States Need To Step Up To Avoid Losing Millions To Unemployment Fraud

States Need To Step Up To Avoid Losing Millions To Unemployment Fraud

Joe Biden appointed to run employment claims someone who allowed hundreds of millions of small businesses’ tax dollars to fall into the hands of a Nigerian fraud ring.
Joe Horvath
By

Have you ever wondered what kind of person might actually click on those spam emails from deposed Nigerian “princes” who promise to send untold future riches in exchange for a small contribution today?

Well, President Biden may well have just appointed one to help states process unemployment claims. At the very least, the president appointed someone who failed miserably to protect the private information of thousands of residents of her state and allowed hundreds of millions of small businesses’ tax dollars to fall into the hands of a Nigerian fraud ring. This is not how you “build back better.”

Suzi LeVine is transitioning to President Biden’s administration from running the Washington State Employment Security Department (ESD). As with every other state unemployment agency head in America, LeVine was responsible for making sure ineligible individuals did not receive unemployment checks. That job is always important but is especially so now during a pandemic that has strained state unemployment trust funds across America.

The most egregious failure by Washington state involved a group known as “Scattered Canary,” a fraud ring that specialized in identity theft. With some exceptions, unemployment ineligibility typically involves people who voluntarily quit their jobs, refuse a job offer, or generally have no connection to the workforce.

The recent COVID-19 pandemic, however, saw an explosion of identity theft-based unemployment fraud. This was, in part, due to Congress making unemployment fraud an attractive prospect thanks to an unprecedented $600 weekly unemployment bonus awkwardly grafted onto systems that simply couldn’t handle it. Fraudsters would steal people’s identifying information and apply for unemployment benefits in their name. All too often, state workforce agencies, like the one under LeVine’s watch, paid out.

According to a recently published state audit, under LeVine ESD paid out more than $600 million of fraudulent unemployment claims. ESD even paid out 10 fraudulent claims in the names of their own employees. The most recent reporting indicates Washington state has only recovered approximately $250 million of the fraudulent payouts, leaving some $350 million outstanding.

Of course, while LeVine’s workforce agency produced the number one story in a report I recently wrote of the top 10 unemployment fraud cases released by the Foundation for Government Accountability, her agency was far from alone. California, whose agency is headed up by another potential Biden pick, has seemingly reported drastic increases in fraud on a weekly basis, with the potential total now breaking $30 billion. That alone is more than all 50 states spent on legitimate and improper unemployment payments combined in 2019.

Pennsylvania sent $200 million to prison inmates. Twenty-six New York State judicial system employees suspected of unemployment fraud are under investigation. Even current and former governors and lieutenant governors are being targeted by identity thieves.

In one of the most bizarre stories of 2020, a rapper even allegedly stole $1.2 million of unemployment benefits and showed them off in a rap video he made about committing the crime.

One thing is clear: With questionable leadership coming from both Washingtons, states must take it upon themselves to do everything in their power to protect their trust funds, their businesses, and their citizens. Business as usual is no longer enough. It is time for new ideas and decisive action. It will take the combined efforts of state workforce agencies, governors, and legislatures.

Unfortunately, in the states, legislators too often defer to what their agencies or governors tell them. With record fraud levels and the increased risk of job-killing unemployment tax increases on the horizon, it is incumbent on state legislatures to exercise their oversight authority and become part of the solution.

One example of a state legislature taking proactive steps is Louisiana’s. In the fall, Louisiana legislators saw the state trust fund was in dire straits and made unemployment program integrity reform part of a special session agenda. They passed legislation requiring their state workforce agency to perform weekly cross-checks.

To predetermine the eligibility of unemployment claims, the agency will compare unemployment claims to pre-existing lists such as prison records and a database that includes new hires across the country. The agency supported the measure, the Republican legislature passed it unanimously, and Democrat Gov. John Bel Edwards signed the bill into law. That is just one example of sound, federally recommended, non-controversial policy that will help protect Louisiana’s trust fund and reduce waste, fraud, and abuse.

There is no excuse for stealing from the truly needy. That includes fraudulent unemployment claims. There is also no excuse for a state official to allow fraudsters to run rampant and bankrupt a system paid for by small businesses and counted on by out-of-work individuals—and then for the federal government to promote that official to a higher office. Even if Washington fails to provide leadership and a good example, states must do what it takes to make sure only those who need and deserve unemployment benefits get them.

Joe Horvath is a senior fellow at the Foundation for Government Accountability.

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