Unemployment Insurance: Transformation Needed to Address Program Design, Infrastructure and Integrity Risks

What the GAO found

The GAO and others have reported that challenges with Unemployment Insurance (UI) administration have affected states’ ability to effectively meet the needs of the unemployed, both historically and during economic downturns, such as the COVID-19 pandemic. Reported difficulties in program design and variations in how states administer unemployment insurance have contributed to declining access and disparities in the distribution of benefits. During the pandemic, challenges have arisen in providing customer service, handling claims quickly and implementing new programs. In addition, the GAO, the Department of Labor (DOL), and the DOL Office of Inspector General have reported the need to modernize state computer systems.

The risk of improper unemployment insurance payments, including fraud, has increased dramatically during the pandemic. Prior to the pandemic, the DOL regularly reported billions of dollars in estimated annual irregular payments in unemployment insurance, and it reported an increase of $8.0 billion (9.2% irregular payment rate) for unemployment insurance. fiscal year 2020 to $78.1 billion (18.9% irregular payment rate) for fiscal year 2021. According to the DOL, historically, the top causes of improper payments were related to issues determining the eligibility, such as the payment of benefits to those who had returned to work and had not declared their income. However, DOL said that during the pandemic, increased identity theft was a primary cause. The total of Unemployment Insurance mispayments is not known in part because the DOL has yet to release estimates for some pandemic Unemployment Insurance programs. States have also grappled with incomplete reporting of billions of dollars in identified overpayments. The CARES Act unemployment insurance programs created new fraud risks and increased existing fraud risks. From March 2020 to January 2022, at least 146 people pleaded guilty to federal unemployment insurance program fraud charges and charges were pending against at least 249 people. Due to the increase in fraud-related cases during the pandemic, federal and state entities continue to investigate unemployment insurance fraud.

These significant challenges pose a significant risk to the delivery of UI services and expose the UI system to significant financial losses. Based on GAO’s findings, including many open recommendations in this area, GAO has determined that the user interface system should be added to the GAO’s high-risk list. The DOL has some planned and ongoing activities for the UI system, such as establishing an UI modernization office and implementing strategies to reduce risk; however, many long-standing issues remain unaddressed. Leaving these issues unaddressed will increase the risk that the UI system will fail to meet the program’s basic expectations of serving workers and the broader economy, and could undermine public confidence in the responsible management of public funds.

Participants in GAO-hosted stakeholder panels identified various options for transforming the unemployment insurance system. Options include program design changes to better target support, infrastructure improvements, and program integrity improvements, for example, tightening federal standards for the implementation of health insurance. state unemployment, such as eligibility, benefit amount and duration; improve and modernize computer systems; and obtain additional data sources to identify fraudulent claims. In addition, GAO has identified general considerations to help policy makers and others assess key aspects of different options for transforming unemployment insurance programs and addressing associated risks. These considerations include the completeness and flexibility of potential transformations.

Why GAO Did This Study

A high-risk designation is intended to drive progress in areas requiring transformation. The unemployment insurance system faces long-standing challenges with effective service delivery and program integrity. Historic levels of job loss during the COVID-19 pandemic have compounded existing challenges. Congress created four new unemployment insurance programs to support workers during the pandemic. However, unprecedented demand for benefits and the need to quickly implement new programs presented challenges for states and increased the risk of irregular payments, including fraud.

This report examines (1) the difficulties encountered in responding to the needs of the unemployed and to economic changes; (2) risks of abusive payments, including fraud; (3) the extent to which UI suffered performance degradation and financial loss; and (4) potential user interface transformation options suggested by stakeholder panels.

GAO reviewed audit products and relevant federal laws and guidelines; reviewed the literature to identify user interface challenges and risks; analyzed inappropriate payment reports; convened a panel of 16 speakers with expertise in unemployment insurance; and compared the results to the GAO criteria for designating high-risk programs.

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