West Virginia paid out nearly $83 million in fraudulent unemployment claims during the covid-19 pandemic, according to a newly-released state audit.
This state was not alone, the report noted. Under pressure to push out unemployment claims, state agencies across the country were hit by widespread fraud.
“Other states also experienced similar fraudulent activity in their unemployment insurance programs,” West Virginia’s audit noted.
Lawmakers heard about West Virginia’s painful experience during interim meetings that started Sunday. The legislative audit was presented to the Joint Committee on Government Operations.
West Virginia’s House Speaker, Roger Hanshaw, focused on how a lack of oversight resources contributed to the problem when he asked the first question at today’s audit presentation.
Auditors responded that the state’s unemployment agency was besieged with new claims but also was under pressure to implement a newly-established federal unemployment program on the fly.
The state agency that deals with employment issues, Workforce West Virginia, concurred with the findings of the audit produced by the Performance Evaluation & Research Division.
“Workforce West Virginia has received and reviewed the PERD report and approves of the findings within the report,” wrote acting Commissioner Scott Adkins.
Since the trend of widespread fraud became clear, Workforce has implemented a fraud unit, a cross-match unit and an investigations unit in addition to developing partnerships with various state agencies to cross-match data and to identify bad actors.
The legislative audit noted that Workforce also could have partnered with other state agencies — such as the state Auditor’s Office to run checks on whether claims filed in the names of state employees were accurate or the Division of Corrections to determine if claims were filed for incarcerated people.
Prior to the pandemic, state unemployment agency officials said today, West Virginia had the fourth lowest improper payment rate in the nation.
The fraud occurred after the pandemic hit in early 2020, causing government orders to halt or slow much of the business activity across the country. Unemployment skyrocketed, with thousands of claims causing strain on the government agencies administering them.
West Virginia’s audit noted that the total number of claims processed by Workforce increased from 52,896 in 2019, the year prior to the pandemic, to 457,399 in 2020.
West Virginia received almost $1.8 billion from the federal CARES Act to cushion the effects of such widespread unemployment.
The CARES Act established the Pandemic Unemployment Assistance program, providing up to 39 weeks of aid to classes of workers not normally eligible for regular compensation. Those included part-time workers, the self-employed and gig workers.
That program also allowed claims without the usual verifications for regular unemployment benefits — allowing self-certification for eligibility.
The other aspect of federal aid was the expanded Federal Pandemic Unemployment Compensation program that allowed regular weekly compensation to be increased by $600 — later $300 when the program was extended.
Workforce’s claims process was not designed for the onslaught of claims — or for the structure that allows people to certify their own pandemic unemployment claims.
“This large increase in claims overwhelmed the WorkForce staff and the agency’s capability to properly review and process the claims,” the legislative audit concluded.
Prior to the pandemic, WorkForce reviewed regular unemployment claims manually. But the audit noted that under these unprecedented conditions, “This manual review process could not keep up with the volume of claims.”
Moreover, the audit stated, the state agency was under pressure from the U.S. Department of Labor to pay claims as quickly as possible because so many people had lost their jobs in the pandemic.
Soon after the state agency implemented the Pandemic Unemployment Assistance program, it began to identify a high level of fraud as insurance claims were being paid.
Once WorkForce realized the level of fraud occurring, it established safety measures to try to stop it, the audit stated. WorkForce rolled out its fraud unit along with automated fraud detection and prevention controls in the spring of 2020.
Eventually, the U.S. Department of Labor and many more state agencies became aware of the rampant fraud and added documentation requirements for people who were self-certifying, the audit noted.
The Office of Inspector General for the federal labor department has estimated that the national figure for unemployment fraud could be as high as $87 billion.
The U.S. labor department has said much of the fraud is attributed to organized crime rings that bought identity information stolen in past data breaches. The stolen data is then used to apply for benefits in others’ names.
“A lot of the big ones we faced are criminal rings that are working out of state,” Chris McCauley, who leads West Virginia’s unemployment office, told legislators.
WorkForce told the legislative auditors that banks across the country are working to disentangle recouped fraud dollars.
By this past April, WorkForce indicated it has verified $121,986 as recouped. It expects another $3 million to $4 million to be returned in 2021.
“In regard to the funds that were paid for fraudulent claims,” the audit stated, “WorkForce stated that it has issued numerous demand letters for recoupment of fraudulent claims payments and is in various stages of the recoupment process.”