More than a year ago, state Sen. George Borrello, R-Sunset Bay, called on the state Labor Department to release statistics on fraudulent unemployment claims filed during the height of the COVID-19 pandemic.
Borrello’s answer came Tuesday in the form of an audit by state Comptroller Thomas DiNapoli’s office, which estimates as much as $11 billion in fraudulent unemployment insurance payments. DiNapoli’s audit found the state Labor Department’s failure to replace its Unemployment Insurance system and ad hoc workarounds to compensate for the old system weakened oversight and ultimately contributed to an estimated billions of dollars in improper payments during the COVID-19 pandemic. DiNapoli said Labor Department officials refused to provide auditors with the data that would have enabled auditors to calculate the precise amount of improper payments and was slow to provide requested information that delayed the completion of the audit. The audit examined the period from January 2020 to March 2022.
“The report confirms that there were red flags years before this crisis struck, which were ignored by leadership and allowed to worsen in the years leading up to the pandemic. Those of us whose office staffs fielded calls day and night from desperate New Yorkers who were frustrated with unending busy signals, system crashes, incorrect payments and ignored reports of fraud aren’t surprised at these findings. While the labor department’s front-line staff tried diligently to help us resolve claims, the failure of an outdated system and inept administration were constant obstacles,” Borrello said in a statement Tuesday. “”In 2021, I publicly questioned the Labor Commissioner on the amount of fraud that occurred in the system due to the pandemic and received only excuses, despite the fact that other states were reporting these figures.
The Comptroller’s estimate of $11 billion in fraudulent claims is stunning and, as he notes, is likely even higher. Auditors were unable to get a fuller picture of the fraud losses because DOL staff were either unable or unwilling to provide more detailed data. Either scenario is deeply troubling. ”
DiNapoli said Labor Department officials did not heed warnings as far back as 2010 that its unemployment insurance system was out of date, nor did it address issues identified in a 2015 audit by DiNapoli’s office. The comptroller said the system lacked the resources necessary to adjust to new laws or handle workload surges, with that lack of capability hurting the Labor Department during the pandemic. When Gov. Andrew Cuomo began shutting down the economy at the height of the COVID-19 pandemic, the Labor Department had to manage an unprecedented volume of traditional unemployment insurance benefit claims as well as benefits for the temporary programs created by the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The temporary federal benefits, with less stringent eligibility requirements, contributed to a dramatic increase in unemployment insurance claims, DiNapoli said.
Even before the pandemic, the U.S. Department of Labor reported New York’s traditional unemployment insurance estimated improper payment rate at 10.34%, including a fraud rate of 4.51%, in 2019-20, exceeding the federal performance threshold of 10%. Unlike temporary programs which are funded 100% by the federal government, New York’s unemployment insurance program is funded by taxes collected from employers. With the increase of claims during the pandemic, the U.S. Labor Department’s estimated improper payment rate in New York’s unemployment insurance program increased to 28.89%, including a fraud rate of 17.59% in 2021-22.
From April 1, 2020 through March 31, 2021, the state made 218.2 million traditional and temporary unemployment isnurance payments totaling over $76.3 billion, an increase of nearly 3,140% over the amount paid in the prior state fiscal year. Using the U.S. Labor Department’s estimated fraud rate for New York’s traditional unemployment insurance program for 2020-21, this would equate to $11 billion lost to fraud in that fiscal year. This likely understates the actual amount, as the state Labor Department acknowledged that the temporary programs had a significantly higher risk of fraud, according to DiNapoli.
Legislation could come back before the state Legislature this year that would end the “pay and chase” system. A.6666 passed the Assembly earlier this year, though a companion bill (S.6169) failed to progress out of the Senate. The legislation states workers won’t be held liable for overpayments of state or federal unemployment benefits, as permitted under federal law, as long as the overpayment was not due to fraud or caused by the worker, and as long as the recovery of the additional money would be against equity and good conscience. The state labor commission will be required to notify the claimant when an overpayment has occurred and inform the claimant of his or her right to request a waiver. If the waiver is denied, the state labor commissioner would also be required to notify the worker of their right to ask for an adjustment of a proposed repayment schedule.
Assemblyman Andrew Goodell, R-Jamestown, said on the Assembly floor earlier this year that it’s important not to consider A.6666 in a vacuum. He said the state’s decisions during COVID-19 have created an unemployment mess for businesses now, including for Goodell’s law firm that has seen its unemployment insurance rate increase to 9.75% despite not laying off employees during the pandemic.
“So what’s the right solution?” Goodell asked. “The right solution is for us as a legislature to say we recognize that we the government shut you down against your will, so we the government will cover your extra unemployment expenses. Is that what we’ve done in this legislature? No. We’ve done the opposite. We haven’t anted up one dollar to pay back that $9 billion in unemployment expenses faced by our employers.”
DiNapoli made note of the state’s unemployment insurance loan from the federal government. The loan averaged $9.3 billion from September 2021 through April 2022 and now stands at about $8 billion. This loan must be paid back with interest at the expense of New York’s employers. Previous DiNapoli reports identified that borrowing from the federal UI trust fund has a significant cost impact for businesses operating in New York state.
“In 2021, I publicly questioned the Labor Commissioner on the amount of fraud that occurred in the system due to the pandemic and received only excuses, despite the fact that other states were reporting these figures. The Comptroller’s estimate of $11 billion in fraudulent claims is stunning and, as he notes, is likely even higher. Auditors were unable to get a fuller picture of the fraud losses because DOL staff were either unable or unwilling to provide more detailed data. Either scenario is deeply troubling,” Borrello said. “The bottom line is that it is outrageous and unacceptable for the Governor and Legislature to pass the bill for these failures onto the backs of small businesses who had no role in creating this crisis. At last count, there is a remaining $7.7 billion in UI debt that New York owes the federal government, which businesses should not be liable for paying. Additionally, employers were unfairly hit with an interest assessment surcharge in September, which should be refunded. I urge our newly-elected Governor to demonstrate true leadership by acknowledging the state’s role in the unemployment insurance catastrophe and working with legislators on a plan for paying the state’s debt and restoring the UI fund to solvency. Passing the buck to New York businesses is not only grossly unjust, it will hurt New York’s economy, consumers and recovery.”
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