U.S. Department of Labor: CARES Act funding includes $26 billion in improper unemployment payments

In testimony given before the U.S. Senate Committee on Finance, Scott S. Dahl, Inspector General of the U.S. Department of Labor (DOL), said an estimated $26 billion in improper payments made through the Unemployment Insurance (UI) program is expected to be made because of three new UI programs created by coronavirus relief bills.

According to a report published by the Government Accountability Office (GAO), the newly adopted UI programs are already suffering from fraud. The GAO analyzed how much the federal government has spent in the last two months through coronavirus relief bills enacted by Congress. The GAO identified examples of waste and fraud, and areas in need of immediate correction.

Historically, the UI program has reported some of the highest improper payment rates out of all federal programs, Dahl says. Last year, roughly $3 billion in improper payments were made, slightly more than ten percent of the $27 billion worth of payments distributed over a one-year period ending June 2019.

The estimated $26 billion worth of improper UI payments this year “would be wasted, with a large portion attributable to fraud,” Dahl testified.

New research published by the Foundation for Government Accountability (FGA) suggests that increased fraud will come “from individuals refusing to return to work or refusing suitable work, overpayments and payments to ineligible people, and a spike in international fraud rings taking advantage of state programs.”

“The $600 weekly unemployment bonus created by the CARES Act transformed the program into a goldmine for fraudsters,” Josh Waters, senior research fellow at FGA and author of the report, said. “Allowing the UI bonus to expire as scheduled will help reduce the incentive for fraud, decrease the inflated cost of fraud, and eliminate the driving force currently pushing people towards unemployment rather than work.”

The $600 in additional weekly unemployment benefits expires this month. Treasury Secretary Steve Mnuchin said on “Fox News Sunday” that Senate Republicans will introduce a new coronavirus stimulus package that will include enhanced federal unemployment benefits, but not near the $600 a week benefit, which he said disincentived workers from returning to their jobs

The GAO identified areas in need of immediate attention pertaining to emergency funds administered through the Paycheck Protection Program (PPP) as they cross over with UI benefits. The UI programs are generally intended to provide benefits to individuals who have lost their jobs, whereas the PPP requires employers to retain or rehire employees in order to receive full loan forgiveness.

To date, states have received more than 42 million unemployment claims. Additional funding has been processed through three new federally funded unemployment insurance programs created by the CARES Act, including the additional $600 per week in federal emergency payments.

According to the DOL, “no mechanism currently exists that could capture information in real time about UI claimants who may receive wages paid from PPP loan proceeds.”

The GAO recommends that the DOL, in consultation with the Small Business Administration and the U.S. Treasury Department, “immediately provide information to state unemployment agencies that specifically addresses PPP loans, and the risk of improper payments associated with these loans.”

Dahl says the major challenges DOL and states are facing in administering and overseeing the UI program includes program fraud, self-certification for pandemic UI benefits, communication with employers, benefit year earnings, information technology systems, staffing, and monitoring.

The DOL began auditing and investigative work in April, and is implementing the second of its four-phased plan. It is also coordinating with the National Center for Disaster Fraud, U.S. Attorneys’ Offices, and law enforcement partners on pandemic-related activity and fraud.

It also conducted UI fraud training for more than 300 of its partners nationwide to help them better identify and prevent fraud in the UI program. The DOL is also “actively seeking opportunities to collaborate because fraudsters often target other benefit and loan programs in addition to UI,” Dahl said.

The DOL has made several recommendations to Congress in order to better access wage records to reduce improper payments and combat fraud in employee benefit programs. These include the UI and Federal Employees’ Compensation Act (FECA) program.

In October 2016, the DOL submitted a legislative package to Congress including proposed legislative changes that would help address UI program integrity and the high improper UI improper payment rates. These proposals were included in each of the president’s budget requests since fiscal 2018, but Congress has not adopted them.

“The OIG encourages Congress to consider and adopt these proposals to aid the Department’s efforts to combat improper payments in the UI program,” Dahl said.



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