The Government Accountability Office (GAO) has added unemployment insurance (UI) fraud to its list of “high risk” areas for the Federal government, and has tasked the Department of Labor (DOL) – which provides funding and assistance to states to run their UI programs – with finding a fix to the problem.

GAO recapped the long-standing UI fraud problems in a new report issued today, along with the Labor Department’s ongoing efforts to address them.

The report cites previous findings from the Labor Department that UI fraud ran rampant during the coronavirus pandemic, with Labor estimating that payment errors rose from 9.2 percent of payments in Fiscal Year 2020, to 18.9 percent in FY 2021.

The COVID-19 pandemic has exacerbated challenges with states’ (UI) administration and contributed to declining access and disparities in benefit distribution, customer service challenges, timely processing of claims, and implementing new programs, GAO said.

According to GAO, the total amount of UI improper payments is unknown due to incomplete reporting by DOL and states, but the watchdog agency emphasized that the major theme of program fraud remains a persistent issue.

As a result, GAO has added the UI system to its list of Federal areas at “high risk” for waste, fraud, abuse, and mismanagement, or “in need of broad-based transformation.”

“The widespread problems plaguing the Unemployment Insurance system are extremely troubling,” said Gene L. Dodaro, Comptroller General of the United States and the head of GAO. “Not only is the system falling short in meeting the needs of workers and the broader economy, but the potential for huge financial losses could undermine public confidence in the stewardship of government funds.”

According to GAO, current program design and variation in how states run UI contributed to a shrinking portion of unemployment workers receiving benefits and disparities in benefit distribution. GAO, along with the DOL Office of Inspector General, agree that there’s a need to modernize state IT systems.

Finding the Fix

GAO recommended that DOL develop and implement a plan for transforming UI that will meet GAO’s high-risk criteria for transformations. This recommendation was agreed to by the agency.

Elements of that fix, according to GAO, should involve:

  • The Secretary of Labor should develop and execute a transformation plan that meets GAO’s high risk criteria for transformation;
  • The plan should outline coordinated and sustained actions to address issues related to providing effective service and mitigating financial risk, including ways to demonstrate improvements;
  • Planned actions may include addressing audit recommendations, and determining whether legislative changes are needed, as appropriate; and
  • Planned actions may also include achieving quantifiable results in reducing improper payment rates, including those related to fraud; improving efficiency in claims processing and restoring pre-pandemic payment timeliness levels; better reaching current worker populations; and enhancing equity in benefit distribution. (Recommendation

The Labor Department has been active on the fraud fixing front with numerous actions taken since last year.

Earlier this year, the agency launched a new program to better understand and fix gaps in UI system access by tapping into state data to get better insights into UI system service problems.

And in the White House’s FY2023 budget request, DOL is asking for $3.4 billion to help states and territories modernize their UI systems that were overwhelmed with demand – both legitimate and fraudulent – during the pandemic.

The $3.4 billion request would be used by DOL to modernize the overall system, and protect and strengthen state UI programs. Among the improvements sought would be investments “aimed at tackling fraud in the UI program, including funding to support enhanced identity verification for UI applicants and help states develop and test fraud-prevention tools and strategies,” the White said in the budget request.

GAO acknowledged the Labor Department’s efforts, but also said that more needs to be done.

“DOL has some activities planned and underway for the UI system, such as creating a UI modernization office and implementing strategies aimed at reducing risk; however, many longstanding issues remain unaddressed,” GAO said.

“Leaving these issues unaddressed will heighten the risk of the UI system not meeting fundamental program expectations of serving workers and the broader economy, and may undermine public confidence in the responsible stewardship of government funds,” GAO said.

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Jordan Smith
Jordan Smith
Jordan Smith is MeriTalk SLG's Staff Reporter covering the intersection of government and technology.