Unemployment Insurance Fraud During COVID-19 Could Total $135 Billion: Watchdog

People who lost their jobs wait in line to file for unemployment at an Arkansas Workforce Center in Fayetteville, Ark., on April 6, 2020. Nick Oxford/Reuters

Hundreds of billions of dollars worth of unemployment insurance (UI) payments handed over during the COVID-19 pandemic are estimated to have been fraudulent, according to a recent report by a federal watchdog agency that admitted the “full extent” of the fraud remains unknown.

Responding to massive job losses during the pandemic, Congress created new temporary unemployment insurance programs to provide relief for those who lost their jobs at the time. However, the “unprecedented demand for benefits and need to quickly implement the new programs increased the risk of fraud,” said the U.S. Government Accountability Office (GAO) in its Sept. 12 report (pdf).

The GAO estimates that “the amount of fraud in unemployment insurance (UI) programs during the COVID-19 pandemic was likely between $100 billion and $135 billion. This is about 11 percent and 15 percent, respectively, of the total amount of UI benefits paid during the pandemic.”

The agency said that “the full extent of UI fraud during the pandemic will likely never be known with certainty.”

The estimate covers the period from April 2020, when the first full month of payments for UI programs began, to May 2023, which marked the end of the COVID-19 public health emergency.

Due to the risk of fraud and other challenges, the GAO added the UI system to its High Risk List in June last year.

The High Risk List, updated at the beginning of each new Congress, details government programs and operations that are “vulnerable to waste, fraud, abuse, or mismanagement, or in need of transformation.”

Finding the Fraud

In a draft of the report, the Department of Labor raised suspicions about the GAO’s methodology and claimed that the resulting estimates were likely overstated. However, the GAO dismissed these suggestions, noting that it took stringent steps to determine the range of fraud.

The report points out that the Labor Department provided financial aid to states during the pandemic for initiatives like UI systems and processes, including fraud prevention, detection, investigation, and recovery.

By May 1, 2023, states had identified $55.8 billion in fraudulent and nonfraudulent unemployment insurance overpayments. Between March 2020 and March 2023, states had recovered $6.8 billion in such defrauded funds.

“The UI system has faced long-standing challenges with program integrity, which worsened during the COVID-19 pandemic,” the GAO said.

Up to $45.6 billion in UI pandemic benefits (pdf) may have been fraudulently claimed, the Department of Labor’s Office of the Inspector General (OIG) said last year.

The OIG identified that fraudulent UI payments were paid to individuals with Social Security numbers that were filed in multiple states and were used to file claims with suspicious email accounts. Some numbers also belonged to federal prisoners and deceased persons.

Other Fraudulent Funds

In addition to unemployment insurance, other government programs initiated during the pandemic have also been the subject of fraud, according to various reports.

In January, the federal watchdog Pandemic Response Accountability Committee (PRAC) flagged more than 69,600 “questionable” Social Security numbers for “potential fraud and identity theft” linked to the U.S. government’s small business COVID-19 relief program.

The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP) disbursed nearly $1.2 trillion in assistance to small businesses. PRAC estimated that $5.4 billion of these funds may have been fraudulently claimed.

In June, the SBA inspector general released a report (pdf) showing that tens of billions of dollars were stolen via EIDL and PPP programs.

“At least 17 percent of all COVID-EIDL and PPP funds were disbursed to potentially fraudulent actors,” the report said. It estimates that EIDL saw a fraud of $136 billion while PPP fraud was at $64 billion.

These actors were able to “take advantage of the economic crisis and divert funding intended for deserving, eligible American small business owners,” the SBA report said.

By May 2023, over 1,000 indictments, 800 arrests, and 500 convictions related to PPP and EIDL program fraud were made. About $30 billion in fraudulently obtained funds were recouped.

Certain wealthy celebrities also benefited from PPP loans that were intended to help small businesses retain employees and hire back laid-off workers.

Rapper Jay-Z’s two firms received PPP loans. Champagne brand Armand De Brignac Holdings, in which Jay-Z owns a 50 percent stake, received a loan of $293,119, according to data from ProPublica.

Rapper Kanye West’s men’s clothing business Yeezy took a loan of $2,363,585 under the PPP program. Good American LLC, a denim brand owned by Khloe Kardashian, took out a loan of $1,245,405 for its 57 employees. Actress Reese Witherspoon’s clothing company Draper James LLC received $975,472 in PPP funds.

In addition to these Hollywood celebrities and singers, wealthy artist Jeff Koons, NFL legend Tom Brady, and politician Jared Kushner’s family were also recipients of PPP loans.