The U.S. Department of Labor is spending hundreds of millions of dollars to combat fraud in the benefits system for unemployed workers – fraud that experts fear skyrocketed in the wake of the Covid-19 pandemic.
The department is making $140 million in grants available to “support states with fraud detection and prevention, including identity verification and overpayment recovery activities” in unemployment compensation programs, according to a letter released Wednesday. An additional $100 million is now available to help states detect and reduce fraud in the temporary Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation programs, which Congress established to provide additional aid to the jobless during the Covid crisis.
The money to fight fraud was provided by the $1.9 trillion American Rescue Plan Act, which was signed into law in March. The law allocated as much as $2 billion to help states improve their unemployment systems.
A big part of the problem, analysts say, is the fractured nature of the U.S. unemployment system, with each state running its own, often underfunded and poorly constructed version. In addition to cash, the federal government is reportedly sending “tiger teams” of experts to state offices to help improve those systems.
“The pandemic underscored the need for modernization“ of the unemployment system, Labor Secretary Marty Walsh said in a statement. It also “exposed significant vulnerabilities in state technology to criminals looking for an opportunity.”
The bottom line: The U.S. responded to the Covid crisis with an unprecedented level of support for unemployed workers. The speed of the response, coupled with outdated and underpowered benefit systems in the states, contributed to unprecedented levels of fraud, with the Labor Department’s Office of Inspector General estimating that about $87 billion in benefits may have been paid improperly.
“What we’re seeing now is really terrifying,” the Labor Department’s Michele Evermore, an expert in unemployment insurance, told CNBC. “Fraud has gotten so big.”