Three years after crooks stole billions in unemployment insurance funds, federal and state officials are scrambling to retrieve the money that was directed to the jobless — and plug leaks in their systems.
According to a recent Wall Street Journal editorial, the General Accounting Office estimates taxpayers underwrote $60 billion in fraudulent payments from an unprecedented infusion of federal COVID-19 relief funds into unemployment insurance programs during the pandemic. It gave villains and organized crime groups high-value targets to exploit.
Of that vast sum, our Employment Security Department (ESD) recovered less than half the $650 billion bilked from the system. Estimates are $1 out of every $8 paid during the pandemic were scammed.
Last year, Washington Attorney General Bob Ferguson froze swindlers’ bank accounts. Forfeited assets brought the total retrieved to over $400 million.
However, much of the uncollected $250 million is likely lost. The fraudsters moved their pilfered money before their accounts were sealed.
The scam in our state triggered a system audit, which stopped jobless payments while ESD added corrective patches in June 2020. That created a hardship for many trying to pay mortgages and put food on the table.
While 200,000 jobless benefits recipients were rapidly cleared to receive scheduled payments, about 140,000 stopped receiving payments pending further investigation. Some payments were delayed for months.
During normal times, fraud and abuse are expensive.
However, when Congress opened the flood gates of federal money, the criminal stakes got much higher. In 2022, the U.S. Department of Labor estimated the national improper payment rate for unemployment insurance hit nearly 22 percent.
Presidents Donald Trump and Joe Biden had no choice but to propose massive government spending programs quickly. The worldwide coronavirus pandemic produced massive layoffs and business collapses. The resulting economic downturn in 2020 swelled the ranks of unemployed Americans from 6.2 million in February to 20.5 million in May, Pew Research reported.
In March 2020, President Trump signed a $2 trillion stimulus bill called the CARES (Coronavirus Aid, Relief, and Economic Security) Act to blunt the impact of the COVID pandemic economic downturn. Washington received $11 billion.
CARES extended regular unemployment benefits from 26 weeks, to as long as 39 weeks and temporally suspended work search requirements. In addition, it funded a new Federal Pandemic Unemployment Compensation (FPUC) benefit of $600 per week on top of the regular unemployment benefits.
State and federal officials hastily expedited payments. While they worked to speed up claims, thieves falsified applications using stolen Social Security numbers, filing multiple claims in different states, and registering people for unemployment who were deceased.
Wall Street Journal editorial writers added: “Take the Pandemic Unemployment Assistance program, designed to help self-employed workers and independent contractors. Congress was so eager to hand out cash that for most of 2020 it allowed applicants to “self-certify” their eligibility — requiring no documentation of self-employment.”
The General Accounting Office reports that while the Department of Labor recently handed out nearly $900 million in grants to state agencies to address fraud, the agency itself still hasn’t adopted practices they recommended starting in 2015. Hopefully, new House Oversight Chairman James Comer (R-KY) will expedite unemployment insurance hearings and spur the agency to act.
We must remember that long ago when Congress (1935) and Washington state (1947) established unemployment programs, the taxes employers paid to fund them were intended to provide temporary and partial income replacement for workers who lost their jobs through no fault of their own.
They were supposed to be a “bridge” to a new job and not “in lieu of compensation” to remain jobless. Unemployment insurance certainly was not designed as a path for “quick-buck artists” to get rich while working people and employers suffer.
Don C. Brunell is a business analyst, writer and columnist. He is a former president of the Association of Washington Business, the state’s oldest and largest business organization, and lives in Vancouver. Contact firstname.lastname@example.org.