Well over a year into the ongoing COVID-19 saga, pandemic-related fraud schemes have become relatively commonplace in American society. Scammers have used these difficult times to their advantage in preying upon many who were thrown into positions of economic vulnerability. Many have also sought to exploit pandemic relief efforts and unprecedented unemployment benefits offered over the better part of the past 18 months (with approximately $650 billion distributed to qualifying individuals and families via unemployment programs since March 2020), with fraudsters actively racking in economic aid meant to assist those in dire straits. Today unemployment fraud has evolved into arguably the most prevalent form of cybercrime in the United States, with the Biden administration’s monumental and highly-publicized $1.9 trillion economic stimulus package drawing fraudsters out of the world’s cyber-gutters with hopes of making off with quick cash. Bloomberg – citing data from a U.S. Labor Department watchdog – notes that at least $63 billion in improper payments have been doled out since last year alone, with additional damage expected in coming months secondary to the recent extension of certain unemployment benefits backed by Congress and the White House.2 The Labor Department’s Office of Inspector General estimates that upwards of $87 billion could ultimately be paid out while pandemic-era programs run their course.
Certain government-backed initiatives enacted to expedite the recovery of the U.S. financial system and boost consumer spending have become primary targets for fraudsters given their lax safeguards. The Pandemic Unemployment Assistance (PUA) program for example was a measure designed to help individuals who don’t typically qualify for jobless benefits receive some additional compensation. However, analysis has shown that roughly 1/3 of the new claims for the program are related to fraud or identity theft efforts in one way or another, largely due to the fact that applicants – real or fraudulent – need not have employer verification to apply. This is given the fact that the class of workers who qualify for assistance from this program are often independent contractors or “gig workers” not considered true employees of established companies. All the more striking is that many believe that both domestic and international criminal organizations are among the main contributors to this illicit activity that has run rampant in recent months. On the bright side, the PUA program will not be a viable option for criminals much longer. This specific program is set to draw to a close on September 6th. Nevertheless, fraudsters will be looking for additional avenues to make off with government-issued finances. “Fraud rings look for easy targets that produce revenue with minimal risk,” said Douglas Holmes, president of UWC – Strategic Services on Unemployment & Workers’ Compensation, an advocacy organization for businesses. “When PUA is no longer on the board, they’ll look to other places to exploit. They’ll look to regular UI.”2 Financial institutions will too need to adjust their oversight of transactions related to traditional unemployment insurance in just a matter of days to help limit the success rates of these efforts.
Further compounding matters for an American government continuing to dole out these lucrative payments is the fact that the mixture of the use of outdated technology by federal processors and understaffed offices have contributed to an increase in legitimate jobless claims being incorrectly flagged as suspicious and creating significant delays in processing of benefits for qualified individuals, further limiting the country’s economic rebound. While answers to this respective problem remain at large, the U.S. government is reportedly set to pump hundreds of millions of dollars into its unemployment system to better prepare itself to take on the fraud and stop criminals from abusing government aid. The Labor Department is allocating approximately $240 million in grants to fund a broader effort to fix deficiencies in the greater unemployment filing and payout system. These funds are derived from a pool of collective leftovers from the CARES Act (~$100 million) and the American Rescue Plan (~$140 million) – two relief programs enacted by the government in wake of the pandemic between 2020 and early 2021.
With most states facing historically low level levels of administrative funding over the past year, many are expected to use the funds they receive to improve largely deficient areas such as identity verification for applicants, fraud detection and prevention, cybersecurity and efforts involved with recovering overpayments.1 CNBC also notes that the Labor Department plans to issue another $260 million in equity grants to states, with the funds – a first-of-its-kind undertaking for the agency – aiming “to improve outreach and customer service with an eye toward addressing potential ethnic and racial disparities.”1 Questions still remain as to whether federal legislation will soon govern the entire unemployment system – including the creation of a federal (versus state) system of benefits administration that would address disparities including benefit duration and payout amounts, as well as qualification criteria. All told, while these proposed modifications clearly are much needed, it remains to be seen whether this additional funding will be at all effective in thwarting the U.S. unemployment fraud crisis.