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$163 billion of COVID relief was stolen. Republicans must get to the bottom of it

As Republicans take control of committee gavels in the House of Representatives, there is a wide array of topics ripe for oversight and investigation. But one item that should be at the top of their agenda is the massive fraud in pandemic-era federal relief programs, especially involving unemployment benefits.

The federal government’s response to the coronavirus pandemic unleashed unprecedented demand for unemployment benefits starting in March 2020. Congress responded with record benefit expansions, including adding $600 per week to all unemployment checks. Claims for state and federal unemployment benefits quickly surged to 33 million in June 2020—more than double the prior record. In all, nearly 1.6 billion unemployment checks worth $900 billion were paid out through Labor Day 2021. An individual collecting just average unemployment benefits nationwide throughout that time received $46,000 in checks—plus thousands more in stimulus checks and other government benefits. 

Those huge payouts—and serious weaknesses in federal temporary benefit program design—attracted criminals intent on ripping off the system. The new federal Pandemic Unemployment Assistance (PUA) program was the most vulnerable to abuse. It offered weekly checks to independent contractors, the self-employed, and others who worked too little to qualify for regular state Unemployment Insurance (UI) checks. In contrast with UI, PUA allowed claimants to self-certify their eligibility and initially did not even require proof of prior work or adequate identity verification. As the Department of Labor’s (DOL’s) Inspector General (IG) summarized, PUA was “extremely susceptible to improper payments and fraud.”

How much was stolen? Official estimates—which admittedly understate real losses—are staggering. The DOL IG estimates $163 billion was lost, including to fraud. That is based on an estimated improper payment rate of 18.71 percent from July 2020 to June 2021. But that misses the massive spike in claims early in the pandemic, along with losses under the PUA program, which was most prone to abuse. Counting those factors, unofficial loss estimates range to as high as $400 billion, or an astonishing 40 percent of all benefits paid. Significant shares were likely stolen by overseas criminal gangs, including in China and Russia.

Most fraud involved the use of stolen identities to falsely claim benefits. Colorado officials reported in September 2020 that more than 75 percent of PUA claims “were determined to be fraudulent.” In August 2020 an implausible 80 percent of all 3.4 million workers in Arizona appeared to have applied for unemployment benefits. California PUA cases doubled to almost 7.0 million in just two weeks in August 2020, forcing state officials to admit that “a big part of the unusual recent rise in PUA claims is linked to fraud.”

Taxpayers deserve to know how their dollars were spent—and too often wasted. State and federal officials owe it to them to recover fraudulent funds whenever possible and ensure that systems are strengthened so this sort of rip off never happens again. That must be a big part of the oversight Congress performs this year.

Legislative changes are needed, too. Future benefits should be paid only after confirming claimant identities and prior work, and never based on “self-certification.” Recipients should again search for work while claiming benefits. And states must systematically confirm that benefits are not paid to prisoners, dead people, people claiming benefits in multiple states, and current workers.

Lawmakers should also recognize that states currently have little incentive to recover misspent federal funds. Such recoveries require state effort and administrative expense, only to have any recovered federal funds be turned over to the feds in the end. House and Senate Republicans have proposed the Chase COVID Unemployment Fraud Act, which would allow states to retain 25 percent of any misspent federal funds they recover. States could use those funds to modernize their systems and improve program integrity. That offers gains for taxpayers and rightful recipients alike. 

The coronavirus pandemic was an historic economic event, and the policy response to it resulted in record assistance for the unemployed, along with record fraud. This won’t be the last time the nation turns to its unemployment benefits system to offer extraordinary support for laid off workers. We must learn from this response to not only recover as much as we can now, but also ensure future benefits are better protected from abuse. That will better meet the needs of the unemployed and protect the interests of taxpayers who support these important benefits.

Republican Erik Paulsen represented Minnesota in the U.S. House of Representatives from 2009 to 2019.

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