GAO Designates Unemployment Insurance System as “High Risk”

The U.S. Government Accountability Office (GAO) has added the Unemployment Insurance (UI) system to its list of federal areas at “High Risk” for waste, fraud, abuse, and mismanagement, or in need of broad-based transformation. GAO is adding the system to the list now, in advance of a regular update scheduled for next year, to bring greater attention to the challenges facing UI and to help spur needed changes. GAO’s concerns are outlined in a new report being issued today, which describes critical weaknesses in how UI carries out its mission and also includes options panelists suggested for transforming the system.

The UI system’s persistent difficulties in balancing effective service delivery and mitigating financial loss made it more difficult to successfully launch temporary programs to help unemployed workers during the COVID-19 pandemic. The unprecedented demand for assistance and the need to get the programs up and running quickly resulted in serious challenges for states and a greater risk of improper payments, including those due to fraud.

GAO and others have cited weaknesses in UI administration that have undermined states’ ability to effectively meet the needs of unemployed workers, including during economic downturns such as the one associated with the COVID-19 pandemic. Current program design and variation in how states run UI have contributed to a shrinking portion of unemployed workers receiving benefits and disparities in benefit distribution. During the pandemic, problems with customer service, timely claims processing, and the implementation of new programs became evident. GAO and the Department of Labor (DOL) Office of Inspector General have also noted the need to modernize state IT systems.

Over the years, DOL regularly reported billions of dollars in annual UI improper payments. The problem intensified during the pandemic, with estimated improper payments rising from approximately $8.0 billion in fiscal year 2020 (a 9.2 percent rate) to about $78.1 billion in fiscal year 2021 (an 18.9 percent rate). The total amount of UI improper payments is unknown due to incomplete reporting by DOL and the states, but fraud is a growing problem. The main cause for the increase in fraud during the pandemic was identity theft, according to DOL. From March 2020 through January 2022, hundreds of individuals either pled guilty to defrauding UI programs or had federal charges pending against them.