DOL OIG Reports on ‘Unprecedented’ UI Fraud Levels

Due to an “unprecedented” amount of fraud concerns related to the Department of Labor’s (DOL) Unemployment Insurance (UI) program, the DOL Office of Inspector General (OIG) stated in its recent semiannual report to Congress that it plans to continue to closely assess the level of improper payments in the program.

The semiannual report covered the period from Oct. 1, 2021, to March 31, 2022. During this period, OIG issued 15 audits and other reports and made 49 recommendations for corrective actions.

With the onset of the COVID-19 pandemic, DOL and state workforce agencies (SWAs) sought to rapidly provide emergency relief funding through the UI and other unemployment programs established by COVID-19 legislative relief packages to help workers in need. However, these programs were beset by ineligible individuals seeking assistance. For example, OIG issued several reports during the period on challenges with the Pandemic Unemployment Assistance (PUA) program, which provided expanded coverage for a population of claimants who were traditionally ineligible to receive UI benefits. OIG reported the risk of fraud and improper payments was even higher under PUA because claimants could self-certify their eligibility for UI, substantially increasing the fraud risk.

“The unprecedented infusion of federal funds into the UI program gave individuals and organized criminal groups a high-value target to exploit,” OIG explained in the report. “That, combined with easily attainable stolen personally identifiable information and continuing UI program weaknesses identified by OIG over the last several years, allowed criminals to defraud the system. Because many states were not prepared to process the extraordinary volume of new UI claims and struggled to implement new UI programs, many internal fraud controls that had been traditionally used or recommended for the processing of UI claims were not initially implemented. This created a situation where fraudsters had a high-reward target where an individual could make a fraudulent claim with relatively low risk of being caught.”

Fraud Complaints Skyrocket

To highlight this, OIG noted that prior to the pandemic, it opened about 120 UI investigative matters annually. Since the pandemic started, it has received more than 144,000 UI fraud complaints from the U.S. Department of Justice’s National Center for Disaster Fraud and has independently opened more than 39,000 investigative matters concerning UI fraud. “That is an increase of more than 1,000 times in the volume of UI work that we are facing,” OIG said, adding that UI investigations now account for some 94% of OIG’s investigative case inventory, compared to about 11% prior to the pandemic.

OIG said that DOL has initiated efforts to focus on program integrity when implementing pandemic-related UI programs, including establishing agreements with states to comply with all applicable requirements to receive funds, issuing operating guidance and providing technical assistance to SWAs individually and through webinars. DOL has included requirements for SWAs to focus on program integrity in guidance relevant to pandemic-related UI funds. It also is urging SWAs to actively work with the OIG to address fraud in the UI program.

In addition, DOL in August 2021 established the Office of Unemployment Insurance Modernization to oversee the $2 billion appropriated to UI initiatives by the American Rescue Plan Act (ARPA) (Pub. L. 117-2). The funding is aimed at preventing and detecting fraud, promoting equitable access, ensuring timely benefits payments and reducing backlogs. Because of the importance of this program, OIG said it would continue its audit and investigative work on the ability of DOL and SWAs to expeditiously and efficiently deploy UI benefits while reducing improper payments.

Workforce Development Grants

Another area of significant concern when assessing DOL programs is the Employment and Training Administration’s (ETA) management over the Workforce Development Grants program, particularly in the areas of awarding grants, reviewing grantees’ use of funds and measuring grantee performance.

When awarding grants, OIG stated that ETA must have sufficient controls to ensure grant applicants’ proposals meet all solicitation requirements. For example, in 2019, ETA awarded $183 million to deliver technical training to help participants get jobs in H-1B occupations even though all grantees detailed non-H-1B-related occupational training in their proposals. Although OIG noted that ETA has taken steps to improve its pre-award procedures, “continued attention is necessary as ETA needs sufficient controls in its grant award processes to ensure past issues do not reoccur,” OIG added.

ETA also must ensure its grantees use grant funds as intended. In both 2018 and 2021, OIG found that recipients misused Workforce Development Grant dollars, or they could have been put them to better use. OIG cited weaknesses in ETA’s review of grantees’ spending, noting that $2.5 million in disaster grant funds meant for hurricane cleanup remained unspent after two years. “It is crucial [that] ETA continue[s] to strengthen its processes in reviewing grantees’ use of funds to ensure limited resources are used efficiently and as intended,” OIG said.

ETA also needs to ensure it properly measures how well Workforce Development Grant recipients perform and how well they meet specific program objectives. OIG stated that its recent audits of the program could not determine the effectiveness of the programs because the agency did not have clear performance goals and performance metrics, and/or the underlying data was inaccurate and incomplete.

Although ETA has taken actions to address OIG findings related to the program, OIG advised the agency to “prioritize these areas of concern and make any necessary adjustments to better utilize its resources and improve performance to ensure grant funds are used properly.”

In a related matter, the Government Accountability Office (GAO) on June 7 added the UI program to its list of federal areas at “high risk” for waste, fraud, abuse and mismanagement, or in need of broad-based transformation. GAO explained that it is adding the program to the list now in advance of a regular update scheduled for next year “to bring greater attention to the challenges facing UI and to help spur needed changes.”

For More Information

The DOL OIG semiannual report is available at https://www.oig.dol.gov/public/semiannuals/87.pdf.