California estimated they lost at least $11 billion (with a “b”) to unemployment compensation fraud.
The state of Washington found that, in the first few months of COVID, over $500 million was stolen from its unemployment fund. The Seattle Times said that’s the largest loss due to fraud in that state’s history. New York forwarded evidence of more than $5.5 billion in fraudulent unemployment payments to federal investigators. One leading fraud analyst believes $400 billion may have been misspent on unemployment benefits in the U.S. during the pandemic.
That’s a staggering number. The TARP program — the much-maligned 2008 stimulus that bailed out big companies — cost just north of $400 billion, too.
Americans should be just as upset about the unemployment fraud as they were about TARP. Unemployment payments were stolen by everyone from international fraudsters to inmates at your local prison.
Mississippi fared no better than the other 49 states. My office just completed an audit of the state’s unemployment fund for FY2020. We looked at how the fund performed from the middle of calendar year 2019 to the middle of calendar year 2020. That covered the first few months of COVID.
What we found was discouraging. Unemployment payments spiked nearly 3,500% in FY20 due to the international recession. As the payments skyrocketed, so too did the fraud. The state lost over $117 million to improper unemployment payments during that time.
That number dwarfs the total unemployment payments from the year prior, which was just shy of $60 million. And, of course, the total amount of money lost to fraud during COVID will be clear—and much bigger—when we audit the remainder of the COVID period later this year.
The point is this: Mississippi and every other state lost a lot of money due to unemployment fraud. Some folks pretended to be eligible for unemployment but were not. Some pretended to be from here but were not. Others used the dark web to steal the personal information of unsuspecting individuals, pretended to be those individuals, and drew down unemployment in their name. As a result, money that could have stayed in Mississippi and kept our economy afloat was lost out of state or country.
How did this happen? The answer is, every state was buried under a wave of unemployment cash. They were also under intense pressure from politicians to push the money out the door. Key systems — like the system to make sure applicants were not lying about their social security numbers — crashed for months at a time.
State agencies handling the money made the decision to turn off some of their fraud prevention measures. For example, Mississippi’s Department of Employment Security waived the requirement to check whether those applying for unemployment were actively seeking work. They also limited the ways in which they were checking the applicants’ reason for unemployment.
The sinking economy, the massive stimulus, and the pressure to turn off fraud prevention measures created a terrible cocktail that cost us millions. Mississippi even paid money to prisoners and other individuals who never had a reduction in wages.
The money was paid out so quickly to so many different people that the hope of recovering these millions of dollars is slim. The Department of Labor is overwhelmed with fraud investigations. My office’s main role is to audit the program to see what was lost, but we will help as much as possible to hold any fraudsters that we can find accountable.
The real takeaway here is that we need to reflect on what happened and never let it happen again. There will be another recession one day. If the lesson of 2008 is we need to have a recovery plan that doesn’t involve bank executives getting rich, the lesson of 2020 will be that we need a recovery plan that prevents so many taxpayer dollars from vanishing.
Next time, we need technology that can check compliance with unemployment regulations in real time, as applications are being processed. This way, the agency running the program is not forced to waive those regulations. We need to use the technology that checks unemployment applicants against other government databases, like lists of incarcerated individuals, to kick out the ineligible. And if a state agency does not have the technology available to run these checks, they need to have relationships with data firms who can quickly come on contract to put fraud prevention measures into place.
This is paramount for restoring faith in government after COVID. I’ve talked to countless Mississippians who saw direct evidence of unemployment fraud or ineligible people receiving benefits. Small businesses in particular were frustrated that so much money was out on the street while they struggled to hire or retain employees. Those businesses are the backbone of our economy, and government has to do better for them.
Shad White is the 42nd state auditor of Mississippi.