A significant chunk of the government support reserved for unemployed Americans went to fraudsters instead during the pandemic, according to new estimates.
More than $200 billion of unemployment benefits distributed in the pandemic may have been pocketed by thieves, according to ID.me, a computer security service that 19 states — accounting for 75% of the national population — use to verify worker identities. That's more than triple the official government estimate of $63 billion based on the 10% pre-pandemic fraud rate.
"The level of fraud is truly unprecedented," Blake Hall, CEO and cofounder of ID.me, told Yahoo Money. "The main driver is the PUA program... For criminals, this program essentially makes every American and their identity a target."
Up to 30% of claims under the Pandemic Unemployment Assistance (PUA), the program that provides benefits to self-employed and contractors, are fraudulent, according to data by ID.me.
'The nature of what you're setting up is very vulnerable'
Generally, unemployment programs are vulnerable to fraud because eligibility rules can change quickly. That was especially true during the pandemic when new programs were established. Then there was the sheer scope: Around 30 million Americans were relying on jobless benefits last spring.
Add in the fact that the benefits increased in value per person — first the additional $600 per week under the CARES Act and then $300 extra a week under various other actions — and the programs became a lightning rod for fraud, especially from professional criminals.
"Unemployment is a program that certainly has a high rate of overpayment," Andrew Stettner, an unemployment insurance expert and senior fellow at the Century Foundation, told Yahoo Money. "What's different about this period is the level of organized crime activities targeting unemployment insurance is definitely unprecedented."
Around 20% of the fraud is linked to breached personal data, up to 10% is through social engineering, and 2.5% are linked to face matching, where a criminal tries to use a mask, video, or image of the victim, according to Hall.
Verifying the identity of a self-employed or freelance worker is more complicated than confirming a worker's income with a traditional employer. There are no employer wage records to help verify that worker's income.
"You wanted to extend eligibility to people that are not in the system like gig workers, the self-employed," Stettner said. "The nature of what you're setting up is very vulnerable."
'Choose those states that they could get the most per person'
Criminal enterprises targeted California, Oregon, Massachusetts, and Washington — some of the states with the highest per week unemployment benefits, according to Stettner.
"Organized crime rings in Russia, China, Nigeria ,and Ghana, and prisoners and petty thieves have made it their job to exploit the pandemic and creatively work to steal funds from state agencies, including PUA funds from the federal government," Hall said.
California, which paid at least $11.4 billion in fraudulent claims according to reporting by the Los Angeles Times, was also targeted because it relies on debit cards for distributing the benefits, according to Stettner.
Fraud losses in Washington are expected to total $600 million as of June 2020, amounting to 122,000 known or suspected fraudulent claims, according to a report from the Office of the Washington State Auditor. In Massachusetts, up to $687 million is estimated to be paid for fraudulent claims as of February, according to the state's Department of Unemployment Assistance.
"They pick and choose those states that they could get the most per person off of," Stettner said.
Some states like Colorado have been effective in turning back fraudulent unemployment claims. The state estimates it prevented 1.1 million fraudulent claims from being paid out — potentially worth $7 billion — since the start of the pandemic.
After the $900 billion stimulus package was signed into law in December, more protections against unemployment benefits fraud were put in place. For example, many states now require picture-based or two-factor identity verification as well as additional documentation to verify your lost employment.
"We are currently working with 22 states (live in 19) to combat unemployment fraud," Hall said. "We were working with just one state in July 2020. The states have moved quickly to upgrade their defenses."