Labor watchdog calls out gaps in unemployment fraud reporting

The platform that monitors state unemployment insurance divisions to detect fraud isn’t currently required to report suspected fraud data with the Labor Department’s Employment and Training Administration or the department’s Inspector General, according to a July 1 memo from the Office of the Inspector General.

This limits the IG’s ability to oversee benefits programs and spot large-scale fraud, the memo states.

State workforce agencies have been riddled with fraudulent claims over the past year as the pandemic triggered economic upheaval and widespread job losses. States paid over $5.4 billion to potentially fraudulent claims in a span of eight months in 2020.

Leaders in Congress and the department itself have pushed for DOL to take a more active role in the administration of benefits and the tech that delivers them. The department now has over $2 billion from the American Rescue Plan Act to back IT development and has requested more in its budget request for fiscal year 2022. Labor Secretary Marty Walsh has stressed his intention to practice oversight as DOL administers those funds.

The OIG says it needs this data to oversee unemployment nationwide.

“The UI program is exposed to substantial risks, including the cost of UI benefit payments based on fraudulent claims,” the memo states. “Reporting suspected UI fraud to the OIG will assist the OIG to effectively and efficiently detect and investigate large-scale fraud, deconflict investigations with [state workforce agencies], and identify and share fraud trends … in order to strengthen the UI program and help prevent fraud before it occurs.”

States use a cross-matching tool called the Integrity Data Hub to monitor for fraud. The agency watchdog says that federal regulations require the organization that runs it, called the National Association of State Workforce Agencies, to report data flagged as suspect to DOL’s Inspector General or the DOL.

The agency said in a response included with the memo that it will modify its agreement with NASWA to require it to share flagged data with the department’s IG.

Although it disputed the watchdog’s claim that regulations require that disclosure, DOL said it “recognizes the OIG seeks additional data given the scope of the current crisis” and would work with the state coalition to facilitate sharing. The states and their national association will need to update their data sharing agreements to do this, the agency said, and states themselves will also have to consent.