A new report titled “Lessons Learned in Oversight of Pandemic Relief Funds,” was released on August 31 by the Pandemic Response Accountability Committee. The committee, which was created by the March 2020 CARES Act and is comprised of 22 federal inspectors general, reviewed $5 trillion in pandemic relief funds provided to date, including paycheck protection program benefits, small business loans, state and local relief funds, and unemployment benefits. The report was released just days before an estimated 7.5 million recipients will see temporary federal pandemic unemployment benefits expire on Labor Day.
The report’s “lesson #1” is that “Self-certified information needs
to be validated before payments are sent.” In the context of unemployment
insurance (UI) benefits, the committee notes that “The structure of new
pandemic UI programs intensified” the already high risk of fraud involving
unemployment benefits before the pandemic. That is because the March 2020 CARES
Act “increased UI benefits and expanded eligibility to individuals who were not
typically eligible for benefits (e.g., self employed and gig economy workers).
For these types of workers, no third party or employer can verify if the
individual is actually unemployed.” To get benefits out the door more quickly, lawmakers
also provided that, in the new Pandemic Unemployment Assistance (PUA) program, “Eligible
individuals were only required to self-certify that they could not work due to
a COVID-19 related reason.”
As I noted last year, self-certification and those larger, more readily available benefits proved an inviting target for identity thieves, including international crime syndicates. Even fraud committed by solo actors has been extraordinarily lucrative. For recipients continually collecting PUA program benefits between April 2020 and today, minimum payments (including initially $600-per-week and more recently $300-per-week supplements) have averaged over $34,000 nationwide; for those first collecting often larger state UI benefits, average payments total over $46,000.
Some experts have pegged cumulative losses to fraud at an incredible 50 percent of all unemployment benefits paid, or over $400 billion; losses almost certainly stretch into the hundreds of billions of dollars. This week, the senior Republicans on the House and Senate committees with jurisdiction over unemployment benefits asked the nonpartisan Government Accountability Office to investigate “the true scope and severity of COVID unemployment fraud,” which they argue “appears to be the greatest theft of American tax dollars in our nation’s history.”
Because caseloads and benefit spending peaked in 2020, most losses to fraud likely occurred before the enactment of bipartisan December 2020 legislation. But that legislation, which starting in February 2021 required new PUA claimants to “provide proof of prior employment” within 21 days of getting on benefits, shows how such policies can make a difference. As displayed in the chart below, that new requirement was followed by rapid declines in initial claims for PUA benefits — which fell more sharply than initial claims for state UI benefits over the same period:
As the report’s “lesson #1” suggests, the inspectors general recommend future lawmakers take that policy one step further. That is, if programs providing self-certification of eligibility are ever revived, they should require proof of prior employment before benefits start to flow, not just within 21 days of their onset. That might result in minor delays in the start of weekly benefits for rightful claimants — who would likely receive several weeks of back benefits in an initial lump sum instead. But that minor delay would be well worth it if it helps prevent a repeat of the massive losses to fraud taxpayers have experienced during the pandemic.
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