Page last updated September 22, 2022
The OIG has remained committed to meeting the challenges created by the COVID-19 pandemic and to assisting DOL and Congress in improving the efficiency and integrity of the UI program. Strengthening the UI program to prevent fraud before it occurs and to detect it when it does are key objectives to ensure that 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 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:
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.
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.
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
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:
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.
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:
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
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.
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:
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.
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:
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 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.
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: