Report Finds New York Paid $11 Billion in Fraudulent COVID Claims — In One Year
Add another infraction to the list of New York’s crime problems: fraud. A report recently released by the state’s comptroller found that, in the first year after the Covid pandemic hit, the state paid out at least $11 billion in fraudulent unemployment claims.
That staggering sum reflects one state’s worth of fraudulent claims in one year. And the fraud’s far-reaching consequences will continue to hurt businesses while exacerbating inflation for families.
The report notes the explosion of unemployment insurance payments when lockdowns shut down most of the economy. From April 1, 2020, through March 31, 2021, the state paid out more than $76 billion in unemployment claims — a more than 31-fold increase from the previous year.
The skyrocketing caseloads, coupled with New York’s generations-old UI computer systems, led to widespread fraud. During that same 2020-2021 period, the estimated fraud rate more than tripled to 14.48 percent, up from just 4.51 percent the prior year. Multiplying the 14.48 percent fraud rate by the amount paid out in benefits yields an estimated total fraud of just over $11 billion.
Believe it or not, the news gets worse. In the following year, which ended this past March 31, the fraud rate in New York’s UI program grew even higher, to 17.59 percent. All told, the improper payment rate — which includes payments made in the wrong amount or without the correct documentation, in addition to outright fraud — reached 28.89 percent in 2021-22. Put another way, nearly 3 in 10 unemployment dollars paid out by New York state either were paid incorrectly or fraudulently.
It isn’t hard to see in this chart how fraudulent and improper payments have soared in recent years:
And the bad news doesn’t even end there. Federal authorities have yet to calculate fraud rates for the pandemic unemployment assistance program, which provided aid to self-employed and “gig” workers who wouldn’t normally qualify for traditional unemployment insurance. That means the $11 billion in fraudulent benefits New York state paid out in 2020-2021 represents an underestimate — and likely a sizable one at that.
Much of the report reads like a comedy of errors straight out of the “Keystone Kops.” For instance, the state’s Department of Labor claimed when testifying before the state legislature that “the department had prevented over $36 billion in fraudulent UI payments.” But the department couldn’t provide the comptroller with basic evidence to document this claim, like how much in fraudulent payments were actually paid out before being detected or how the claims were recognized as fraudulent (e.g., through internal investigations or tips from ordinary citizens).
I noted recently that many state unemployment systems operated on archaic computer systems, which New York’s comptroller pinpointed as a source of many of the state’s problems. The state’s current system dates from the 1970s and 1980s, and audits going back more than a decade called for a new IT infrastructure. Ignoring those warnings didn’t just lead to high overhead costs during the pandemic, as New York had to hire specialized contractors to fix their generations-old systems — it also left vulnerabilities that fraudsters readily exploited.
Businesses and Families Pay the Price
While scammers hit the jackpot by exploiting the weaknesses of New York’s unemployment system during the pandemic, ordinary families will ultimately pay the price — quite literally.
Because high spending on benefits during the pandemic depleted New York’s unemployment trust fund, New York state businesses will face taxes of between 2.1 percent and 9.9 percent until the fund returns to balance. And beginning this past June, businesses also face an additional assessment of 0.23 percent so that New York can pay back the federal government for the bridge loan the state received from Washington to cover the overages in its own state UI trust fund.
To put it more simply, New York businesses now face a cost of hundreds of dollars per employee for the next several years — partly to pay off the billions that fraudsters stole from a dilapidated unemployment system during the pandemic. And, of course, these businesses will pass the higher costs on to consumers at a time when families already face backbreaking levels of inflation.
New York’s recent increase in violent crime played a significant role in the midterm elections. But the comptroller’s report demonstrated that New York’s crime problems go well beyond violent attacks, as taxpayers and families will pay for the mugging they received at the hands of pandemic scammers for years to come.
This post was originally published at The Federalist.