On May 18, or more than 1,700 days after an alphabet soup of temporary federal unemployment benefit programs expired in 2021, the US Department of Labor (DOL) issued a 34-page “program letter” alerting state agencies to the availability of additional funding to “pay for the ongoing cost of administering” those programs. The jokes about government dysfunction practically write themselves, starting with the offer of new funding for “ongoing” costs of administering programs that expired almost five years ago. But that’s too glib, since as the letter understatedly notes, pandemic unemployment benefits displayed a “susceptibility to fraud” and state agencies administering those programs “continue to perform work to combat fraud and activities such as reconciling accounts and reports, establishing and recovering overpayments” and more.
The DOL letter offers ample examples of the need for “reconciling accounts,” reflected in detailed tables showing state reports of fraud and non-fraud overpayments established and recoveries made to date. Those tables paint a chaotic picture, with extraordinarily wide variation among states and large, heavily defrauded states like California trailing far behind smaller states in establishing and recovering overpayments.
The following are just some of the confounding data points in the DOL letter.
California identified and recovered few overpayments yet seemingly outperformed smaller states like Colorado that identified and recovered far more
California officials in 2021 reported $11 billion in confirmed losses to unemployment fraud and another $20 billion in potential losses. The state’s Employment Development Department noted that, “Of California’s confirmed fraudulent payments, 95% are associated with the federal Pandemic Unemployment Assistance (PUA) program.” But you would never know that from data in the DOL letter, which lists California as identifying just $43 million in PUA overpayments.
In contrast, Colorado, whose labor force is one-sixth California’s size, identified 55 times as many PUA overpayments and recovered seven times as many as the Golden State. Yet because Colorado identified so many more overpayments, its “recovery rate” of 2 percent significantly trails California’s 18 percent rate. That suggests California’s recovery efficiency is double the nine percent national average, even as its overpayments established and recovered rank near the bottom of all states when considering the size of their labor force.
Implausibly, some states had more overpayments recovered and waived than they established
Vermont reported somehow recovering three times as many PUA overpayments as it established. Hawaii similarly reported waiving more overpayments than it established.
No overpayment report? No problem
New Jersey failed to provide an overpayment report for two major federal programs (Pandemic Unemployment Compensation (PUC) and Pandemic Emergency Unemployment Compensation (PEUC)), for which the state received a total of over $20 billion. The DOL tables indicate zero overpayments.
The randomness is telling
States seemed most efficient at recovering overpayments in the PEUC program, averaging a 17 percent recovery rate. But that belies massive differences, with Maryland, Massachusetts, and Michigan recovering just four percent of overpayments while Alaska, Arizona, and the District of Columbia reported recovering over 65 percent.
What’s clear is that these data—along with state efforts behind them—vary widely, suggesting some states have taken seriously the challenge of identifying and recovering federal overpayments, while others have not. That California reports establishing only $43 million in overpayments under a program state officials admit suffered $10 billion (and potentially almost $30 billion) in fraud is a searing indictment.
The national picture these figures paint is also problematic, starting with the fact that states collectively have waived twice as many federal overpayments as they recovered.
State-reported overpayments also fall far short of prior improper payment estimates (which include both overpayments and less common underpayments). Of over $650 billion spent on PUC, PUA, and PEUC benefits, states reported a combined $63 billion in overpayments. As their letter notes, DOL is “actively engaged with states to reconcile financial reporting, including the reporting of overpayment detection and recoveries.” There is plenty of work to do. The DOL Inspector General testified in 2023 that unemployment programs experienced “at least $191 billion in improper payments” during the pandemic, with most attributable to those three federal programs. Counting the staggering 36 percent improper payment rate DOL subsequently reported for the deeply troubled PUA program, total estimated improper payments would stretch closer to $240 billion—nearly four times the overpayments reflected in the latest state reports.
Clearly something is missing, starting with massive underreporting in California.
