Background
This week, senior House and Senate Members are introducing legislation designed to prevent a repeat of runaway fraud and abuse that afflicted unemployment benefit programs during the COVID-19 pandemic. The authors of the legislation are Rep. Lloyd Smucker (R-PA), a senior member of the House Ways and Means Committee, and Sen. James Lankford (R-OK), a senior member of the Senate Finance Committee. Those committees have jurisdiction over the nation’s unemployment insurance (UI) system, including temporary federal benefit programs created in response to recessions. The provisions of the bicameral legislation, titled the “Stop Unemployment Fraud Act,” address key vulnerabilities that significantly contributed to massive taxpayer losses to improper payments and fraud during the pandemic.
The analysis below reviews the specific proposals in the legislation in light of policy failures that contributed to historic taxpayer losses during the pandemic. Official government estimates report that, in 2020 and 2021 alone, taxpayers suffered at least $191 billion in losses to improper unemployment benefit payments, based on an estimated 21.5 percent improper payment rate across all programs. However, that February 2023 estimate by the Department of Labor’s (DOL’s) Inspector General was admittedly conservative, since it omitted the far higher 36 percent improper payment rate subsequently reported for the fraud-riddled Pandemic Unemployment Assistance (PUA) program. Using the Inspector General’s methodology and counting the higher PUA improper payment rate, overall improper payments would rise to $240 billion or more. Private experts cite even greater losses, with some suggesting improper benefit payments exceeded a staggering $400 billion. The New York Times recently pointed to national losses to fraud (the most troubling subset of improper payments) of more than $100 billion.
Those losses far exceed not only typical misspending on unemployment benefits, but even normal spending on all unemployment benefits in many years. For example, in non-recession years, states provide about $40 billion in unemployment checks while the federal government typically provides no extraordinary unemployment benefits. In recessions, state spending typically grows while temporary federal benefit programs supplement those increased state payouts. During the pandemic, federal taxpayers provided over $700 billion by expanding eligibility for, increasing the size of, and extending the duration of unemployment checks paid to tens of millions of claimants. Meanwhile federal spending on extraordinary unemployment benefits across five and a half years during and after the Great Recession totaled roughly half the $700 billion spent on federal unemployment benefits during the pandemic. Thus, if private estimates of $400 billion in pandemic improper payments are correct, pandemic losses may have been greater than all federal unemployment benefit spending in response to the Great Recession, the most serious economic crisis since the 1930s.
It is critical that lawmakers recognize the program flaws and policy mistakes that contributed to those massive losses and avoid repeating them, especially in future recessions when costly federal benefits are likely to again be made available. Enactment of the “Stop Unemployment Fraud Act” or similar legislation would help prevent such losses involving state and federal unemployment benefits, arguing for its swift consideration and passage.
Summary and Analysis of the “Stop Unemployment Fraud Act”
Section 1. Short Title: “Stop Unemployment Fraud Act”
This section specifies the short title of the bill.
Section 2. Verification of Applicant Identity
Summary: This section requires states to have procedures to verify the identity of unemployment benefit claimants, including requiring the claimant to provide at least one currently valid Federal or State government-issued identification document. It includes privacy protections and is effective two years after enactment.
Analysis: This provision addresses a prime cause of improper payments during the pandemic—the fact that, in its critical early months, the heavily-defrauded federal PUA program lacked an identity verification requirement for those claiming benefits. As former Department of Labor official Amy Simon and I noted in a January 2024 report,
Key design flaws, especially in the PUA program that allowed claimants to self-certify their eligibility for benefits, made it especially vulnerable to abuse. PUA lowered the barrier to (fraud) entry by reducing required information for submitting an application. A set of personally identifiable information (PII), readily available for a small price on the dark web, and the ability to tick a “COVID-19 related reason [for unemployment]” checkbox was usually enough to claim benefits, especially between March 2020 and January 2021.
This concern was recognized within weeks of enactment of the March 2020 CARES Act that authorized the PUA program and other extraordinary federal benefits. An April 2020 advisory report by the DOL Inspector General warned that the PUA program, which benefitted individuals “not traditionally eligible for unemployment benefits,” was especially at risk. Those warnings proved prescient. As the Inspector General’s February 2023 testimony later summarized,
…the unprecedented infusion of federal funds into the UI program gave individuals and organized criminal groups a high-value target to exploit. That, combined with easily attainable stolen personally identifiable information and continuing UI program weaknesses identified by the OIG over the last several years, allowed criminals to defraud the system.
