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President Joe Biden announced on Tuesday, March 1st during his State of the Union address that he intended to appoint a chief prosecutor to investigate cases of unemployment insurance fraud. But what does that mean?

What the Chief Prosecutor Could Do

Exactly what the chief prosecutor – who hasn’t yet been named – could do isn’t definite yet. According to a fact sheet issued by the White House not long after the President’s speech, the primary role of the chief

Insurance Fraud Chief Prosecutor

prosecutor will be to lead teams of specialized prosecutors and agents. The chief prosecutor will head an existing Department of Justice COVID-19 fraud enforcement task force, started in May 2021, according to Federal Computer Week.

Of particular interest is fraud from the Pandemic Unemployment Assistance (PUA) program, which ended last year, according to reporting from the McClatchy News Washington D.C. bureau.

“The program, created two years ago, allowed people who did not qualify for traditional unemployment benefits, such as gig workers and independent business owners, to collect benefits,” McClatchey reported. “It lacked the same sort of checks and balances that the regular state unemployment insurance system has. Initially, federal law said (state unemployment offices) only had to get documentation from PUA recipients when they wanted to get more in weekly benefits than the minimum of $167. People who didn’t seek an increase did not have to provide any documentation verifying their income or any other proof of work.”

In addition, because each state’s unemployment system is different, having one state determine that an application was fraudulent didn’t get transmitted to other states.

Part of the problem is that it isn’t even clear how much unemployment insurance fraud there was, with some estimates ranging from 10% on up. “Between fiscal year 2020 and fiscal year 2021, the Government-wide improper payment rate rose from 5.6% to 7.2%,” noted the Office of Management and Budget at the end of last year. “This increase was largely driven by growth in the improper payment rate in the Federal-State Unemployment Insurance (UI) program, which totaled 18.71% from July 2020 to June 2021 — roughly 5-8 percentage points higher than during a normal, non-pandemic 12-month period,” the agency said. “Problems accumulated from early in the pandemic are still being discovered and will take a long time to clean up.”

The Difference between Overpayment and Fraud

It’s important to note that just because someone was overpaid unemployment benefits doesn’t mean they were fraudulent. Because the situation was changing faster than the rules could keep up with it, and because states didn’t want unemployed workers to have to wait for their benefits, some people collected benefits in good faith believing that they were eligible when they were not.

For example, in Michigan, part-time workers were newly eligible for unemployment benefits, but were still asked whether they were available for full-time work. They would honestly answer “no,” and were later told by the state that they needed to repay their unemployment benefits.

In other cases, states such as New Mexico miscalculated the size of the unemployment benefit to which the unemployed person was entitled.

And a year ago, North Carolina reported that most of its overpayments were due to applicant error due to a lack of staff available to help people who had never applied for unemployment before.

Letting States ‘Off the Hook’

In responses to cases like these, the Department of Labor issued guidance on Feb. 7 specifically addressing some of these issues, and giving states the ability to issue a blanket waiver of recovery of overpayments in many cases.

The federal government has received some criticism for this, with some members of Congress saying the government was “letting states off the hook” in trying to reclaim the funds. “Allowing use of blanket waivers lets states off the hook for due diligence and fact-finding for large volumes of suspicious unemployment claims potentially involving billions of fraudulently obtained taxpayer dollars,” wrote three members of Congress in a letter to the chairman of the House Ways and Means Committee.

At the same time, state governments have preferred to focus on outright fraud rather than recovering money from individuals who received overpayments through no fault of their own.

“When people are already struggling and have been waiting so long, I think it weighs on all of our hearts,” State Sen. Jim Perry (R-Harnett) told North Carolina Policy Watch. “Through no fault of theirs they received the check, or the funds deposited, and they fed the baby or paid the electric bill, and now there’s another round of despair.”

“If there was fraud committed, if there was abuse of the system, we are going to go after that money. We are going to try and get it back,” Rhode Island Department of Labor and Training Director Matt Weldon told WJAR.  “But if it was an innocent mistake because of a rule change, then that money is long gone and asking somebody to come up with that money now it’s probably not the best way to handle this going forward.”

And there have definitely been some very sad stories about individuals who were overpaid unemployment benefits that they applied for and received in good faith, and who later were told they needed to pay them back.

“People panicked,” Michele Evermore, deputy policy director for the DOL Office of Unemployment Insurance Modernization, told Route50. “There were people selling their houses, selling their cars, dipping into their 401(k)s. We’ve heard anecdotally of people taking their own lives because of this.”

Focus on Fraud

Insurance Fraud

Other cases are more definitively fraudulent, such as a single Social Security number being used to receive more than $200,000 in benefits from 29 states, payments to thousands of dead people, claims for U.S. residents from IP addresses in 170 countries, and entire chat rooms devoted to discussing how to defraud unemployment insurance. It’s cases like this that will likely more be the focus of the chief prosecutor.

The role of the chief prosecutor is “focusing on major targets of pandemic fraud, such as those committing large-scale identity theft, including foreign-based actors,” noted the White House. That makes it clear that the federal government isn’t going after individuals who inadvertently got more unemployment benefits than they should have.

In particular, the effort will use technology to track down the miscreants, the White House added. “These strike force teams will also use state-of-the-art data analytics tools to connect the dots on identity theft and other complex fraud schemes committed across state lines or transnationally, as well as investigate major cases of criminal fraud in programs like the Paycheck Protection Program (PPP) and Unemployment Insurance (UI).”

In addition, the President is expected to announce an Executive Order with broad government-wide directives to prevent and detect identity theft involving public benefits, while protecting privacy and civil liberties and preventing bias that results in disparate outcomes, as well as to support victims of identity fraud, the White House said.

The real answer to the problem of fraud going forward is to stop it before it starts, by developing stronger identity management and fraud detection solutions that detect the bad actors, and by helping states share fraud data, without delaying unemployment benefits to people legitimately entitled to them.


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By Published On: March 8, 2022Categories: Blog

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