Organized fraud rings have allegedly bilked state unemployment agencies as they distribute billions of dollars of federal pandemic aid, but hard data available is mostly coming from states publicizing their own effort to combat the losses.
Maine's Labor Department reported last week that it had rejected 3,500 initial claims and 8,400 continuing claims as likely imposter fraud, with more than 20,000 suspect claims overall. The department said some benefits will be held up while claimants verify their identities.
“We regret that some people with legitimate claims must take this extra step to receive their benefits, but it is necessary to do this verification in order to ensure that criminals stealing innocent people’s personal information are not receiving money meant for the people of Maine,” Commissioner Laura Fortman said in a June 18 statement.
As state agencies distribute funds Congress provided to contain the economic damage from the COVID-19 pandemic, changes in the caseload in some states in recent weeks suggest that suspected fraud was an ingredient in the soaring claims of the past three months. And reduced caseloads may to some extent reflect success in detecting the fraud.
In Maine, for example, the nearly 12,000 cases of rejected benefits reported last week represent a significant portion of a caseload of 65,600 as of June 6. That caseload was down almost 13,000 from the week before, but is still more than seven times the 8,732 receiving benefits in the week ending March 7 before the pandemic set off widespread business shutdowns.
The number receiving benefits nationwide declined slightly over the most recent week, a trend that some state agencies have linked to anti-fraud efforts.
Senate Democrats asked Labor Secretary Eugene Scalia for an accounting in a June 5 letter, but the department has yet to reply.
Labor Inspector General Scott Dahl left office June 21 without any final public statement on the issue. In earlier briefings to a House committee, the inspector general had estimated fraud could run to $26 billion, applying a 10 percent rule of thumb developed over years of auditing state unemployment programs. That's out of an estimated total of $260 billion in benefits provided by the pandemic relief law known as CARES, which was enacted in late March.
“The volume of investigative matters we are currently investigating involving CARES Act-related fraud is unprecedented in the OIG’s history,” Dahl said in report to the Senate Finance Committee on June 9, the same day several Democratic senators probed Scalia over possible fraud when he testified before the committee.
“Currently, we are investigating over 400 [unemployment insurance] matters and we expect that number to continue to rise,” Dahl said.
Other state agencies, including Washington and Michigan, also have publicly touted efforts to fight fraudulent claims, with Michigan reporting that 340,000 claims had been flagged for investigation and Washington announcing $350 million in recovered money.
“It is a national problem that every state is now experiencing,” Jeff Donofrio, director of Michigan’s Department of Labor and Economic Opportunity, said in a press conference earlier in June.
Michigan’s review coincided with a substantial decline in caseload, from 756,000 in the week ending May 30 to about 707,000 the following week. By comparison, the state had 77,620 claimants at the outset of the pandemic for the week ending March 7.
Washington’s Employment Security Department provided the most complete statement on the fraud threat in a June 5 letter to Scalia. Commissioner Suzan G. LeVine recounted how her agency had detected a rise in impostor claims in late April and contacted the Social Security Administration for help, while implementing more aggressive computer checks and analysis to trace the problem.
“By the first week of May, it was becoming clear that criminals were engaged in a sophisticated attack intended to take advantage of the attractive new benefits designed to help struggling Americans as quickly as possible,” LeVine said.
In mid-May, Washington state announced an enhanced review of some 50,000 claims. The overall caseload dropped sharply in subsequent weeks, from almost 1.1 million in the week ending May 9 to about 730,000 in the week ending June 6, a decrease that the department attributed in part to fraud prevention efforts. The state's caseload at the beginning of the outbreak was only 56,105 in the week ending March 7.
U.S. Attorney Brian T. Moran of the Western District of Washington said in a late May statement that investigators from the Secret Service, the FBI and the inspectors general of the Social Security Administration and the Labor Department had cooperated in the investigation, which resulted in one bank withholding $120 million before organizers of the theft could transfer the proceeds.
Michele Evermore, an expert on unemployment with the National Employment Law Project, said that she had talked with officials at state agencies about their efforts to counter what appears to be organized efforts perpetrated by Nigerian criminal gangs that specialize in identity fraud.
Increased fraud to some extent is simply a product of the dramatic expansion of unemployment benefits, she said. Historically, the Labor Department has been aggressive on fraud, Evermore said, and she declined to blame states for failing to catch the fraud earlier.
“The states are already doing so much, and they are already facing so much,” Evermore said.