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What States are doing about Unemployment Fraud

By August 5, 2022June 20th, 2023No Comments

Unmasking the Unemployment Insurance Fraud Crisis

An explosion in cases of unemployment insurance (UI) fraud during the height of the COVID-19 pandemic cost the country a collective $163 billion. As businesses closed and millions of Americans suddenly became unemployed in 2020 and 2021, state unemployment offices were incapacitated by the unprecedented influx of applications for UI benefits.

Meanwhile, thousands of fraudsters both foreign and domestic seized upon the moment to overwhelm the system, using stolen identities (from children, adults, the deceased, and incarcerated people) to file and claim billions in stolen benefits.

The Aftermath: Assessing the Damage and Pursuing Accountability

Two years later—the extent of the damage is becoming clearer. In June 2022, the Government Accountability Office (GAO) revealed that the improper payment rate in the United States (U.S.) more than doubled after the pandemic started. The watchdog agency declared that the U.S. unemployment system will be added to its list of federal entities at “High Risk” for fraud, abuse, mismanagement, and waste.

Also in June, the U.S. House’s Select Subcommittee on the Coronavirus Crisis announced the prosecution of nearly 1,500 people charged by federal prosecutors with crimes related to UI fraud.

The damage, however, is already done— and multiple state UI trusts remain insolvent or are at risk of becoming so. As the dust settles and jobs are regained, states across the country are carrying out extensive audits in hopes of uncovering the errors that allowed mass defrauding to occur, prescribing solutions to prevent future occurrences, and tracking down fraudsters.

Here’s what that looks like:


The Michigan government paid up to $8.5 billion in fraudulent UI claims between March 2020 and September 2021, according to a state report.

The report found that at least 400,000 Michigan residents were overpaid UI benefits, with at least 97% of the fraudulent benefits funded by emergency federal programs like Pandemic Unemployment Assistance (PUA) and the Federal Pandemic Unemployment Compensation program.

In April, Michigan lawmakers passed a bill allowing for the expansion of the state’s UI agency, and directing federal and state funds to be used to help pay off the state’s UI debt.

HB 5525 subsidizes efforts to stop waste, fraud, and abuse of UI funds. It also makes customer service improvements at the state’s Unemployment Insurance Agency, and budgets for the hiring of dozens of employees to enhance fraud enforcement efforts.

The bill appropriates $139.8 million, including $106.8 million in federal funds, $24.0 million from Michigan’s General Fund, and $8.9 million of state restricted funds to be deposited into the Unemployment Compensation Fund and prevent increases to the state’s SUTA taxes.

As of April 2022, 54 individuals in Michigan have been charged and 13 have been convicted or pleaded guilty in cases related to UI fraud.

“By making a deposit into the Unemployment Compensation Fund, we can help small businesses balance their books by lowering the costs of unemployment,” said Michigan Governor Gretchen Whitmer. “Together, we will pursue anyone who improperly exploits unemployment benefits to pad their own pockets and ensure they are prosecuted to the full extent of our laws.”


A December 2021 report by the Colorado auditor’s office found that the state paid more than $73 million in UI benefits to “likely or potential” fraudsters between March 2020 and April 2021.

The sham payouts include $3.9 million in UI benefits paid on behalf of deceased people, in addition to $100,000 paid in the name of children younger than working age, and $5 million in the name of people who are in prison (and thus not eligible for unemployment benefits).

An additional $46 million was distributed to people with “multiple indicators of fraud,” a category that includes applicants who use suspicious mailing or email addresses, or IP addresses associated with international locations.

In May 2022, Colorado legislators introduced a bill that would direct $600 million of federal funds from the American Rescue Plan Act (ARPA) to the state’s UI trust, which is overdrawn by $1 billion.

Additionally, Colorado is one of 27 states— including Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Indiana, Kentucky, Louisiana, Maine, Massachusetts, Mississippi, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, North Dakota, Oregon, Pennsylvania, South Carolina, Texas, Virginia, and Wyoming, as well as the District of Columbia—that now utilize the online identity verification tool to safeguard against fraud.


An Illinois state audit finished in July 2022 found that fraudsters made away with nearly $2 billion in stolen UI benefits. Those fraudulent payments account for about half of the more than $4 billion in federal UI trust fund debt accumulated by the state throughout the pandemic.

While the exact cost of the Illinois government’s debt is still unknown, an earlier report by the Illinois Department of Employment Security (IDES) revealed that more than 212,000 fraudulent unemployment claims were filed during the pandemic.

The audit noted that the IDEs failed to maintain “accurate and complete” data on people who filed unemployment claims. Additionally, investigative reporting by the Chicago Tribune found the agency neglected to develop proper fraud-fighting techniques, and failed to follow federal recommendations to utilize free fraud prevention software.

As of July 2022, $2.7 billion in American Rescue Plan funds have been used to pay off the state’s federal UI debt.

IDES director Kristin Richards told the Chicago Sun-Times that since 2021, the agency has upgraded its security and fraud protection measures, joining a multistate group that shares information about the identities of people who attempt to file for UI benefits in more than one jurisdiction. Additionally, Richards says the agency has begun utilizing new login software that utilizes “identity proofing,” multi-factor authentication, and fraud analysis.

Meanwhile, state representatives are calling for immediate hearings into IDES operations to determine why the agency failed to flag fraudulent payments and safeguard billions in unemployment assistance funds.

Rhode Island

A July 2022 audit estimates the Rhode Island government paid out close to $550 million in fraudulent UI claims between 2020 and 2021—an increase of $379 million in stolen payments compared to the year before.

As part of a “corrective action plan” addressing the extreme increase in fraud, the Department of Labor and Training (DOL) said it is summoning assistance from “various vendors and federal partners” to incorporate fraud-prevention measures. These include identity validation tools and pattern-based impostor fraud identifiers.

DOL officials have also said they are working alongside federal and state law enforcement agencies to share data and identify potentially fraudulent UI activity. As of July 2022, the agency is seeking bids from consultants to create a UI fraud strategic plan, expected to be completed by the end of 2022.

Rhode Island lawmakers have allocated $100 million in the state’s budget to replenish the depleted UI trust and prevent increases in SUTA taxes for state businesses.

Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes weekly nonprofit-specific content for

(Image by Pexels from Pixabay.)

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