this $2 billion in funding, three grant programs have been set up: (1) a $140 million program for fraud prevention grants to be awarded to states to cover subscription costs for identity verification tools, establishment and expansion of data analytics, and implementation of cybersecurity defense strategies; (2) a separate $260 million program for equity grants to be awarded to states to improve customer service and claimant outreach, reduce claims backlogs, and improve access for workers in communities that may have historically experienced barriers to access; and (3) up to $200 million in funding to support states in improving UI systems and processes following a consultative assessment with a team of experts provided by 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 audit reports covering critical areas of concern and opportunities for improvement in the UI program. Planned and in-progress³⁹ Phase 3 audit work includes:

• ETA’s efforts to ensure UI program integrity;*
• DOL’s oversight of emergency UI administrative transfers to states;*
• ETA and states' efforts to detect and recover overpayments;*
• adequacy of states' IT resources;*
• adequacy of states' staffing resources;*
• effectiveness of programs for nontraditional claimants;*
• effectiveness of the Temporary Full Federal Funding program;*
• effectiveness of the Short-Time Compensation program;*
• effectiveness of the Mixed Earners Unemployment Compensation;*
• effectiveness of the Emergency Unemployment Relief for Governmental Entities and Non-Profit Organizations program;*
• Pandemic Response Accountability Committee’s (PRAC) Case Study Project on federal pandemic response funds in select geographic areas;*
• concerns over use of third-party identification contractors;*
• ETA and states’ efforts to address multistate claimants;
• ETA and states’ efforts to address claimants using the Social Security numbers of deceased persons;
• ETA and states’ efforts to address claimants using the Social Security numbers of federal prisoners;
• ETA and states’ efforts to address claimants with suspicious email accounts;
• ARPA Equity Grants; and
• impact of waivers on UI overpayments, fraud investigations, and recoveries.

For more information about the OIG's work, please visit our Pandemic Response Portal⁴⁰

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¹ There are 53 SWAs, including the 50 states, the U.S. Virgin Islands, Puerto Rico, and the District of Columbia. The CARES Act also provided certain UI benefits to American Samoa, Commonwealth of the Northern Mariana Islands, Federated States of Micronesia, Guam, Marshall Islands, and the Republic of Palau, provided the territory signs an agreement with the Department.
² Recovery Act: DOL Could Have Better Monitored the Use of Re-employment Services Funds to Adhere to Standards for Transparency and Accountability, Report No. 18-11-005-03-315 (March 31, 2011), available at: https://www.oig.dol.gov/public/reports/oa/2011/18-11-005-03-315.pdf
³ Recovery Act: More Than $1.3 Billion in Unemployment Insurance Modernization Incentive Payments Are Unlikely to Be Claimed by States, Report No. 18-10-012-03-315 (September 30, 2010), available at: https://www.oig.dol.gov/public/reports/oa/2010/18-10-012-03-315.pdf
⁴ CARES ACT: Initial Areas of Concern Regarding Implementation of Unemployment Insurance Provisions, Report No. 19-20-001-03-315 (April 21, 2020), available at: https://www.oig.dol.gov/public/reports/oa/2020/19-20-001-03-315.pdf
⁵The new PUA program extended unemployment benefits to self-employed, independent contractors, those with limited work history, and other individuals not traditionally eligible for unemployment benefits who were unable to work as a direct result of COVID-19.
⁶ETA Should Do More to Assist Vulnerable States Prepare for Disaster Unemployment Assistance Program Implementation, Report No. 04-20-002-03-315 (September 29, 2020), available at: https://www.oig.dol.gov/public/reports/oa/2020/04-20-002-03-315.pdf
⁷ Also, the 12 states we selected for in-depth analysis were generally unable to demonstrate they met the payment promptness standard ETA established for regular UI payments, which is to pay 87 percent of claimants within 14 or 21 days.
⁸ The Middle Class Tax Relief and Job Creation Act of 2012 requires that individuals receiving UI benefits must be able to work, available to work, and actively seeking work, as a condition of eligibility for regular compensation for any week. Accordingly, states generally require that unemployed workers demonstrate they were actively seeking work. Work search overpayments occur when states pay UI claimants who do not demonstrate that they were actively seeking work.
⁹ ETA has included fraud as an element of the leading causes rather than as a separate cause. From July 2016 to March 2020, the other three causes resulted in over $9 billion of improper payments. Of this total, more than $3 billion was attributable to fraud. Since the pandemic started, fraud has significantly increased.
¹⁰ The PUA program provided UI benefits to those not traditionally eligible for UI who are unable to work as a direct result of the public health emergency.
