Pandemic jobless fraud ‘dwarfs’ Minnesota scandal, was largest taxpayer theft in history: Watchdog

Pandemic unemployment insurance fraud was the single largest theft of American taxpayer dollars in history, Linda Miller, president of Program Integrity Alliance, told a panel of lawmakers.

“And I mean that in absolute terms,” she said. “It completely dwarfs the fraud scandal we’ve seen in Minnesota or any other fraud scandal to date.”

The Labor Department’s internal watchdog, which aims to strengthen government fraud prevention, said it found almost $1 billion in potentially fraudulent claims obtained from pandemic unemployment insurance funds, prompting the House Ways and Means Subcommittee on Work and Welfare’s Thursday hearing.

During the pandemic, the Department of Labor’s unemployment insurance programs dispersed more than $880 billion in total benefits. At least $191 billion could have been improper payments, including more than $76 billion paid to fraudsters, the department’s Office of Inspector General found.

Prepaid debit cards were issued to unemployment insurance applicants. Now, $720 million remains on unused cards, and $192 million was surrendered to state unclaimed property administrators.

“The good news is those funds did not get into the hands of the fraudsters,” subcommittee Chairman Darin LaHood, Illinois Republican, said, referring to money transferred to state unclaimed property. “The bad news is, instead of rightfully being recovered and returned to the federal treasury, the funds are now being transferred to state coffers as a result of inaction.”

Ms. Miller said this is low-hanging fruit, as these are recoverable funds identified by federal investigators and waiting for action.

When the fraud became clear to banks, they were unable to do anything about it, she said.

“I was told [from banks] early on, ’We called and we couldn’t get the money back. We didn’t know who to [ask]. Nobody answered the phone. They didn’t tell us how we could give the money back,’” Ms. Miller said. “They were concerned that if they froze an account and tried to return that money to the government, they’d be held liable.”

She stressed the need for a statutory framework that provides financial institutions with both a mechanism to get that money back and a safe harbor and protection if they freeze fraud-suspected funds.

Only 5% of the fraudulent unemployment insurance payments made during the pandemic have been recovered, Rep. LaHood said, citing Department of Labor data.

While the recovery of these funds would be a significant step in the right direction, Department of Labor Inspector General Anthony D’Esposito said, he requested additional measures for his office: more resources and tools, an extension of the statute of limitations and legislative authority in asset forfeiture.

The Pandemic Unemployment Fraud Enforcement Act, which passed the House last March, would extend the statute of limitations for prosecuting pandemic unemployment fraud from five years to 10 years. While the bill would extend the clock for seizures and forfeitures, it does not give the Office of Inspector General the statutory authority it requires to fight that activity, Mr. D’Esposito said.

He encouraged Congress to make amendments to the Inspector General Act to give the offices that ability.

“There are criminals, whether they are here in the United States of America, or our adversaries across the globe, who are waiting for the statute of limitations to run out so that they can cash in on some of that $1 billion,” Mr. D’Esposito said.