COVID unemployment surge led to $5.2 billion in overpaid benefits in Illinois – including fraud

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A screenshot shows the main finding of a state audit of unemployment fraud that occurred amid the COVID-19 pandemic. | Illinois Auditor General's Office

SPRINGFIELD – Illinois overpaid unemployment benefits to the tune of $5.2 billion during the first 18 months of the COVID-19 pandemic, with much of it paid to fraudulent claimants, according to a comprehensive new audit.

Included in that sum was $6 million paid to 481 dead people and $40.5 million in unemployment checks written to incarcerated individuals. And, the audit warned, those numbers could be a significant undercount.

The audit, published Wednesday by the state’s auditor general, hearkens back to the chaotic early weeks of the COVID-19 pandemic, when Illinois Department of Employment Security phone lines and the agency’s website couldn’t handle the sudden spike of individuals trying to file for unemployment benefits. To respond to the unprecedented demand, state officials scrambled to contract with outside entities to both increase staff and stand up a new federally funded program for people traditionally ineligible for unemployment insurance.

But it was this rush that created weaknesses that fraudsters and identity thieves would go on to exploit, the audit noted. 

“Timely payment of benefits and preventing fraud are competing concepts,” the audit said. “Preventing fraud, especially in new programs with evolving guidance and guidelines, likely would require additional processing time and a possible delay in benefit distribution to claimants. Conversely, paying claims quickly, especially when certain crossmatches and controls were suspended, increased IDES’ risk of making improper payments.”

Before COVID hit, IDES crossmatched active unemployment insurance claimants against five other databases to verify eligibility for benefits. Those included state prison and county jail registries, the Social Security Administration and the State and National Directory of New Hires. However, the crossmatching process takes time and “constricted the processing system severely,” the audit said.

So in March 2020, IDES temporarily suspended some of that crossmatching in favor of getting benefits out the door more quickly.

“This allowed IDES to better handle the increase in claims processing traffic; however, this left the unemployment programs more susceptible to fraud,” the audit said.

The audit noted that Illinois failed to follow federal recommendations issued in May 2020 to prevent some of the fraud. It wasn’t until September 2021 that IDES implemented the use of a multi-state crossmatching tool called the Integrity Data Hub, according to the audit.

Illinois is far from alone in its experience of massive unemployment fraud, though it’s difficult to compare the extent of the fraud among states due to a lack of comprehensive federal data.

At an unrelated news conference in southern Illinois on Thursday, Gov. JB Pritzker acknowledged the findings of the audit, but pointed to other large states that saw even bigger COVID-era unemployment fraud, like $20 billion in California and $8 billion in New York.

“I think we all would say that we would have preferred if we didn’t see that kind of fraud,” Pritzker said. “But remember, the moment that this happened in, it was a global emergency. We were trying to get money out the door to people who had lost their jobs because, frankly, people were getting sick and dying. We wanted to make sure they could survive so we could have jobs for them at the end of the pandemic.”

Republicans, who have been beating the drum on pandemic-era unemployment fraud for the better part of three years, took the opportunity to renew their criticism of Pritzker’s administration.

“The people who were supposed to serve as stewards of their resources completely failed [Illinoisans], and their ineptitude served to embolden and help criminals to abuse the system and steal benefits,” state Sen. Chapin Rose, R-Mahomet, said in a statement. “I have constituents who were lawfully entitled to benefits that they never received, and then now they have to read about billions that are missing.”

PUA uniquely vulnerable

The majority of overpayments stemmed from the Pandemic Unemployment Assistance program, which was set up federally to support people who are traditionally ineligible for unemployment benefits, like freelance or “gig” workers.

While overpayments in “regular” unemployment insurance accounted for a little over $2 billion, overpayments in the PUA program amounted to $3.2 billion, according to the audit.

“Considering gross benefits associated with regular UI claims were 2.5 times higher than gross benefits associated with PUA claims, it shows the magnitude of fraud experienced in the PUA program,” the audit said.

Identity theft accounted for nearly $511 million – roughly a quarter – of the $2 billion in overpayments within Illinois’ regular unemployment benefits system. In contrast, identity theft accounted for the majority of overpayments in the PUA system; $2.3 billion in PUA benefits were paid out in this manner.

The remainder of overpayments are due to what the audit narrowly defines as “fraud” – overpayments resulting from unemployment recipients filing knowingly false information – and “non-fraud,” which is the result of genuine mistakes. IDES has taken steps to stop or claw back these sorts of overpayments, though there are hardship waivers available.

But recovery of that money is only possible because those overpayments were sent to the true claimants of unemployment insurance, the audit notes. Illinois is out of luck on the $2.8 billion in overpayments IDES paid out to those using stolen identities.

“Overpayments due to identity theft are not considered recoverable because they cannot be collected from the real owner of the identity/Social Security number,” the audit said.

IDES generally agreed with the recommendations of the audit, but agency spokesperson Rebecca Cisco also directed some of the blame to former President Donald Trump’s administration.

“The audit continues to underscore the challenge brought on when the previous federal administration required each state to implement a poorly designed and brand-new unemployment insurance program on their own in record time with continuously changing federal guidance,” Cisco said in an email. “This is a crucial distinction from the state’s regular unemployment insurance program because the state’s system is designed and integrated with vital crossmatching and identity-proofing capabilities.”

Illinois contracted with management consultant Deloitte to build the technology to stand up its PUA program, as IDES didn’t have the capacity to build out the program from its existing infrastructure. Deloitte’s “uFACTS” system debuted in May 2020 – two months into the pandemic – but it would be another two months until that system even began interacting with IDES’ “regular” unemployment insurance system, according to the audit.

That was a problem because PUA applicants were supposed to have first been denied traditional unemployment benefits; the siloing of the two systems meant that uFACTS didn’t check with IDES to verify that an applicant had already filed a claim for regular unemployment insurance.

The PUA program officially ended Sept. 4, 2021.

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