¹¹ “Subcommittee on Government Operations Briefing with the Inspector General for the Department of Labor.” Statement of Scott S. Dahl, Inspector General, U.S. Department of Labor House Committee on Oversight and Reform; Subcommittee on Government Operations (June 1, 2020), available at: https://www.oig.dol.gov/public/testimony/20200601.pdf
¹² “Unemployment Insurance During COVID-19: The CARES Act and the Role of Unemployment Insurance During the Pandemic.” Statement for the Record of Scott S. Dahl, Inspector General, U.S. Department of Labor Senate Committee on Finance (June 9, 2020), available at: https://www.oig.dol.gov/public/testimony/20200609.pdf
¹³ ETA’s reported improper payment rate estimate of 18.71 percent does not include the PUA program. However, it is the most current improper payment rate from ETA. Furthermore, PUA had control weaknesses that may have facilitated comparable or greater improper payments. Therefore, applying ETA’s rate to all of the estimated $872.5 billion in CARES Act UI funding including PUA would equate to at least $163 billion in improper payments.
¹⁴ Alert Memorandum: Potentially Fraudulent Unemployment Insurance Payments in High-Risk Areas Increased to $45.6 Billion, Report No. 19-22-005-03-315 (September 21, 2022), available at: https://www.oig.dol.gov/public/reports/oa/2022/19-22-005-03-315.pdf.
¹⁵ More information on the National Unemployment Insurance Fraud Task Force is available at: https://www.justice.gov/coronavirus/national-unemployment-insurance-fraud-task-force
¹⁶ DOJ, “Attorney General Announces Task Force to Combat COVID-19 Fraud,” Press Release (May 17, 2021), available at: https://www.justice.gov/opa/pr/attorney-general-announces-task-force-combat-covid-19-fraud
¹⁷ The OIG has issued or assisted in issuing: UI fraud consumer protection guide; UI fraud investigations guide; UI fraud alert for state/local law enforcement; UI text message phishing alert; UI fraud and phishing alert; UI fraud and identity theft alert; and UI detection and mitigation alert for financial institutions. More information is available at: https://www.oig.dol.gov/OIG_Pandemic_Response_Portal.htm.
¹⁸ The OIG joined the DOJ and its other federal law enforcement partners as participants on the DOJ’s new COVID-19 Strike Force teams initiative, announced on September 14, 2022. These Strike Force teams will operate out of U.S. Attorney’s Offices in the Southern District of Florida, the District of Maryland, and a joint effort between the Central and Eastern Districts of California. They will use dedicated special agents from the OIG to focus on significant fraud schemes with an international nexus. DOJ, “Department Announces COVID-19 Fraud Strike Force Teams,” Press Release (September 14, 2022), available at: https://www.justice.gov/usao-md/pr/justice-department-announces-covid-19-fraud-strike-force-teams
¹⁹Alert Memorandum: The Employment and Training Administration Needs to Ensure State Workforce Agencies Implement Effective Unemployment Insurance Program Fraud Controls for High Risk Areas, Report No. 19-21-002-03-315 (February 22, 2021), available at: https://www.oig.dol.gov/public/reports/oa/2021/19-21-002-03-315.pdf
²⁰ Alert Memorandum: The Employment and Training Administration Needs to Issue Guidance to Ensure State Workforce Agencies Provide Requested Unemployment Insurance Data to the Office of Inspector General, Report No. 19-21-005-03-315 (June 16, 2021), available at: https://www.oig.dol.gov/public/reports/oa/2021/19-21-005-03-315.pdf
²¹Alert Memorandum: Potentially Fraudulent Unemployment Insurance Payments in High-Risk Areas Increased to $45.6 Billion, Report No. 19-22-005-03-315 (September 21, 2022), available at: https://www.oig.dol.gov/public/reports/oa/2022/19-22-005-03-315.pdf
²²Data provided to DOL for further dissemination to the SWAs included data related to more than 3 million suspicious claimants associated with nearly $17 billion in benefits that the OIG identified in our alert memorandum dated June 16, 2021. As soon as is practical, the OIG will share further data identified in subsequent alert memos with DOL so that it can disseminate this information to the SWAs. The methodology has not changed.
²³“Labor Watchdog’s Pandemic Work Results in More Than 1,000 Individuals Charged with UI Fraud and $45.6 Billion Identified in Potentially Fraudulent Pandemic UI Benefits,” Press Release (September 22, 2022), available at: https://www.oig.dol.gov/public/Press Releases/DOL-OIG Pandemic Work Results in More Than 1000 Individuals Charged with UI Fraud.pdf
²⁴Department of Justice, “11 Members and Associates of the Brooklyn-Based Woo Gang Charged with Multi-Million Dollar COVID-19 Unemployment Insurance Fraud,” Press Release (February 17, 2022), available at: https://www.oig.dol.gov/public/Press%20Releases/11_Members_and_Associates_of_the_Brooklyn-Based_Woo_Gang_Charged_with_Multi-Million_Dollar_COVID.pdf
²⁵Department of Justice, “One-Time EDD Employee Sentenced to More Than 5 Years in Prison for Fraudulently Obtaining Nearly $4.3 Million in COVID Relief Funds,” Press Release (February 4, 2022), available at: https://www.oig.dol.gov/public/Press%20Releases/One-Time_EDD_Employee_Sentenced_to_More_Than_5_Years_in_Prison_for_Fraudulently_Obtaining_Nearly.pdf
²⁶Money mules are people who, at someone else’s direction, receive and move money obtained from victims of fraud. More information about DOJ’s Money Mule Initiative is available at: https://www.justice.gov/civil/consumer-protection-branch/money-mule-initiative.
