DiNapoli: Problems caused by outdated system make state unemployment insurance program vulnerable to fraud

The State Department of Labor (DOL) replaced its long-troubled Unemployment Insurance (UI) system and the failure of ad-hoc workarounds to compensate for the old system, resulting in less oversight and ultimately a loss of control during COVID-19. Contributed to improper payments estimated at billions of dollars. Pandemic, according to an audit released today by State Comptroller Thomas P. DiNapoli. The DOL refused to provide the auditors with data to enable them to calculate the exact amount of the improper payments, and delays in providing the requested information delayed the completion of the audit. rice field. The audit examined the period from January 2020 to he March 2022.

“The state Labor Department’s outdated UI system was not adequate to handle the pandemic’s extraordinary demand for unemployment benefits and the challenges posed by more generous federal eligibility requirements,” DiNapoli said. The agency resorted to stopgap measures to fix the problem, but this proved costly for the state, businesses, and New Yorkers,” DiNapoli said. “The department needs to collect fraudulent payments and correct mistakes. We are pleased that the department agrees with our recommendations and is moving to implement them.”

DOL officials did not heed warnings that the UI system was outdated, dating back to 2010, nor did they address issues identified in the 2015 National Inspector General’s audit. The system lacked the resources needed to adapt to new legislation or handle spikes in workloads. This was a dire prediction with dire consequences during the pandemic. Not only did the DOL have to manage an unprecedented amount of her conventional UI benefit claims, but the temporary program created by the Federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) also had to manage her UI benefits. These temporary federal benefits contributed to a dramatic increase in UI claims due to less stringent eligibility requirements.

Even before the pandemic, the US DOL estimated that New York’s conventional UI had a 10.34% improper payment rate, including a 4.51% fraud rate, in the 2019-20 state fiscal year (SFY), and a 10% Reported to exceed federal performance thresholds. Unlike temporary programs that are 100% federally funded, the New York UI program is funded by taxes collected from employers. As claims increased during the pandemic, the US DOL’s estimated fraudulent payment rate in New York’s UI program increased significantly to 28.89%, including a fraud rate of 17.59% in SFY 2021-22.

From April 1, 2020 to March 31, 2021, the state made 218.2 million traditional and temporary UI payments totaling over $76.3 billion. This was nearly 3,140% higher than what was paid in the state’s previous fiscal year. Using the US DOL’s estimated fraud rate for his traditional UI program in New York for SFY 2020-21, this equates to approximately $11 billion lost to fraud in that fiscal year. This likely underestimated the actual amount, and the New York DOL acknowledged that the temporary program had a significantly higher risk of fraud.

Auditors have found that the DOL will need to compensate for its outdated systems during the pandemic by disabling existing controls designed to prevent improper payments. DOL’s “pay and chase” approach increased the risk of overpayments, claims to the wrong funding sources, and fraud. for example:

  • Auditors tested a sample of 53 selected claimants against various risk factors and found that 18, or one-third, may have received a UI payment that exceeded the maximum allowed amount. I found
  • Auditors sampled an additional 100 petitioners, and 96 of the 118 total complainants improperly paid approximately $2.8 million through state legacy UI programs rather than through the temporary federal CARES Act. I discovered that
  • Auditors identified an additional $41.2 million paid to 8,798 claimants. Auditors questioned whether these claims were paid correctly or whether the correct funding sources were used. DOL officials said they identified the issue and adjusted the claims regarding the UI system, but no adjustments were made to the federal report and these claims were erroneously paid with state funds. was

Outdated systems also hampered the monitoring and analysis of fraudulent claims and operational decision-making. Auditors found that the DOL was unable to identify the root causes of overpayments and fraud and did not implement controls to address weaknesses in the system. During the audit, the DOL was unable to provide the auditor with information to support the auditor’s management and response to fraudulent claims and was unable to explain:

  • Number of claims paid to fraudulent claimants before being detected.
  • The amount of time between when a claim was submitted and when it was identified as fraudulent (to determine the number of weeks a payment was made).When
  • How the claim was identified as fraudulent (e.g., through departmental procedures or based on a complaint from an individual whose ID was used by an imposter to submit a false claim).

The DOL’s inability to provide information to the auditor and slow response to the request delayed the completion of the audit. The DOL said the Labor Commissioner prevented him from providing supporting documentation on fraudulent claims worth more than $36 billion. It also explains to the auditor why the estimated number of frauds in her traditional UI claims increased by more than three times that of his during SFY 2020-21. Fraudulent billing.

This information is important for New Yorkers. Because during the pandemic, the state had to borrow money from the federal government to support her UI claims. Outstanding loans from the Federal UI Trust Fund averaged $9.3 billion from September 2021 to April 2022 and are currently at about $8 billion. This loan must be repaid with interest at the expense of the employer in New York. A previous DiNapoli report found that borrowing from the Federal UI Trust Fund has a significant cost impact for businesses doing business in New York State.

Auditors also noted that while the DOL has repeatedly identified identity theft as a leading cause of fraud within the program, it will continue to ban identity theft through February 2021, especially for temporary benefit programs. I also discovered that it did not implement an important thwarting system, a program called ID.me. , or nearly a year after these temporary programs were introduced, about 80% of allegations regarding the UI had already been made.

In its implementation of ID.me, the DOL failed to obtain information to not only prevent fraudulent claims, but also to balance accessibility for legitimate applicants. For example, groups such as seniors, low-income individuals, and recently immigrated individuals were identified as being particularly disadvantaged when verifying their identities online in a 2018 report from ID.me. The DOL has acknowledged that certain groups may encounter issues with the verification process using ID.me, but to ensure that these issues are addressed in the future, the DOL will ensure that no applicants Didn’t collect information about what the problem is.

DiNapoli’s auditors also found that the DOL failed to take significant steps to protect its UI systems and data. As a result, DOL minimizes assurances that its substantive personal information assets are protected from loss or theft. For example, auditors may find that the DOL does not classify data on the UI system, does not encrypt certain information, does not apply strong access control or authorization rules, and does not ensure that system logs are monitored. It was determined that the policy had not been introduced. Some of the changes to her UI system made in response to the pandemic did not meet all necessary requirements of the state’s Information Technology Services (ITS) change management processes and policies. service.

Audit recommended DOL:

  • We will continue to develop the alternative UI system and ensure timely implementation.
  • Take steps, including collecting and analyzing data related to the identity verification process, to ensure the right balance between detecting fraudulent identities and streamlining the process for those who need the benefits of the UI. increase.
  • We will follow up on any suspicious claims identified by this audit to ensure that they have been paid from proper sources and reconciliations have been made so that overpayments are collected as warranted.
  • Ensure that current and new UI systems and data comply with the provisions of the NYS Information Security Policy (Classification, Authentication, Encryption, and Logging Standards) and ITS operational change management processes and policies.
  • Improve the timeliness of cooperation with state oversight investigations and ensure transparent and accountable agency operations.

Department staff generally agreed with the audit’s findings and recommendations.

Department of Labor: Control and administration of the unemployment insurance system

Unemployment Insurance Trust Fund: Challenges ahead

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