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Terry McLaughlin: Recovering unemployment fraud

Terry McLaughlin | Columnist

A growing community of victims has been caught up in a massive series of attacks targeting the country’s generous coronavirus aid programs, in which the more than $5 trillion approved in the past two years has become an invitation for fraud and criminal activity.

Fraudsters have siphoned money away from the hard-hit American workers and businesses that most needed the help.

A top watchdog for the U.S. Labor Department testified in a congressional hearing this spring that there could have been at least” $163 billion in unemployment-related overpayments, a projection that includes significant benefits obtained by malicious actors.

According to data furnished by the Labor Department this March, the United States has recaptured just over $4 billion — roughly 2.4 percent of the wrongful payments — raising the specter that America’s taxpayers may never get most of that money back.

In the earliest days of the pandemic, roughly a million Americans were being thrust out of work daily. Congress responded with a series of massive rescue packages to help blunt the toll of this economic crisis and allow families to keep their homes, feed their children, and pay their bills.

But that aid emerged as a ripe target for fraudsters, who quickly found ways to exploit state unemployment agencies.

In many cases, criminals bombarded states with applications filled in with the names and personal information of legitimate American workers.

In the state of Maryland, fraudulent claims came to outnumber legitimate requests for assistance. Criminals employed tools known as botnets to send thousands of applications, often with a single computer click.

That has continued this year. In just over an eight-week period in March and April, at least two dozen groups with nearly 200,000 members openly discussed ways to defraud states and siphon funds. These tactics have been exposed in an array of federal documents, congressional testimonies, technical reports, court filings, and interviews with roughly two dozen government officials and outside experts.

In a conference call with the California Employment Development Department in early 2021, Julie Su, then secretary for California’s Labor and Workforce Development Agency, said, “Of the $114 billion in unemployment paid by California since March, approximately 10 percent has been confirmed as fraudulent. An additional 17 percent of the paid claims have been identified as potentially fraudulent.”

In dollars, that is $11.4 billion confirmed and as much as $20 billion more suspected to be fraudulent.

“California did not have sufficient security measures in place to prevent this level of fraud,” said Su, who was later appointed deputy secretary to the U.S. Labor Department in July of 2021.

California’s Employment Development Director, Rita Saenz, whose department had been strained by the widespread fraud and a backlog of payments during the pandemic, stepped down after just over a year in that position.

In 2021 the department hired McGregor Scott, a former federal prosecutor, as fraud special counsel. Scott, while the U.S. attorney for the Eastern District of California, led a task force of state prosecutors in an investigation into unemployment fraud in November 2020.

He and nine other county prosecutors launched that probe after they found evidence that thousands of fraudulent claims for unemployment benefits were filed in the names of California prison inmates, including some on death row. State officials have acknowledged that at least $810 million had been paid to those applicants.

Scott is working with the Economic Development Department to deliver leads and evidence to aid prosecutions and strengthen on-going investigations. On June 21, the department announced that it had recovered $1.1 billion in unemployment insurance funds. The money that was recovered had been stored on approximately 780,000 benefit cards that had already been deactivated by the department.

Most of the recovered funds will be returned to the federal government because the bulk of the fraudulent claims are from the emergency federal Pandemic Unemployment Assistance Program.

Within the past 15 months, total investigations, prosecutions, and dollars seized in the counties reporting information to the state of California include 1,525 investigations, 467 arrests, $3.5 million seized, and 162 convictions.

In February a federal court sentenced a former employee at California’s unemployment agency to five years in prison, after she was convicted of stealing $4.3 million in benefits by filing claims using Social Security numbers acquired from her previous work as a tax preparer.

Actions now being taken by California to strengthen its fraud fighting abilities include a new identity verification system, ID.me, which has helped stop over $125 billion in attempted fraud, and the establishment of the 1099-G call center to help victims of identity theft deal with tax related questions. They have already answered over 24,000 calls.

The Employment Development Department is also working with Bank of America (through whom the bulk of the benefit cards were administered) to issue chip-enabled debit cards that enhance security, and with the California Office of Emergency Services Fraud Task Force on over a thousand active investigations, arrests and prosecutions across the state.

Our government needs to act swiftly and aggressively to stem the tide of this fraud, which has left few people untouched.

The real victims of such immense fraud targeting our government agencies are the Americans who scrounged for aid while criminals feasted on generous federal and state benefits.

Terry McLaughlin, who lives in Grass Valley, writes a twice monthly column for The Union. Write to her at terrymclaughlin2016@gmail.com

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