Washington's Unemployment Benefit Programs in 2020

The performance audit’s results fall into three main areas:

• The circumstances that opened the door to massive unemployment insurance fraud. The economic effects of the COVID-19 pandemic dramatically increased unemployment claims. Decisions about how to pay claimants led to relaxing of previous requirements. As of December 2020, ESD has identified $647 million in fraudulent payments, but the total is likely greater.
• Why the Employment Security Department was unable to prevent widespread imposter fraud. ESD’s pre-pandemic fraud detection and prevention portfolio was not capable of combating a large, sophisticated imposter fraud. This is in part because it focused on preventing the previously more common claimant fraud.
• Why customer service was inadequate to meet the needs of Washingtonians. The explosion of unemployment claims during the pandemic strained ESD’s ability to maintain its previous level of customer service. This problem also arose at other states’ unemployment benefit programs.

The Employment Security Department (ESD) manages the state’s unemployment program. It collects unemployment taxes from Washington’s businesses and pays benefits to its eligible unemployed workers. Unemployed workers file claims for unemployment benefits through an online application or by telephone.

COVID-19 and the efforts to control its spread created an unprecedented surge in unemployment claims, both in Washington and nationwide. The volume of claims overwhelmed state unemployment agencies across the country, and ESD was no different.

When Congress passed the federal aid package known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it added $11 billion in federal money to Washington’s own funds. Within a few weeks of Congress passing the CARES Act, state workforce agencies worked quickly to introduce these programs to their regular unemployment insurance programs. The goal: get people  emergency relief payments as soon as possible. Washington was among the first states to implement the CARES Act programs and start paying these new benefits.

Within weeks of the governor’s stay-at-home orders, the numbers of unemployed people and applications for unemployment benefits rose sharply. In one week in late March, unemployment insurance claims reached more than 180,000. As a comparison, weekly claims in 2019 exceeded 10,000 only four times all year.

Two specific directives in the federal CARES Act contributed to fraudulent claims in Washington:

• Self-certification of employment
• Required backdating of claims for Pandemic Unemployment Assistance funds

Furthermore, the CARES Act gave states a financial incentive to eliminate the one-week waiting period for regular unemployment benefits. The audit found that waiving the waiting week in Washington likely was not a key factor affecting the number of fraudulent claimants that received benefit payments. It did, however, likely affect the dollar value of fraudulent payments made by ESD.

Before the pandemic, ESD lacked a robust anti-fraud unit and the tools necessary to respond to widespread imposter fraud. Its pre-pandemic fraud detection unit focused primarily on investigating claimant fraud.

In claimant fraud, people filing for benefits are who they say they are. However, they intentionally misreport or withhold information to receive benefits they are not entitled to. Imposter fraud involves a person filing an unemployment insurance claim under someone else’s stolen identity. The imposters divert benefit payments to existing or new accounts they control.

Although ESD had some tools to detect imposter fraud, it was unprepared for the massive imposter fraud that occurred in 2020. In addition, it lacked a consistent process for monitoring trends that could have alerted it to widespread imposter fraud. Compounding the problem, some tools within the fraud-prevention portfolio were not working in the first part of 2020. Although the state disabled some additional controls temporarily to speed claims processing, these changes do not appear to have significantly affected the fraud.

ESD has since taken steps to resolve many of the issues it faced at the start of the pandemic.

When ESD put new controls in place to detect suspicious claims, it helped control the fraud. But doing so also significantly increased the time it takes to provide benefits.

Payment times were actually faster during the early weeks of the pandemic, in large part because the state eliminated the waiting week. As the scale of fraud was revealed, the additional controls ESD put in place slowed payment times. Furthermore, number of claims each Unemployment Insurance Specialist had to process increased by nearly 30 times during the early stages of the pandemic.

The need for customer assistance grew as the number of unemployment claims increased. Weekly customer calls to ESD’s call center exceeded a quarter of a million at one point during the pandemic. The huge increase in call volume caused long hold times or prevented telephone access entirely. ESD responded by mobilizing existing employees and hiring new ones to handle claims processing and customer support.

However, a year into the pandemic, ESD still is struggling to manage the customer services demands it faces. With more federal funds for COVID relief on the way in 2021, another wave of claims seems likely and the agency’s ability to handle the volume of calls is of concern. Improvements to the customer service experience are necessary to restore public confidence in the benefit system.

ESD has already taken steps to restructure and expand its fraud program. The agency has also hired additional staff to address concerns about customer service. This audit made no additional formal recommendations, but strongly encouraged ESD to continue to its efforts to address these issues.