²⁷Secret Service and OIG, “Detection and Mitigation of Unemployment Insurance Fraud Guidance for Financial Institutions,” July 6, 2020, available at: https://www.neach.org/Portals/0/USSS-DOL OIG UI Advisory 7_6_2020.pdf
²⁸Five Eyes is an intelligence sharing alliance. The Five Eyes countries include Australia, Canada, New Zealand, the United Kingdom and the United States. The International Public Sector Fraud Forum consists of representatives from organizations from the Five Eyes countries, whose collective aim is to share best and leading practices in fraud management and control across public borders.
²⁹Pandemic Response Oversight Plan (updated March 21, 2022), available at: https://www.oig.dol.gov/public/oaprojects/Updated%20Pandemic%20Response%20Oversight%20Plan%202022%20for%20Publication.pdf
³⁰Advisory Report: CARES Act: Initial Areas of Concern Regarding Implementation of Unemployment Insurance Provisions, Report No. 19-20-001-03-315 (April 21, 2020), available at: https://www.oig.dol.gov/public/reports/oa/2020/19-20-001-03-315.pdf
³¹Alert Memorandum: The Pandemic Unemployment Assistance Program Needs Proactive Measures to Detect and Prevent Improper Payments and Fraud, Report No. 19-20-002-03-315 (May 26, 2020), available at: https://www.oig.dol.gov/public/reports/oa/2020/19-20-002-03-315.pdf
³²COVID-19: More Can Be Done to Mitigate Risk to Unemployment Compensation Under The CARES Act, Report No. 19-20-008-03-315 (August 7, 2020), available at: https://www.oig.dol.gov/public/reports/oa/2020/19-20-008-03-315.pdf
³³COVID-19: States Struggled to Implement CARES Act Unemployment Insurance Programs, Report No. 19-21-004-03-315 (May 28, 2021), available at: https://www.oig.dol.gov/public/reports/oa/2021/19-21-004-03-315.pdf
³⁴FY 2021 Independent Auditor’s Report on the DOL Financial Statements, Report No. 22-22-003-13-001 (November 19, 2021), available at: https://www.oig.dol.gov/public/reports/oa/2022/22-22-003-13-001.pdf
³⁵The U.S. Department of Labor Did Not Meet the Requirements for Compliance with the Payment Integrity Information Act for FY 2021, Report No. 22-22-007-13-001 (July 1, 2022), available at: https://www.oig.dol.gov/public/reports/oa/2022/22-22-007-13-001.pdf
³⁶Alert Memorandum: Employment and Training Administration Needs to Ensure State Workforce Agencies Report Activities Related to CARES Act Unemployment Insurance Programs, Report No. 19-22-004-03-315 (August 2, 2022), available at: https://www.oig.dol.gov/public/reports/oa/2022/19-22-004-03-315.pdf
³⁷1. Alert Memorandum: The Employment and Training Administration (ETA) Needs to Ensure State Workforce Agencies (SWA) Implement Effective Unemployment Insurance Program Fraud Controls for High Risk Areas, Report No. 19-21-002-03-315 (February 22, 2021), available at: https://www.oig.dol.gov/public/reports/oa/2021/19-21-002-03-315.pdf; 2. Alert Memorandum: The Employment and Training Administration Needs to Issue Guidance to Ensure State Workforce Agencies Provide Requested Unemployment Insurance Data to the Office of Inspector General, Report No. 19-21-005-03-315 (June 16, 2021), available at: https://www.oig.dol.gov/public/reports/oa/2021/19-21-005-03-315.pdf; and 3. Alert Memorandum: Potentially Fraudulent Unemployment Insurance Payments in High-Risk Areas Increased to $45.6 Billion, Report No. 19-22-005-03-315 (September 21, 2022), available at: https://www.oig.dol.gov/public/reports/oa/2022/19-22-005-03-315.pdf
³⁸BAM is a quality control statistical survey used to identify errors and support corrective action in the state UI system. It usually focuses on the three major UI programs: regular UI, Unemployment Compensation for Federal Employees, and Unemployment Compensation for Ex-service members. The BAM data are an estimate of the total improper payments in the UI program, in each state and the nation as a whole, based on a statistically valid examination of a sample of paid and denied claims.
³⁹Audits in progress are marked with an asterisk (*).
⁴⁰Our Pandemic Response Portal is available at: https://www.oig.dol.gov/OIG_Pandemic_Response_Portal.htm.