Fraud Robbing Unemployment Programs?

Econintersect: Thirteen states are seeing high levels of fraud in their unemployment compensation programs with more than 14% of their money going to improper payments.  The most egregious situations exist in New Mexico (27% improperly paid) and Louisiana and Indiana (44% each).  Almost half of unemployment payments made to fraudulent claims? According to the U.S. Department of Labor (DOL) that could be the case in the two states with the biggest problems.  Over the past three years the national improper payment rate for the entire country has ranged from 10.16% (year ending 6/30/2009) to 11.95% (preliminary for year ending 6/30/2011).  The total amount of money improperly paid over the three years is approximately $20 billion.The DOL implemented a program to track and correct these frauds over a year ago and has reported on status. The following map shows the result of the audits performed from 2008 to 2011:

Click here for interactive version of this map.

According to the DOL, the most common frauds result from three causes:

1. Recipients continue to claim benefits after returning to work;
2. Employers or their third party administrators do not submit timely or accurate separation information; and
3. Claimants fail to register with the state’s Employment Service (ES) as dictated by state law.

It seems likely that poor procedure is the cause of some improper payments which may actually be going to persons that would have been paid properly with correct processing.  For example, payments made to people who would have been qualified to receive them but were not properly registered should have been withheld until the registration was completed; then the current improper payment total would have been reduced.  Just what portion of the $20 billion is in this category of improper payment and how much is abject fraud is not discernable from the DOL data.    

The DOL intervened earlier this year with the ten states with the biggest problems.  The DOL says it “encouraged” these states to “focus on the issue.”  The DOL has specifically identified a 23% reduction for improper payments in 2011 to people in the third category above.

From the introduction to the control program implemented by the DOL in June, 2010:

The U.S. Department of Labor is implementing a number of strategies to help states address improper Unemployment Insurance (UI) payments. Reducing the improper payment rate will require strong federal-state collaboration and intense focus by the entire UI system. In June, 2010, the Department announced an immediate call to action to all states to ensure that payment integrity remain a top priority and to foster the development of state specific strategies to prevent improper payments.

A key strategy included in this plan is the convening of state cross-functional improper payment task forces. Designed to ensure that “everyone owns integrity” across the system and to promote innovative strategies, task forces are expected to develop and implement state-specific action plans to reduce improper payments and to provide leadership nationally with other states to support reduction of improper UI payments.

The Department has partnered with eleven “High Impact” states to aggressively address improper payments. State task forces from these states participated in a virtual institute in June 2011 to develop comprehensive strategic plans and exchange best practices. All states are engaging in a similar process in late September/early October 2011. In addition, the Department has made funds available to states to address their root causes most likely to quickly reduce improper payments.

Sources:  DOL Improper Payment Data and DOL Control Program