The identity verification requirement in the “Stop Unemployment Fraud Act” responds directly to those concerns, consistent with the recommendation Simon and I made in our January 2024 report:
Require Identity Verification Before Any Benefits Are Paid. A crucial first step is to address the vulnerability of the UI program and associated federal benefits to identity theft, which was so prominently on display during the pandemic…. Going forward, states should verify all claimants’ identities before benefits are paid, and high-risk identities should be made to complete additional verification steps.
Section 3. Preventing Unemployment Compensation Fraud Through Data Matching
Summary: This section requires states to certify they use the Integrity Data Hub (or another system, at state discretion) for crossmatching with unemployment benefit claimants to prevent and detect fraud and improper payments. States also must certify they have procedures for comparing claimant information with the National Directory of New Hires (NDNH), State Information Data Exchange System (SIDES), the Social Security Administration’s (SSA’s) list of incarcerated individuals, and the SSA’s Death Master File.
Analysis: The failure of state agencies, which administer both state and federal unemployment benefits, to match benefit claimant information against available lists of those who should not be eligible contributed significantly to misspending during the pandemic. The proposal would require states to compare benefit claimants against available data sources like the National Association of State Workforce Agencies’ Integrity Data Hub (which includes multi-state information about fictitious employers, suspicious claimants, foreign IP addresses, and more). States also would be required to compare claimants with the NDNH (new hires), SIDES (claimants in other states), and SSA databases of prisoners and deceased individuals.
The failure of some states to conduct such data matching during the pandemic resulted in high-profile losses to fraud. For example, as I noted in 2022, California was one of 15 states that didn’t match its unemployment benefit rolls against inmate rosters:
The results have been sadly predictable. District attorneys across California described staggering fraud in state prisons, which they termed “the most significant fraud on taxpayer funds in California history.” They identified 20,000 inmates in Golden State jails paid over $140 million in unemployment benefits between just March and August 2020. Nearly 20% of inmates on California’s death row claimed benefits, and the state sent an estimated $42 million in checks to out-of-state inmates. A January 2021 audit raised California’s losses associated with incarcerated individuals to $810 million because the state “has not had a system to regularly cross‑match … claims with information from state and local correctional facilities.”
The story was much the same with benefits fraudulently claimed by thieves using the identities of the deceased:
In 2022, the Department of Labor Inspector General reported that “205,766 Social Security numbers of deceased persons were used to file claims” for pandemic unemployment benefits, resulting in almost $140 million in potential fraud.
Meanwhile, in dollar terms some of the biggest ripoffs involved more prosaic abuses, such as individuals using the same identity to claim benefits in multiple states at the same time. According to February 2023 testimony by the DOL Inspector General, potential fraud involving multistate claimants totaled almost $29 billion—more than half of the $46 billion in fraud losses identified by the Inspector General in a review of four specific high-risk areas.
Section 4. Stopping the Pay and Chase Model; Prohibition on Self-Attestation
Summary: This section specifies that benefit payments are due only after a claimant’s identity has been confirmed. It also prohibits self-attestation from proving claimant eligibility and is effective two years after enactment.
Analysis: See section 2 above for a review of the importance of confirming claimant identities before providing benefit payments.
In addition to not requiring positive confirmation of a claimant’s identity, the PUA program initially allowed individuals to “self-certify” their eligibility for program benefits. As an October 2020 report by the DOL Inspector General summarized,
The CARES Act §2102(a)(3) provides PUA coverage to individuals: (1) who are not eligible for regular unemployment compensation and (2) who self-certify that they are able and available for work but unemployed due to a COVID-19 related reason…To meet eligibility requirements, claimants must self-certify that one of the reasons identified within §2102 applies to their employment situation. Claimants generally self-certify by checking a box next to a qualifying reason on the form submitted to state workforce agencies.
States told the Inspector General in the same October 2020 report that the “PUA self-certification requirement” was the program’s “top fraud vulnerability.”
Subsequent reporting by the Department of Labor confirmed that this “check the box” approach contributed significantly to fraud during the program’s first nine months. In an August 2023 report reviewing the PUA program’s staggering 36 percent improper payment rate, the Department noted: “Throughout the first nine months of the program in 2020, PUA allowed for payments to be made based on self-certification of information without any substantiation of employment or self-employment and without a requirement for individuals to verify their identity.” That and other flaws “left the PUA program exposed to criminal actors, especially those who committed identity fraud and initiated an application for PUA using stolen identities to fraudulently receive unemployment payments.” Despite that clear record of failure, the Biden administration subsequently promoted self-certification (or what it rebranded as “self-attestation”) for other benefits.
