Congress, watchdogs scrutinize COVID aid lost to fraud

State-managed unemployment programs are one area getting heavy attention.

U.S. Rep. Byron Donalds (R-Fla.)

U.S. Rep. Byron Donalds (R-Fla.) Photo by Nathan Howard/Getty Images

The federal government moved too quickly during the pandemic to get emergency unemployment insurance and small business assistance to Americans without checking to see if they were actually eligible, contributing to billions of dollars worth of fraud, according to government watchdogs.

Republicans now are pushing for spending cuts in exchange for supporting a hike of the nation’s borrowing limit to prevent the U.S. from defaulting on its debts. As U.S. Rep. Byron Donalds, a Florida Republican, put it: “We should end letting money go out the door that was tied to the pandemic that is now essentially over.” 

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At the first hearing by the U.S. House Committee on Oversight since Republicans took control of the chamber in last year's elections, officials with the Government Accountability Office and a group of federal inspectors general charged with keeping track of trillions in pandemic spending, urged Congress not to make the same mistake in the future to avoid even more public money being stolen.

“Agencies must strike a better balance between the speed with which they issue benefits and the need to assess applicant eligibility,” Michael Horowitz, chairman of the inspectors general group, the Pandemic Response Accountability Committee, told lawmakers.

The decision in the 2020 CARES Act to let people self-certify that they were eligible for expanded unemployment benefits and aid to small businesses, made it more difficult for states to prevent fraud, the watchdogs said. But states’ antiquated unemployment computer systems and their failure to share information with each other also fueled the problems.

Gene Dodaro, comptroller general and head of GAO, noted that a single Social Security number was used to get unemployment benefits in 29 states. “That shouldn't be able to happen,” said Dodaro, who called for better information sharing between states. The federal government should also move to require states to strengthen fraud prevention programs, he said.

The comments came during a sometimes partisan hearing, in which committee chairman James Comer said Republicans, now that they control the House, will step up oversight of federal spending – which he accused Democrats of not doing when they held the majority. 

However, key programs at the center of the hearing – like emergency unemployment benefits – began under the Republican Trump administration and at a time when the GOP controlled the Senate. Federal agencies, along with states, were also starting up those initiatives under unprecedented pressure as the onset of the coronavirus led to the widespread shuttering of businesses, job losses and a wave of economic uncertainty.

'Greatest theft of American taxpayer dollars in history'

Comer said as much as $500 billion in pandemic benefits were paid out improperly. Although Horowitz noted that the total is still unknown because not all of the fraudsters have been caught.

“We're going to be counting and figuring this out for years to come,” Horowitz said.

Comer, of Kentucky, added: “We owe it to the American people to get to the bottom of the greatest theft of American taxpayer dollars in history.” 

The committee’s top Democrat, Rep. Jamie Raskin of Maryland, disputed Republicans' framing that Democrats failed to conduct oversight of programs launched under pandemic relief legislation.

Comer, meanwhile, did not say whether Republicans will push new requirements, including those called for by the GAO and the inspectors general. Horowitz said that the PRAC would support Congress extending the statute of limitations to prosecute pandemic unemployment insurance fraud to ten years, from five, in line with other emergency Covid-era programs. 

Republicans on the committee echoed Comer’s suggestion earlier this week to claw back unused funds from the Biden administration’s signature Covid relief law, the American Rescue Plan Act, as part of broader federal cost-savings efforts. 

Rep. Gary Palmer, an Alabama Republican, urged the committee to examine whether states and local governments have been using Covid assistance dollars for purposes too far afield from the pandemic. He, for instance, noted that New Jersey Gov. Phil Murphy, a Democrat, proposed using $15 million of the billions the state received in Covid-19 aid to help pay for efforts to lure the 2026 World Cup to MetLife Stadium in East Rutherford. 

“I know we wanted to give them flexibility but isn't it a little bit out of the box?” Palmer said.

Likewise, Rep. Marjorie Taylor Greene, a Georgia Republican, criticized Washington, D.C.'s use of ARPA funds to help low- and moderate-income homeowners convert to solar power. Greene also asked the watchdogs if they could confirm ARPA funds have been used to promote abortions, critical race theory in schools or for “drag-queen story hour.” 

Neither Horowitz nor Dodaro could confirm the money has gone to those things.

Horowitz did note that the Pandemic Response Accountability Committee reported earlier this week that the Small Business Administration gave out  57,000 loans, worth $3.6 billion, to entities that were on a government “no-pay list.”

States pushing back against criticism

At least two states, Pennsylvania and California, pushed back on Comer’s criticisms. The Republican sent letters to officials in those two states and in New York, demanding they explain why they paid out large sums in unemployment benefits to people who were not eligible.

But William Trusky Jr., the Pennsylvania Department of Labor & Industry’s executive deputy secretary, pointed out in a written response to Comer that unemployment applications in Pennsylvania quadrupled in one day in September 2020, from 5,000 to 20,000. Bad actors, he said, exploited the system using stolen personal information.

“Not surprisingly, the [unemployment] program was attractive to bad actors and the subject of unparalleled fraud, specifically identity theft,” Trusky wrote. He added that the state paused approving new unemployment insurance applications until they verified the identities of the people seeking benefits, cutting the rate of fraud from around 20% to about 10%. 

Nancy Farias, director of California’s Employment Development Department, wrote to Comer that the pandemic unemployment program–as designed by Congress–“lacked the basic safeguards that traditionally protected the unemployment system against identity theft,” and also highlighted the “unprecedented implementation challenges” states faced managing it.

“We object to the Chair’s mischaracterization of California’s response to the UI fraud attacks and the Chair’s failure to acknowledge the inadequate response by the Trump Administration,” Farias wrote, “which left neglected state UI systems fighting domestic and international criminal enterprises effectively on their own.”

Kery Murakami is a senior reporter for Route Fifty, where a version of this story was first published. 

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