Wednesday, September 20, 2023

New Report Has COVID Unemployment Fraud Estimates Soaring

A new Government Accountability Office (GAO) report estimates the total amount of Covid-era unemployment fraud at between $100 to $135 billion — from more than double to nearly triple the number cited in last year’s inspector general study.

Last October, I reported in these pages on a federal inspector general study that estimated nearly $46 billion in potentially fraudulent unemployment benefits paid out amid the Covid-19 lockdowns. The study itself, and my summary of it, noted that the $46 billion figure likely underestimated the total extent of the fraud — and boy, did it ever.

Staggering Spending, Little Recovered

The GAO report used a combination of regular state reports and statistical sampling to arrive at its overall fraud figure for Covid-era unemployment benefits. It gave particular scrutiny to the pandemic programs Congress authorized in 2020, as opposed to traditional unemployment benefits. That’s because those programs covered new populations of workers (e.g., “gig workers”) and relied upon self-certification, making them more susceptible to fraud.

Reviewing the GAO study, several elements stand out. First, the unemployment fraud number, as large as it is, represents a fraction of the total spending on this program during the lockdowns. Over the past three years, unemployment payments totaled approximately $900 billion. The new pandemic programs Congress authorized totaled $670 billion out of that $900 billion — a staggering sum in a short period, since those programs weren’t created until March 2020 then expired 18 months later in September 2021.

Second, while states have identified much potential waste and fraud, they have recovered a comparatively small portion of it. GAO notes that as of May 1, states have recovered about 12 percent of the overpayments they identified. (Overpayments could be fraudulent or non-fraudulent in nature.)

All told, states have recovered only $6.8 billion of the total $900 billion in total spending on unemployment benefits during the pandemic era — less than 0.8 percent. If you believe that only 0.8 percent of the spending on unemployment benefits during Covid constituted waste or outright fraud, then I’ve got some land to sell you.

Third, the Department of Labor actually criticized the GAO report as overestimating fraud, claiming the $100-135 billion figure should be described as potential fraud risk, not an estimate of actual fraud. To rebut the DOL criticism, the auditors go to great lengths to describe their methodology and discuss the validity of statistical sampling as a tool to estimate fraud in large government programs.

But more to the point, the auditors also note that, of a total of 26 GAO recommendations regarding unemployment programs issued since 2018, 13 remain unaddressed, with another three only partially addressed. Even including the three partially addressed recommendations, a 50 percent implementation rate constitutes failure by any reasonable measure. Who, then, is DOL to criticize federal auditors, or anyone else, regarding the accuracy or completeness of the efforts to estimate and fight fraud?

Even Bigger Costs Beyond Unemployment

As enormous as the $100-135 billion figure is, that number again represents only a fraction of the extravagance of government “emergency spending” in the name of Covid. The GAO report only examined fraud related to unemployment benefits, so it didn’t look at other sources of Covid overspending, from fraud in food stamps and the child tax credit, to Paycheck Protection Program loans to phony businesses, to spending on things like ski areas and baseball stadiums.

The fact remains that Americans will pay on multiple levels for this overspending long after the lockdowns have concluded. First, the inflation goosed by Washington all but throwing money out of helicopters is here to stay. Even if prices are rising by “only” 3-4 percent now, that still doesn’t make up for the nearly double-digit price hikes of the past few years. After taking account of the inflation sparked by Washington’s spending spree, families are thousands of dollars poorer than they were before our nation’s Covid response.

Likewise, the federal debt incurred to pay for this spending will haunt the American public for decades to come. Paradoxically, interest rates have risen — increasing the cost of servicing the national debt — to counteract the inflation sparked by the cause of this debt (i.e., government spending) in the first place.

Working families are getting hit coming and going because of Washington’s fiscal insanity. It’s long past time for Congress to come to its senses and finally get a grip on spending.

This post was originally published at The Federalist.