UNITED STATES
DEPARTMENT OF LABOR

DOL-OIG OVERSIGHT OF THE UNEMPLOYMENT INSURANCE PROGRAM

Page last updated March 31, 2021

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 directed toward that 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):

• 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 $896 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 17 years. Assuming an improper payment rate of 10 percent or higher for extended federal benefits under the CARES Act and subsequent legislation, at least $89 billion of the estimated $896 billion in UI program funds could be paid improperly, with a significant portion attributable to fraud. The OIG’s initial pandemic audit and investigative work indicate 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. During Phase 1, we examined past audits related to the American Recovery and Reinvestment Act of 2009, and the Disaster Unemployment Assistance program, and 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. The OIG has opened more than 15,000 new investigative matters involving UI fraud since the crisis began, up from an average of 100 UI fraud matters pre-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 7 regional UI fraud coordinators to partner with the 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.

Our efforts to date have directly resulted in the identification and recovery of more than $150 million in fraud involving the UI program. We have also assisted in the identification and recovery of more than $565 million in fraudulent UI benefits. In addition, the OIG identified more than $5.4 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. In an Alert Memorandum issued in February 2021, the OIG notified DOL of these high risk areas for potentially fraudulent claims and recommended DOL take corrective actions.

Since the start of the pandemic, more than 140 individuals have been charged and arrested for federal offenses related to UI fraud. In one recent OIG case, U.S. v. Leelynn Danielle Chytka, in the Western District of Virginia, a defendant pleaded guilty for her role in a scheme that fraudulently stole more than $499,000 in UI benefits using the identities of individuals ineligible for UI, including a number of prisoners.

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;
• Further enhance SWA participation in and use of the 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;
• 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;
• 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; and
• Work with Congress to establish legislation requiring SWAs to cross match in high-risk areas, including the four areas identified in the Alert Memorandum.

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 state workforce partners 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 and drawdowns; and
• The sufficiency of SWAs' staffing resources to support implementation of pandemic UI programs.

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

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