Nothing finds cracks in a pipe like a surge of water pressure, and nothing exposes the weak spots in a government agency or program like a crisis. It’s a lesson that could cost state unemployment agencies around the country as much as $26 billion, according to one official’s estimate.
It’s not clear what the Massachusetts or New Hampshire share of that loss could be. But, in Massachusetts, state officials this past week reported finding 58,616 fraudulent claims for benefits filed in the last four months. The state says it’s pulled back $158 million worth of such claims. Still not clear — because the state didn’t say — is how much was paid to fraudsters that hasn’t been recovered.
Certainly, pressures on the Massachusetts Department of Unemployment Assistance have been extraordinary, and not just because of a pandemic that forced a closure of the economy and a tidal wave’s worth of jobless claims — upward of 1.6 million — from March 8 through the end of June.
Added to that, the state was among the first targeted by what the U.S. Secret Service described in May as a “well-organized Nigerian fraud ring exploiting the COVID-19 crisis to commit large-scale fraud against state unemployment insurance programs.” Criminals used personal data swiped before the pandemic to file for benefits for people who were not unemployed. Last Tuesday’s announcement didn’t say how much of the state’s losses or recovered benefits were related to that scheme.
Unemployment offices weren’t the most secure set-ups before all of this started. Testifying to Congress last month, Labor Secretary Eugene Scalia noted that fraud is such a persistent issue that federal law requires states to keep an “improper payment rate” of no more than 10%. In other words, if as many as 1 in 10 benefits is bogus, the federal government deems the system to be healthy. Imagine the Main Street store or bank that operates with a 10% loss rate. Doubtless it would not be open for long.
Yet, as of last summer, Massachusetts had one of the highest rates of paying out improper unemployment benefits. The federal government estimated more than 21% of payments made by the state from July 2016 through July 2019 were improper, with more than a third of those instances due to overpayment or payments to people not meeting the state’s rules for looking for a new job. The Labor Department estimated the state made nearly $250 million worth of improper payments in 2019.
New Hampshire’s rate of erroneous payments, by contrast, was slightly more than 10% during the same three-year period, according to the federal government. Its annual improper payments were slightly more than $3 million.
Scalia said the federal government and states were making concerted efforts to reduce those numbers during the second half of 2019. Then came COVID-19. The pandemic stirred up what Scalia called “a substantially heightened risk of fraud and improper payments,” as unemployment offices relaxed rules in order to clear away logjams of claims.
The Labor Department’s former inspector general, Scott Dahl, testified in the same Capitol Hill hearing that states have long struggled to both find and stop unemployment fraud. “Unfortunately the higher weekly benefits offered under the CARES Act are an attractive target for scammers and fraudsters, increasing the burden on states to get payments out quickly while protecting the integrity of the program,” he said in prepared comments, referring to the federal relief package for people put out of work because of the coronavirus.
The damage from this broken unemployment system isn’t just the bleed of government funds, which is considerable. In Massachusetts, anyway, the state’s scramble to button up its process, in part, has delayed many workers in need from getting cash quickly. Others with legitimate claims, and proper identification, have been turned away by a bureaucracy suddenly sensitized to scammers lurking in the shadows.
At some level, it’s probably unfair to criticize the work of an office simply overrun with requests and targeted by a sophisticated network of foreign fraudsters. But unemployment bureaus, here and elsewhere, are essential to protecting workers and back-stopping the economy. So is fixing the leaks, as we’re now seeing in dramatic fashion.