US jobless aid programs bilked of up to $135 billion during COVID, watchdog says

A sign advertising job openings is seen outside of a Starbucks in Manhattan, New York City, New York

(Reuters) - Up to $135 billion of jobless benefits paid out by U.S. states during the coronavirus pandemic may have arisen from fraudulent claims, Washington's top government watchdog said on Tuesday in a report suggesting the problem is much bigger than previously estimated.

Waves of fraudulent claims for unemployment insurance benefits have episodically inflated the volumes of new filings reported each week to the Labor Department by all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands, often confounding economists tracking the data for a read on the health of the job market.

But a new General Accountability Office report estimates the problem is much bigger: Between $100 billion and $135 billion of the roughly $900 billion in jobless benefits payouts from April 2020 through May 2023 may have been fraudulent. At the high end, that would equal about $1 of every $7 paid in aid over that time.

The GAO's fraud estimate is around two times or more higher than the nearly $56 billion it said states themselves have estimated paying in either fraudulent payments or nonfraudulent overpayments between March 2020 and March 2023.

"The full extent of UI fraud during the pandemic will likely never be known with certainty," the GAO report summary said.

The Labor Department disputed the magnitude of the GAO finding, saying it was based on a small sample of questionable claims under the Pandemic Unemployment Assistance program.

The PUA was established under the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act as U.S. unemployment benefits rolls surged from fewer than 2 million recipients to more than 23 million in a matter of weeks in the spring of 2020 due to lockdowns early in the pandemic. After several extensions, the PUA - which provided benefits to jobless individuals who would not typically have been eligible for them - expired in September 2021.

"For this reason, the Department believes that the GAO's report overestimates the level of fraud and that this report can best be understood as an estimate of UI fraud risk rather than a fraud estimate," Brent Parton, the department's principal deputy assistant secretary, wrote to the GAO investigators.

Fraudulent claims activity has periodically distorted the data reported weekly by the Labor Department, befuddling economists who count on the data for gauging the wherewithal of the job market.

In early May a surge in new benefits claims to the highest level since October 2021 briefly led economists to conclude a long-awaited softening in the labor market was taking hold. The increase soon afterward was attributed almost entirely to a wave of fraudulent claims in Massachusetts, and the initial estimate of claims for that period was later revised down by 32,000, or more than 12%.

Another short-lived increase in new claims in August was seen by some economists as related to an increase in fraudulent claims activity in Ohio.

(Reporting by Dan Burns; Editing by Leslie Adler)