States scramble to deal with potential spikes in unemployment fraud, prompting Democrats to demand answers

June 8, 2020

Little else is known about the incident, leading lawmakers including Sen. Patty Murray (Wash.), the top Democrat on the Senate’s leading health committee, and Sen. Ron Wyden (Ore.), who leads the party on the Senate Finance Committee, to demand answers. They also called on the government to dedicate new resources toward helping states defend themselves against similar criminal operations, particularly as they race to get critical jobless aid to Americans who need it most.

“We all share a common goal of ensuring the integrity of the unemployment insurance (UI) program,” lawmakers wrote in a letter to Labor Secretary Eugene Scalia, later adding: “Safeguarding state UI systems against unscrupulous actors who seek to exploit the current public health crisis for economic gain requires a holistic response by the federal government in partnership with states.”

The Labor Department did not immediately respond to a request for comment.

The growing fears about rampant fraud reflect only the latest headaches to plague the country’s unemployment insurance program, a benefits system backed by federal regulators but largely run by the states. Many agencies buckled under the initial, unprecedented demand, all the while struggling to implement a federal coronavirus relief package that expanded benefits to new workers and increased weekly payments by $600. The resulting bureaucratic hurdles and technical glitches left many out-of-work Americans awaiting much-needed aid for weeks.

But these outdated computer systems — and states’ race to get cash in the hands of workers who need it most — also appear to have opened the door for potential criminal activity. Such scams seem to have targeted at least seven states, according to a memo from the U.S. Secret Service from early May recently posted online by the state of Michigan.

“It is extremely likely every state is vulnerable to this scheme and will be targeted if they have not been already,” federal officials warned at the time.

The hardest hit appears to be Washington, which reported a “dramatic rise” in incidents involving people applying for unemployment aid fraudulently. Washington officials recently indicated there have been as many as $650 million in fraudulent claims, about half of which the state has recovered. A spokesman did not immediately respond to a request for comment.

Federal officials previously said that some recipients of Washington’s unemployment checks have been sent to individuals residing out of state. The fraud ring, which may be based in Nigeria, appears to have obtained those benefits by using personal information harnessed from local first responders, government personnel and school employees, according to the unreleased Secret Service document.

“Responding to criminal schemes seeking to exploit the COVID-19 pandemic has become the primary investigative focus for the Secret Service,” Beth Celestini, a special agent with the Secret Service, said in a statement. “Recent partnerships have resulted in the prevention of hundreds of millions in fraud losses, and the initiation of dozens of ongoing investigations.”

Michigan, meanwhile, halted payments on Friday for about 340,000 claims, or 20 percent of its total, out of concern about potential fraud. Oklahoma officials indicated in emails obtained by local reporters that there were 80,000 suspicious claims in late May. And Pennsylvania said it ceased paying checks on 58,000 claims for Pandemic Unemployment Assistance, a new federal program authorized under the Cares Act that provides jobless aid for those typically ineligible for weekly benefits.

Spokespeople for unemployment agencies in Michigan, Oklahoma and Pennsylvania did not respond to requests for comment. It is not clear whether these suspected fraudulent claims, detailed in prior public statements and media reports, are part of the same scheme identified in states like Washington.

The lack of details alarmed congressional Democrats, many of whom are seeking to augment federal unemployment benefits further before they are set to expire at the end of July. They asked the Labor Department in their letter to detail by later this month when they learned of the criminal operation, how they’re seeking to combat it and the total number of fraudulent claims submitted.

Signing the letter with Murray and Wyden were Democratic Sens. Mazie Hirono (Hawaii), Sheldon Whitehouse (R.I.), Edward J. Markey (Mass.), Jack Reed (R.I.), Maria Cantwell (Wash.) and Elizabeth Warren (Mass.).

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