Federal Government Lost 5 Times More Money as Result of Stimulus Fraud

During the epidemic, a large portion of the government assistance intended for jobless Americans was siphoned to scammers.

When the government spends money, inefficiency, waste, and fraud eat up a large percentage of it. However, the tremendous pace, quickness, and scale of federal expenditure in response to the COVID-19 pandemic—a staggering $6 trillion in total—has resulted in hitherto unimaginable levels of fraud. To put that number into perspective, each federal taxpayer loses $1,400 due to fraud, as per the blog post written by Brad Polumbo for Based Politics paper. 

When compared to the $37 billion spent by the federal government on vaccine and therapy development, fraud costs more than five times as much as the COVID effort that is likely the most important of all. That’s only the tip of the iceberg. According to the American Enterprise Institute, out of more than 17 major categories of government COVID spending, unemployment fraud is currently the fourth largest, 

According to the independent Committee for a Responsible Federal Budget’s “COVID Money Tracker,” the federal government has approved almost $4 trillion in emergency funding since the pandemic began, with the payment of unprecedented unemployment benefits being a major part of that response.

Unprecedented increases in the quantity and number of unemployment checks payable across the United States were enacted by federal officials in March 2020. Under the $1.9 trillion American Rescue Plan, state unemployment insurance (UI) payouts were increased by $600 per week from March to July 2020 and will be increased by $300 per week until September 2021, according to the article published by aei.org. 

According to ID.me, a computer security service used by 19 states — accounting for 75 percent of the national population — to authenticate worker identities, more than $200 billion in unemployment benefits may have been stolen by criminals during the epidemic. That’s more than quadruple the official government estimate of $63 billion, which was based on a 10% fraud rate prior to the epidemic, as published by Yahoo Money news. 

Unemployment benefits are subject to fraud in general because eligibility regulations change often. This was particularly true during the epidemic when new programs were put in place. Then there was the sheer scale: last spring, about 30 million Americans were receiving unemployment benefits.

Unemployment insurance, according to an unemployment insurance expert and senior fellow at the Century Foundation, Andrew Stettner, is a program with a high rate of overpayment. What makes this time unique is the unparalleled degree of organized criminal activity targeted at unemployment benefits.

Major Project/Policy Responses to Coronavirus Epidemic

How substantial are the above-mentioned high and low estimations for unemployment scams? When compared to the major expenditure programs and regulations enacted in reaction to the coronavirus, the rough calculation of $200 billion would make unemployment insurance fraud the 4th biggest stimulus project so far as stated in the figure below, based on the news published by the aei.org site. 

Both state and federal unemployment benefits are affected by fraud, but as the figure above shows, federal funding maintains the majority of current payouts and so covers the majority of fraud losses. According to ID.me, the largest abuses appear to be affecting the temporary federal PUA program, where up to 30% of claims are fictitious.