Not long after pandemic unemployment aid began to flow in Ohio, the state’s top auditor grew concerned. Keith Faber had seen reports that a Nigerian crime ring had scammed Washington state out of millions of dollars. He wanted to know whether the Ohio agency in charge of releasing aid was seeing any evidence of fraud.
“They pretty much said: ‘Nothing to see here, ma’am. Just move on,’” Faber recalled.
He soon found out there was, in fact, a lot to see there.
A statewide audit turned up some highly alarming findings: More than 80,000 claims had been paid out to prisoners and more than 140,000 to dead people. Officials now believe the vast majority that came from people who seemed to be behind bars were actually filed by scammers who stole their identities.
The fraud was so pervasive that someone had even filed an unemployment claim for Faber himself.
“When we got it, it shocked me that everything was correct on the claim except for the bank account number,” Faber said.
The claim was denied, but Faber now believes the state doled out more than $5 billion in improper payments, some of which went to cyber scammers at home and abroad who pulled off what has been described as the biggest fraud in a generation.
Estimates of the stolen aid money start at about $100 billion and stretch as high as $400 billion — nearly half of the Covid unemployment relief program. Experts say it is likely to take years to account for the full scope of the fraud.
Interviews with dozens of people on the front lines, including five state auditors, shed new light on the poor planning and missed red flags that allowed scammers to plunder billions of dollars intended for people who lost jobs during the pandemic.
“The system failed at almost every conceivable level,” Faber said.
Congress passed the $2 trillion coronavirus stimulus bill in March 2020, creating a program that provided aid money to self-employed people and gig workers who would not typically be eligible for unemployment insurance. The claimants were not required to submit documentation to prove their employment.
The hard part was left to the states. With the economy in a tailspin, state agencies faced enormous pressure to process an unprecedented flood of unemployment claims as quickly as possible.
In Mississippi, the Department of Employment Security dropped basic internal controls, such as checking to see whether applicants were actively seeking work or even whether their IP addresses were from in the state, State Auditor Shad White said.
White said that as he viewed the results of his first audit, he thought to himself: “This is tragic.”
“When you see improper payments in a program, it’s disheartening,” White said. “But the thing that makes this particularly disheartening is that the dollar amounts are huge.”
He estimates that the state lost more than $500 million in Covid unemployment fraud and overpayments. “These are big dollar totals relative to our overall budget,” he said. “We struggled last year in the state to find another $50 million to increase our public school teacher pay.”
White said he has had to accept that with much of the fraud carried out by international criminals, there is almost no chance Mississippi will be able to recoup its money.
“I’m not going to be able to get a lot of the money back unless you give me a C-17 and a Black Hawk,” White said sarcastically, referring to U.S. military aircraft.
In the months after the signing of the CARES Act, Illinois officials signed a $29 million deal with Deloitte Consulting to help vet and process unemployment claims.
But the system they set up had flaws that allowed payments to go out to people whose identities weren’t validated, Illinois Auditor General Frank Mautino said.
“When you have faults within the system, it’s garbage in, garbage out,” he said.
The “garbage” included 63 approved claims for people who were 90 or older and 164 for people who were 13 or younger — not the ages normally associated with holding jobs in the U.S.
Mautino’s initial audit, which was limited to the early part of the program, found that roughly $155 million was paid to suspected fraudsters and other potentially ineligible claimants.
“And that’s within the first seven weeks of data,” he said, referring to the period from May 2020 to the end of June 2020.
A Deloitte spokeswoman, Karen Walsh, said everyone who applied for pandemic unemployment aid in Illinois had to authenticate themselves using “an industry-leading, third-party identity verification and fraud prevention solution.”
“To date, this process has stopped nearly 624,000 applications until the individuals associated with those claims could provide additional information to confirm their identities,” Walsh said.
Spokespeople for state workforce agencies in Ohio and Illinois acknowledged that large amounts of fraud took place but said the agencies did the best they could under the extraordinary circumstances.
In many states, understaffed agency call centers were swamped. A large number of people had the nightmarish experience of losing their jobs and then seeking aid — only to find out their identities had already been used by fraudsters.
Haley Andrews, 27, a single mom from New Jersey, lost her accounting job in July. Because her identity was stolen, she has spent more than eight months trying to get the state to pay her the $16,000 in unemployment she says she is owed.
With no income or relief money, Andrews could no longer afford child care for her two kids, ages 7 and 1. In November, she began working for DoorDash to make ends meet, delivering food to people with her two children in the back seat of her Jeep.
“My life has been ruined,” Andrews said.
While most scammers are believed to have mined the dark web to steal people’s identities, some are accused of carrying out appalling crimes.
A caregiver for the intellectually disabled filed more than $100,000 in fraudulent unemployment claims in Pennsylvania and New Jersey using his clients’ identities, authorities say.
The caregiver, Nelson Fornah, was caught after a Pennsylvania state agency requested that a batch of suspicious claims be verified by videoconference through ID.me, a private company contracted by the state to defend against fraud. The clients appeared on screen — some of them appearing to be distressed and confused — as the caregiver spoke for them off-camera in an effort to get around the system, according to Pennsylvania Attorney General Josh Shapiro’s office.
Fornah was arrested on charges of theft and related offenses. He has not entered a plea, and his lawyer declined to comment.
An NBC News review of Labor Department data found that in the two months after states started requiring applicants to verify their identities through ID.me, the number of pandemic unemployment claims plummeted — by 85 percent in California, 91 percent in New York and an astounding 97 percent in Arizona — suggesting huge numbers of applications were fake.
The problems encountered by the states were not at all surprising to Jon Coss, the vice president of risk, fraud and compliance at Thomson Reuters.
About five years ago, 23 states were using anti-fraud software created by Coss. But funding dried up, and most of the unemployment contracts ended, leaving many states with antiquated systems ill-equipped to detect fraudulent claims or even identify them after the fact, he said.
“It’s going to take a long time to figure out just how bad we were hit, and it’s going to take even longer to clean it up,” he said.
Thomson Reuters is now working with 25 state workforce agencies, giving Coss a view into the depth of the crisis.
“We’re seeing things like 5,000 claims to a vacant house,” he said.
The $1.9 trillion American Rescue Plan, signed by President Joe Biden last year, set aside $2 billion for upgrading the unemployment insurance system, including hundreds of millions of dollars in anti-fraud grants to states. And the Labor Department has recently adopted new policies to make it easier to detect fraud, including allowing federal investigators to obtain state unemployment records, which they previously had to subpoena.
“We know that while we inherited these messes, it was still on us to fix what we could and to take steps to prevent this level of fraud from happening again,” said White House senior advisor Gene Sperling, who was tapped by Biden to oversee the implementation of the plan.