The pandemic experience confirms that state and federal benefits should never rely on claimant self-certification of eligibility. As Amy Simon and I summarized in September 2023 testimony, “lawmakers should reject any proposals to revive or rely on self-certification of identity or eligibility as part of PUA or any other program.”
Section 5. Secretarial Monitoring
Summary: This section requires the Secretary of Labor to monitor each state’s compliance with the expanded work search requirements described in section 6 of the bill. If the Secretary determines a state is not in compliance with the requirement to verify claimant identity and pay claimants only after their identity has been verified, as provided in sections 2 and 4 of the bill, respectively, the Secretary must withhold five percent of federal administrative funding for the state and initiate a corrective action plan.
Analysis: This section requires the Secretary to monitor state compliance with the strengthened work search requirements described in section 6 and adds an important new penalty provision to backstop the legislation’s critical identity verification requirements.
Section 6. Strengthening Work Search Requirements
Summary: This section defines work search requirements for state and federal benefit recipients to include registering for employment services, maintaining records of work search, and providing those records to the state during each week claiming unemployment benefits. States must verify the work search records, the Secretary is expected to issue implementing guidance within six months of enactment, and the strengthened work search requirements become effective two years after enactment.
Analysis: The current requirement that unemployment benefit claimants search for work has been a staple of the UI system for decades. Federal law requires UI recipients to be “actively seeking work” during each week benefits are claimed. And, as a 2024 Department of Labor summary notes, “All state laws provide that, to receive benefits, a claimant must be able to work, available for work, and actively seeking work.” To be eligible for federal administrative funding, states must have laws certified as providing “Work search requirements for claimants collecting state and Federal UC benefits.”
Despite those standards, a recent comparison of state laws indicates significant state variance in work search, including the minimum number of required work search activities, whether part-time work search is acceptable, and how work search is reported by claimants and verified by states. During the pandemic, work search requirements were temporarily suspended in an effort to minimize the spread of COVID-19.
Studies point to the efficacy of modernized work search in helping unemployed individuals return to work. According to the nonpartisan Congressional Research Service, multiple studies show that strengthened work search reduces UI benefit duration and saves taxpayer funds.
Section 7. Permissible Uses of Unemployment Fund for Program Administration
Summary: This section allows states to retain up to 5 percent of future overpayment recoveries for use in (1) further deterring, detecting, and preventing improper payments; (2) improving employee classification; (3) boosting the state’s UI trust fund; (4) modernizing technology infrastructure; and (5) otherwise improving timely and accurate benefit administration. Such funds may be made available only if a state satisfies the requirement to verify identity before benefit payment and the bar on self-attestation of eligibility specified in section 4 of the bill. It also makes conforming amendments and applies to overpayments no sooner than two years after enactment, unless a state amends its law earlier.
Analysis: This section addresses two concerns lawmakers and other experts on all parts of the political spectrum have expressed about the UI system in recent years.
The first concern is that federal funds provided for state administration are insufficient to satisfy growing program needs, especially when both legitimate and fraudulent benefit claims grow rapidly during recessions. (For a comprehensive review of recent federal administrative funding and proposals to address it, see my January 2026 report, Funding the Administration of Unemployment Benefits: Overview and Reforms to Improve Efficiency and Program Integrity.) Allowing states to retain up to five percent of federal overpayment recoveries for use in addressing fraud and other administrative weaknesses reflects a modest step forward in addressing those concerns.
The second concern is that states currently have no financial incentive to recover overpayments involving federal funds. Under current law, state agencies spend limited resources to recover misspent federal funds yet must surrender 100 percent of any recoveries that result to the federal government. This dynamic is one of many reasons why few federal benefit overpayments have been recovered in the wake of the pandemic.
The House of Representatives previously recognized this disincentive in passing H.R. 1163, the “Protecting Taxpayers and Victims of Unemployment Fraud Act,” which it approved in May 2023. Key provisions of that legislation encouraged states to recover more federal funds lost during the pandemic and beyond. As a Ways and Means Committee report described, the legislation “allows states to retain 25 percent of fraudulent federal funds recovered,” reversing current policies that offer states “little incentive to pursue costly investigations and prosecutions” involving federal funds. Like the proposal in the “Stop Unemployment Fraud Act,” H.R. 1163 also proposed allowing states to retain five percent of future overpayment recoveries, which they could devote to offsetting their costs, improving program integrity, and modernizing systems. The legislation did not advance in the Senate but President Biden’s fiscal year 2024 budget proposal included a similar provision. That indicates both Republicans and Democrats recognize that disincentives for states to recover federal overpayments are a program weakness that merits reform.
