Pandemic Fraud May Have Robbed Unemployment Insurance of $135 Billion

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

As much as $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 on 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 lost their jobs financially afloat. But the sheer demand for aid and the need for states — which administer payments — to quickly roll out new relief programs increased the risk of fraud.

Officials acknowledged that the full scope of the fraud “will likely never be known with certainty.”

The expanded unemployment benefits were part of trillions in relief money sent to individuals and businesses after the onset of the pandemic. In the federal government’s haste to get relief money out the door, much of it was distributed with few strings attached and little oversight. That has led to a flood of criminals taking advantage of seemingly easy ways to obtain free money. Federal prosecutors and law enforcement agents have since deployed various methods to try to catch fraudsters and recoup billions.

The Labor Department, which oversees federal unemployment insurance programs, expressed concerns about the report’s methodology and argued that the level of fraud was likely overstated. Officials pointed to efforts that have since been taken to deter fraud, and said the “enormous task” of doling out the funds was made “only more daunting by the decades-long chronic underfunding” of the unemployment benefits system.

“As a result, state agencies were unprepared for the extraordinary spike in the number of claims to be processed each week,” Brent Parton, a principal deputy assistant secretary at the department, wrote in the letter.

Last month, Justice Department officials announced that the federal government had charged 3,195 defendants with offenses related to pandemic fraud and seized more than $1.4 billion in relief funds. That came after the department carried out a three-month “sweep” to combat Covid-19 fraud, which ended in July and involved more than 50 U.S. attorney’s offices and dozens of federal, state and local law enforcement agencies.

Some of those charged have been accused of stealing millions in pandemic unemployment benefits after submitting fraudulent applications. In one case, prosecutors said, individuals used the funds to solicit a murder for hire and to purchase firearms, controlled substances, jewelry, clothing and vacations.

Investigations into potential fraud are still ongoing. According to a June report from the Department of Labor’s Office of Inspector General, about 163,000 investigations related to unemployment benefits paid during the pandemic were still open.

In February, the office estimated that at least $191 billion in pandemic unemployment benefits could have been made improperly, with a significant amount attributable to fraud.

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