Explained: Massive Unemployment Insurance Fraud and What States are Doing About It

Date: July 20, 2022

Different laws being considered nationwide and in Congress

The sheer number of Unemployment Insurance (UI) claims early in the pandemic overwhelmed administrative agencies, leading to many overpayments. While many of these were the result of simple administrative error, others were deliberate cases of fraud. As the cost of these claims ultimately falls on businesses, it’s crucial for state and federal governments to crack down on UI fraud. 

In June, the Government Accountability Office (GAO) declared that the U.S. unemployment insurance system will be added to their list of federal areas with a “High Risk” for waste, fraud, abuse, and mismanagement after it was discovered that tens of billions of dollars were defrauded from the UI system. A new report from the GAO revealed that the Department of Labor “reported an increase from $8.0 billion (9.2% improper payment rate) for fiscal year 2020 to $78.1 billion (18.9% improper payment rate) for fiscal year 2021.” In other words, when the pandemic started, the improper payment rate more than doubled. 

“Small business owners are already battling a series of economic headwinds and increases in Unemployment Insurance taxes or expenses stemming from fraud are a serious concern,” said NFIB State Government Relations Vice President Tim Goodrich. “NFIB is fighting for policies that would stop these fraudulent and unnecessary expenses from impacting small businesses.” 


The actual figure may be significantly higher than $78.1 billion according to a June Department of Labor (DOL) report. The DOL estimates that at least $163 billion in pandemic unemployment benefits were paid improperly. Also in June, the U.S. House’s Select Subcommittee on the Coronavirus Crisis released a memo that revealed federal prosecutors had charged nearly 1,500 people with UI fraud-related crimes. 

Many states are currently grappling with ways to address their insolvent UI trust funds: 

  • 27 states – 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 – use ID.me, an online verification tool, to help identify and secure against fraudulent claims. 
  • Louisiana became one of the first states to pass anti-fraud legislation in October 2020 by requiring the state administrative agency to conduct checks and data sharing while handing out unemployment compensation. Eight other states subsequently passed similar laws. 
  • In April 2022, Michigan passed a bill which funds the fight against UI fraud. The new law, which allows for expansions of both the state’s Unemployment Insurance Agency and additional enforcement powers to the state Attorney General, was spurred by a report from the state government that revealed almost 400,000 Michiganders were overpaid UI benefits during the COVID-19 pandemic. 
  • An Illinois state audit found that of the $3.6 billion in Pandemic Unemployment Assistance paid out from July 2020 through June 2021, nearly $1.9 billion, was tied to fraud. The state previously claimed that they had confirmed over 212,000 fraudulent unemployment claims had been filed. 

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