UNITED STATES
DEPARTMENT OF LABOR

DOL-OIG OVERSIGHT OF THE UNEMPLOYMENT INSURANCE PROGRAM

Page last updated February 3, 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 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 fraud before it occurs and to detect it when it does are key objectives to ensure that unemployed American workers expeditiously receive much needed benefits, while safeguarding tax dollars directed toward that goal.

The UI program is a joint federal-state program that offers the first economic line of defense against the impact of unemployment. Each State:

• Administers a separate UI program under its laws, but all states follow 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. Expansions of coverage and benefits, such as those provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, 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.

OIG SIGNIFICANT CONCERNS

Over the years the OIG has repeatedly reported significant concerns with DOL and State Workforce Agencies’ (SWA) 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 in light of the economic onslaught of the COVID-19 pandemic and the unprecedented levels of federal funding allocated to the UI program, which is currently estimated at approximately $630 billion.

To date, DOL has not estimated an improper payment rate for CARES Act funded benefits. 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 $63 billion of the estimated $630 billion in UI program funds could be paid improperly, with a significant portion attributable to fraud. The OIG’s initial CARES Act audit and investigative work indicate UI program improper payments, including fraudulent payments, will be higher than 10 percent.

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 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 Memo in May 2020, describing our concerns regarding 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 memo informed the most recent COVID-19 legislation, which included provisions to improve SWAs’ abilities to ensure proper claimant eligibility and 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 these 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. We have opened more than 4,000 new investigative matters involving UI fraud since the crisis began. That represents a forty-fold increase in the average number of UI fraud matters under review by the OIG.

To respond 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 thus far have directly resulted in the identification and recovery of $96 million in fraud involving the UI program. In addition, we have assisted in the identification and recovery of more than $565 million in fraudulent UI benefits.

DEPARTMENT'S PROGRESS

While concerns persist within the UI program, DOL has instituted efforts to focus on program integrity when implementing the CARES Act programs. These efforts include putting agreements in place with states to comply with all applicable requirements to receive CARES Act funds, issuing operating guidance, and providing technical assistance to states individually and through webinars. DOL has included requirements for states to focus on program integrity in guidance issued related to the CARES Act. In addition, DOL has reinforced the need for states 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, has continued to develop the Integrity Data Hub (IDH) to serve as a secure portal for states to cross-match public and private sources of data, including new tools that will help prevent improper payments. DOL is working with the Integrity Center to further enhance state participation in and use of the IDH through additional guidance and regular communication with states.

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; and
• Create a rapid response team consisting of federal and state officials capable of providing technical and other assistance to states impacted by major disasters.

In addition, Congress should consider previous 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 states to use the IDH and the State Information Data Exchange System;
• Require states to cross match UI claims against the National Directory of New Hires;
• Require states to cross match UI claims with the U.S. Social Security Administration’s prisoner database and other repositories of prisoner information;
• Allow states to retain 5 percent of UI overpayment recoveries for program integrity use; and
• Require states 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.

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

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