Pandemic fraud may have robbed unemployment insurance of $135 billion

More generous unemployment benefits during the pandemic appear to have been a pretext for fraud, according to a government watchdog report released on Tuesday.

About $135 billion of the roughly $900 billion in benefits claimed between April 2020 and May 2023 — about 15 percent — was likely illegally claimed, the Government Accountability Office said Tuesday.

After the coronavirus shut down much of the economy, the federal government extended and expanded unemployment benefits to help keep millions of Americans who have lost their jobs financially afloat. But the huge demand for aid and the need for paying states to roll out new aid programs quickly increased the risk of fraud.

Officials admitted that the full extent of the fraud “will probably never be known”.

The unemployment benefits expansion was part of trillions of dollars sent to individuals and businesses since the pandemic began. In the federal government’s rush to get relief money, much of it was distributed with few conditions and little oversight. This has led to a flood of criminals who take advantage of seemingly easy ways to get free money. Since then, federal prosecutors and law enforcement agencies have used a variety of methods to try to catch the fraudsters and recover the billions.

The Labor Department, which oversees federal unemployment insurance programs, expressed concern about the report’s methodology in a letter to GAO officials and argued that the rate of fraud was likely overstated. Officials noted the efforts that have been made since then to curb fraud and said the “enormous task” of distributing the funds has been “only made more difficult by decades of chronic underfunding” of the unemployment benefits system.

“As a result, government agencies have found themselves unprepared for the extraordinary surge in the number of claims that must be processed each week,” Brent Parton, the department’s principal deputy assistant secretary, wrote in the letter.

Last month, Justice Department officials announced that the federal government had indicted 3,195 people accused of fraud related to the pandemic and seized more than $1.4 billion in aid. It comes after the department conducted a three-month “sweep” to combat Covid-19 fraud that ended in July and involved more than 50 U.S. attorneys’ offices and dozens of federal, state and local law enforcement agencies.

Some of the defendants were accused of stealing millions in pandemic unemployment benefits after submitting false claims. In one case, prosecutors said, people used the funds to induce murder-for-hire and purchase firearms, controlled substances, jewelry, clothing and vacations.

The investigation into possible fraud is still ongoing. About 163,000 investigations related to unemployment benefits during the pandemic were still open, according to a June report from the Labor Department’s Office of Inspector General.

In February, the office estimated that at least $191 billion in unemployment benefits as a result of the pandemic may have been improperly obtained, with a significant amount linked to fraud.

Pandemic relief for small businesses has also been targeted by fraudsters. The Small Business Administration’s inspector general estimated that more than $200 billion — or at least 17 percent of the agency’s approximately $1.2 trillion in pandemic loans — were disbursed to “potential fraudsters.”

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