The government has lost billions to unemployment fraud. Can it get it back?

J. Scott Applewhite/AP

The federal government is unlikely to recover most of the billions of dollars in unemployment insurance fraud that plagued its Covid recovery programs, independent government watchdogs said Wednesday.

“History will tell us there is a very low percentage that would likely be recovered from fraud,” said Comptroller General Gene Dodaro.

“The recovery rate is clearly gonna be far below what the fraud rate is,” added Michael Horowitz, chairman of the federal Pandemic Response Accountability Committee, an independent government watchdog.

California lost an estimated $20 billion to fraudulent claims, most of it in federally funded benefit programs, and dozens of investigations are underway aiming to catch and prosecute scammers and recover as much money as possible.

As of November, the state’s Employment Development Department reported 1,751 investigations into fraud have been opened in the last three years. There have been 278 convictions and more than $1.1 billion seized or recovered so far as investigations into pandemic fraud continue. EDD manages the state’s unemployment program.

Nationally, estimates of money from the federal programs lost to fraud range as high as $400 billion, but as Labor Department Inspector General Larry Turner said, “It’s going to actually take quite awhile to ever figure out how much.”

Most of California’s trouble stemmed from the federally-funded PUA program, created by Congress in March 2020 weeks after COVID began devastating the economy as a means of supporting workers who don’t qualify for regular state unemployment benefits. Other programs were also established to help the millions of people who suddenly lost their jobs.

PUA lacked the safeguards that are in the regular unemployment insurance program. That “created multiple high-reward targets where an individual could make a fraudulent claim with relatively low risk of being caught,” Turner said Wednesday of scams throughout the country.

He told the House committee that “as time went on, one fraudster could have been issued several unemployment insurance debit cards, with tens of thousands of dollars on each card.”

The hearing is the second in two weeks on the massive unemployment fraud that plagued the COVID-related unemployment program. The House Oversight and Accountability Committee is investigating the unemployment system in California and three other states.

Ways and Means heard testimony Wednesday as part of its effort to determine how much pandemic-related aid was wasted or subject to fraud. The hearing’s title was “The Greatest Theft of Taxpayer Dollars: Unchecked Unemployment Fraud.”

Republicans run the House committees, and Democrats charged the GOP’s efforts are misguided.

The COVID unemployment programs and other relief “had a positive effect,” said Rep. Judy Chu, D-Pasadena.

“Let’s not allow the action of criminals distract us from the fact that pandemic UI saved millions of American families,” said Rep. Linda Sanchez, D-Whittier.

Republicans insisted the PUA program was a mess, and needs to be thoroughly examined.

“Every dollar that went to fraud is a dollar that didn’t go to those who needed it,” said Chairman Jason Smith, R-Mo.

Rep. Beth Van Duyne, R-Texas, grilled the watchdogs for answers on where the money went.

“Do we know how much money went to International organizations and foreign actors?” she asked. “Do we know if this money fell into the hands of terrorist organizations? Can we track how much money actually went overseas?”

And, Van Duyne asked, “Do we have any hope of ever seeing those dollars again?”

The watchdogs said it’s unlikely, but dozens of investigations are continuing aggressively on several fronts.

PUA, which ended in September 2021, was federally funded. While the regular jobless insurance program is a joint federal-state program, both federal and state regulations govern the program. With PUA, states had to create and launch the federally funded program and follow requirements set by the federal government.