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Fraud, Errors Cost Ohio Unemployment More Than $3.8 Billion

An audit found that between July 2020 and June 2021, 3.3 percent of unemployment payments went to scammers, an increase of 2 percent from previous years, and nonfraud overpayments rose by 20.9 percent.

(TNS) — Ohio’s unemployment system has paid out more than $3.8 billion by mistake or because of fraud between April 2020 and the end of last June, according to a new report from State Auditor Keith Faber’s office.

The audit, released Thursday, provides new details about the massive amount of state and federal money paid to people who didn’t qualify for the money, as well as failures and problems within the state’s unemployment system that paid out billions. However, Faber, a Columbus Republican, says the situation is improving.

Between April 2020 and June 2021, the Ohio Department of Job and Family Services mistakenly paid $3.4 billion due to an error either by a worker, employer, or state officials, according to the audit. During the same period, more than $477 million was paid to claims later found to be fraudulent, the audit says.

In all, the money wrongly paid out equates to more than $673 for every Ohioan in the labor force, according to the audit. Most of Ohio’s jobless benefits paid during the coronavirus crisis were paid for with federal money — either directly via federal benefits or indirectly because Gov. Mike DeWine used $1.5 billion in federal coronavirus aid to cover federal loans the state took out because its unemployment fund went broke in the summer of 2020.

Between July 2020 and June 2021 (the state’s fiscal year), 26 percent of all unemployment payments in Ohio were paid to scammers or other recipients, the audit says.

During that same time, 3.3 percent of unemployment benefits paid out were sent to scammers. That’s an increase of about 1.3 percent of benefits found to be fraudulent during the three previous fiscal years.

Non-fraud overpayment rates rose even higher, from about 2.2 percent in the prior year to 23.1 percent in the fiscal year 2021, the audit found.

In the first few months of the pandemic alone, nearly 24,000 Ohioans were told to repay overpayments they mistakenly received. Other reasons for mistaken payments include workers who didn’t report their earnings in a weekly claim because they hadn’t been paid yet, or employers who were tardy in reporting employees’ wages, ODJFS Director Matt Damschroder, previously said.

Faber’s audit offered several reasons for why the incorrect payments were approved, including that the state’s unemployment system relied on a computer system dating back to 2004, because there weren’t adequate controls in place for the system that paid out the federal benefits, and because officials prioritized paying out benefits as quickly as possible over verifying that recipients were eligible to receive the money.

The audit also concluded that ODJFS didn’t have enough manpower to handle a sudden and overwhelming spike in claims: after the state paid less than $900 million during each of the fiscal years before the pandemic hit, benefits skyrocketed to $9.4 billion in 2020 and $14.2 billion in 2021.

Using Ohio’s benefits management system and uFACTS — a system set up by the consulting firm Deloitte — Faber’s office found 141,617 potential instances where the state sent jobless benefits to someone reported deceased a week before the claim was filed. They also uncovered 85,944 potential instances where the payment went to someone currently in prison. Inmates aren’t eligible for unemployment while behind bars.

In 356 cases, money was paid to claims using abnormal names, including “Dummy” (150 instances), “Adidas” (54 instances), “Guess” (41 instances), and “Demon” (26 instances).

In 8,703 cases, an individual received more than $35,000 in unemployment benefits, according to the audit. The highest amount reportedly paid to a single claim was $119,000, though the audit noted there was conflicting data about whether that figure is accurate or not.

Other payments went to Social Security numbers associated with four or more bank accounts, bank account and routing number combinations associated with multiple people, and addresses associated with five or more people. One unnamed address had 1,404 names associated with it, according to the audit.

Deloitte’s uFACTS system processed approximately $8.1 billion in various federal coronavirus unemployment benefits in Ohio, but state officials “did not establish procedures to determine whether the service organization had sufficient controls in place and if they were operating effectively,” the audit stated.

The audit noted that ODJFS has taken steps to combat fraud, including spending millions on contracts with outside security firms and bringing in banking and insurance executives to advise unemployment officials on how to improve their system. Since taking those steps in March, the number of fraudulent cases has drastically fallen, data shows.

