Up to $135 Billion in Pandemic Unemployment Fraud—and Still Counting

Last week, the nonpartisan Government Accountability Office (GAO) added a startling new figure to the ever-growing estimates of abuse inflicted on unemployment benefits during the pandemic, finding that “between $100 billion and $135 billion” was lost to fraud. As a dismal Washington Post headline summarized, “Fraudsters may have stolen $1 of every $7 in COVID jobless aid.” Unfortunately, this disastrous episode is still far from over—a close reading of the GAO estimate shows improper payments are likely to only continue rising. The latest figures roughly double GAO’s prior December 2022 estimate of over $60 billion in fraud inflicted on pandemic unemployment benefits. In February 2023, the Department of Labor (DOL) Inspector General (IG) estimated over $76 billion “was likely paid to fraudsters.”

What accounts for the difference between those prior figures and GAO’s latest estimate of between $100 billion to $135 billion in fraud? The new report suggests a key reason is the inclusion of an “estimate of the extent of fraud in the PUA program.” Official data confirms that Pandemic Unemployment Assistance program (PUA) was the most widely abused unemployment program. In August, the Department of Labor released its long overdue PUA improper payment report, which found the troubled program had a staggering 35.9 percent improper payment rate. But the DOL report offered few details beyond the estimated share of PUA spending on overpayments (17.0 percent), underpayments (1.5 percent), and payments that “could not be determined as valid” (17.4 percent). DOL rejected providing an estimate of PUA losses to fraud, stating “this analysis focuses on the broader universe of improper payments, does not isolate fraud, and should not be considered a fraud estimate for the PUA program.”

PUA’s 35.9 percent improper payment rate far exceeds the already-high 21.52 percent improper payment rate the DOL IG previously used to estimate “at least” $191 billion in total improper payments. At the time, the IG noted the overall improper payment rate “was likely higher than 21.52 percent” because that figure failed to account for even higher PUA improper payment rates. But even though we now have those higher PUA rates, neither DOL, the IG, nor GAO has provided a new dollar figure for total improper payments.

However, a back-of-the-envelope calculation (counting $132 billion in PUA benefits and assuming 45 percent of Pandemic Unemployment Compensation (PUC) supplements were paid to PUA recipients) suggests PUA recipients collected about $330 billion in federal unemployment checks. If so, PUA-related improper payments would total $118 billion, with another $123 billion in improper payments associated with the $570 billion paid by all other programs (assuming a 21.52 percent improper payment rate). That suggests total improper payments are poised to rise another 25 percent from the IG’s most recent estimate of $191 billion to around $240 billion.

How about the extent of PUA fraud? Again, the GAO report doesn’t offer specifics, but we can use it to make some educated guesses. The report upped both the dollar amount as well as the rate of losses to fraud across pandemic programs. The IG previously used an 8.57 percent fraud rate to project $76 billion in total losses to fraud. GAO now estimates a fraud rate of between 11 and 15 percent to yield between $100 billion and $135 billion in total losses to fraud. If that higher fraud rate is attributable solely to a better understanding of PUA fraud, that suggests the PUA-specific fraud rate was between 15 and 26 percent—roughly two to three times the rate for other programs. In dollar terms, PUA-related losses to fraud (again, including PUC supplements) would total between $51 billion and $86 billion, exceeding the $49 billion in fraud losses for all other unemployment programs.

These estimates are maddening on multiple levels.

First, they confirm the PUA program was defrauded—both in percentage as well as dollar terms—as no unemployment program ever before.

Second, the continued lack of basic, official information from DOL about PUA and related programs’ losses to fraud is unacceptable, especially two full years after pandemic programs ended. Back-of-the-envelope estimates are helpful, but not nearly good enough to inform policymakers and ensure this disaster never recurs.

Finally, as the latest GAO report shows, states have so far recovered only pennies on the dollar of this unprecedented abuse, leaving taxpayers still on the hook for huge losses. Like GAO’s warning that the “full extent of UI fraud during the pandemic will likely never be known with certainty,” that suggests this disaster is still far from over. 

Matt Weidinger is a senior fellow and Rowe Scholar in opportunity and mobility studies at the American Enterprise Institute (AEI), where his work is focused on safety-net policies, including cash welfare, child welfare, disability benefits, and unemployment insurance.

Reprinted with Permission from AEI.org – By Matt Weidinger