In an interview, Faber said there’s been “little indication” that much of the money has been recovered by the state, either from scammers or from people who were mistakenly overpaid through no fault of their own. Officials have previously said that many of the unemployment scammers live overseas in countries such as Nigeria or China, making it difficult to catch them. In addition, the state (following the lead of the federal government) has set up a process for thousands of overpayment recipients to request waivers so they don’t have to return the money.

“People who got access to this and were receiving a lot of money — even if it’s, in some cases, no fault of their own — probably there should be a recovery process,” Faber said. “This is our money — in many cases, it’s also our kids’ money.”

The Ohio attorney general’s office is tasked with collecting money owed to the state, but the AG’s office and ODJFS have generally referred fraud reports to the U.S. Labor Department for investigation and prosecution. It hasn’t been clear how many how many Ohio unemployment scammers have been caught by the feds, or if any money has been recovered from them.

Faber’s office opened the audit after they claimed that ODJFS officials withheld the extent of the fraud from his office last summer and dragged their feet on installing anti-fraud measures.

State unemployment officials said they didn’t intend to mislead Faber’s office — they thought they were only referring to a lack of fraud among employees at the county- and state-level ODJFS offices, not fraud committed by recipients, according to the audit. However, Faber said in the interview that ODJFS still didn’t move quickly enough to address the fraud issue.

The audit made 10 recommendations to improve Ohio’s unemployment system, none of which are particularly revolutionary. They include (among other things):

  • Strengthening internal controls over unemployment benefits paid
  • Linking and comparing information collected in flagged claims in the two different claims systems — the state’s benefit management system and uFACTS – and ensure the data is being matched in a timely manner
  • Amending ODJFS’ contract with Deloitte to require an annual audit or similar procedures
  • Having ODJFS “identify internal and external fraud risks” that could misstate the department’s financial activity
  • Updating plans regarding how to maintain appropriate staffing levels and data-processing capabilities in the event of a future emergency on the level of the COVID-19 pandemic
  • Continuing ongoing efforts to replace Ohio’s aging computer system and incorporate into the new system any additional fraud prevention and detection features that are needed, such as ID verification
  • Having ODJFS investigate any known or potential fraud case to find the source of the fraud and recoup the money (such a recommendation clashes with what state officials have been doing throughout the pandemic — referring all fraud cases to the U.S. Department of Labor for investigation and/or prosecution)
  • Ensuring applicants’ key personal and demographic information is consistently formatted
  • Evaluate existing internal controls related to non-fraud overpayments (including employee training), identify potential issues that could result in non-fraud overpayments and take the necessary steps to reduce the amount of such overpayments.

“It’s appalling that Ohioans in need were victimized not only by a pandemic that ravaged our economy, but by criminals who took advantage of a system that was outdated, overwhelmed and ill-prepared for the onslaught of unemployment claims caused by COVID,” Faber said in a written statement. “The fact that the Department neglected to acknowledge its failures until hundreds of millions of dollars in fraud and overpayments had been made, potentially delaying assistance from eligible and deserving Ohioans is more than disappointing.”

Faber, however, praised Damschroder, who was appointed ODJFS director last spring. In the statement, Faber said Damschroder “demanded transparency and efficiency and pursued the necessary assistance to address the weaknesses in the system and pursue the necessary procedures to protect Ohio’s unemployment dollars.”

In the interview, Faber said that the number of fraud cases has “significantly went down” overall. “It looks like they’ve been able to put those controls in place” for the state’s unemployment system, he said, though he added that controls for Deloitte’s system are “another question.”

Faber, a Mercer County Republican, also noted that in Ohio’s defense, every state in the nation has been hit with similar problems of unemployment fraud and overpayments. Earlier this week, for example, California officials said that the state has given more than $20 billion in fraudulent unemployment payments.

In a statement Thursday morning, Damschroder said the auditor office’s recommendations “align with the work already underway” to address the unemployment issues.

“Much work remains, but we are confident in the improvements we have already made and look forward to utilizing the findings in the audit to inform the future work being planned,” Damschroder said. “I’m proud of the hard work, ingenuity, and adaptability of ODJFS employees, contractors, and private-sector partners, who have spent the last 18 months working to meet these unprecedented challenges.”

©2021 Advance Local Media LLC. Distributed by Tribune Content Agency, LLC.

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