OKLAHOMA CITY – More than $5 billion in state and federal unemployment benefits have been paid out in Oklahoma in the last 17 months – and perhaps half a billion dollars of that was siphoned off by fraud, hacking and identity theft, federal auditors contend.
An audit released by the Office of Inspector General (IG) in the U.S. Department of Labor (DOL) reported that “improper payments” of Coronavirus Aid, Relief, and Economic Security (CARES) Act funds totaled at least 10%.
In fact, the actual rate during the pandemic “will likely be much higher,” the IG’s Office speculated, “since prior to COVID-19 the rate was 10.6%.”
The Oklahoma Employment Security Commission has partnered with the Oklahoma Attorney General’s Office and state and federal law enforcement agencies to identify fraudulent claims that were paid after the coronavirus arrived in Oklahoma in mid-March of last year.
OESC Director Shelley Zumwalt can’t or won’t quantify the extent of the loss, other than to say that fraudulent claims number in the tens of thousands.
“OESC cannot release detailed information on fraudulent claims due to ongoing investigations and litigation,” she told Southwest Ledger. “The agency is actively working to recover all funds disbursed to fraudulent accounts.” Nevertheless, officials concede that much of the payments from claims, par-ticularly those submitted during the early months of the pandemic, maybe un-recoverable.
“That money is most likely out the door,” Ms. Zumwalt told The Oklahoman newspaper. “As those payments age, that money becomes less traceable every single day.” The fraud was widespread.
For instance, an Oklahoma City man told the Ledger that a friend whose wife is an Oklahoma City schoolteacher said more than 60 of her colleagues reported fraudulent unemployment claims were filed against them.
Joe Fox, executive director of the Oklahoma Public Employees Retirement System, said that OPERS had not been plagued with “an unusual, significant number of fraudulent unemployment claims.” However, he said, “many of our employees, including me,” have had bogus unemployment claims filed against them personally.
“They had my name right, my Social Security number right, but they used an old address from about 35 years ago,” Fox said.
“It is important to note that the fraudulent claims are not a breach of the OESC database,” Zumwalt said. “In most cases, the information used to file the fraudulent claims was stolen as a result of the Experian data breach in 2017 or one of the breaches that occurred at financial institutions in preceding years.”
The OESC launched Digital ID (VerifyOK) in September 2020, which uses facial recognition software to verify a claimant’s identity. OESC “works to identify common fraud techniques, and then works to implement solutions to prevent further activity,” Zumwalt said.
For example, she said, the agency restricted payments to three financial institutions based on high levels of fraudulent activity. “We work closely with our payment provider, Conduent, to decrease fraudulent activity. OESC also has a cybersecurity consultant to ensure that our agency protects claimants’ sensitive information.”
JOBLESS CLAIMS SKYROCKETED
First-time unemployment filings in Oklahoma peak-ed in early May 2020, when 93,885 claims for jobless benefits were logged, the OESC reported. Before arrival of COVID-19 and the collapse in the energy industry, triggering massive job losses, no more than 2,000 first-time jobless claims were being filed weekly.
Prior to the pandemic, the previous one-week record of initial unemployment claims filed in Oklahoma was 9,778 first-time claims filed one week in January 1991, OESC records extending back to 1987 reflect.
The number of continuing claims filed in Oklahoma peaked at 178,974 the week of June 20 of last year.
The State Extended Benefits (SEB) program was triggered “for the first time in almost 40 years,” Ms. Zum-walt announced in late July 2020. SEB provides up to 13 weeks of unemployment benefits to regular Unemployment Insurance claimants.
In the last 17 months, since March 2020, the OESC has paid out more than $5.3 billion in state and federal unemployment benefits, “which is more than the past decade combined,” Zumwalt said. “For perspective,” she added, “the agency paid out less than $250 million for all of 2019.”
The U.S. Labor Department noted that initial claims for federal and state unemployment programs “rose to 10 times pre-pandemic levels within two to three weeks, far higher than state systems were designed to handle.”
The DOL reported that from March 28 to August 1, 2020, more than 57 million American workers filed an initial jobless claim for Pandemic Unemployment Assistance (PUA) or regular unemployment insurance. In addition, 502 million continued claims were submitted for PUA, regular Unemployment Insurance (UI), or for Pandemic Emergency Unemployment Compensation (PEUC). For the Federal Pan-demic Unemployment Compensation (FPUC) program, which added $600 to other unemployment insurance program claims and ended July 31, 2020, there were approximately 472 million claims.
In contrast, the U.S. Department of Labor reported 11 million first-time claims and 89 million continued claims for regular unemployment insurance for all of calendar year 2019.
UNEMPLOYMENT OVERWHELMED STATE SYSTEMS
By no means was Oklahoma the only state overwhelmed by unemployment claims attributed to the pandemic.
The U.S. Department of Labor (DOL) and states “struggled to implement the three key CARES Act unemployment insurance programs,” the IG reported.
Officials with the Employment and Training Administration (ETA), an agency within the Department of Labor, reported that states faced the combined challenges of managing and processing a record volume of claims at an unprecedented pace, making statutory changes to existing UI programs, and implementing three new key CARES Act unemployment insurance programs.
Additionally, states such as Oklahoma had to develop new systems in order to implement the new programs, resulting in backlogs in processing claims for weeks and, in some cases, months.
DOL’s guidance and over-sight “did not ensure states implemented the programs and paid benefits promptly; performed required and recommended improper payment detection and recovery activities; and reported accurate and complete program activities,” the IG reported. Those issues occurred primarily because:
- Information technology systems in most states were not modernized.
When Zumwalt was appointed in May 2020 to lead the OESC, she learned that the agency was processing claims with an antiquated computer mainframe dating from 1978. “It’s a system that you navigate by pushing F9 and F6,” she said. “That’s the engine that runs the claims process for this agency.”
Consequently, the OESC initiated an 18-month digital transformation project that will entail replacement of software and hardware to enable the agency to operate more efficiently.
“This is a complete business process transformation,” Zumwalt said. “It will virtually improve every aspect of the way the agency currently operates.”
The OESC is creating a “unified claims system that will streamline the claims process,” she said. “We will launch this phase of the agency’s business process transformation, BT40, by the end of September, and we will continue to provide updates to the public as we get closer to launching this platform.” The BT40 project is “a complete business process transformation that will touch every aspect of the agency, not just software and hardware,” Zumwalt said.
The overhaul will cost $40 million to $45 million, she said in February. The expense will be financed from federal CARES legacy funding and from the OESC’s technology fund, she said. “No state funds nor UI Trust Fund dollars are being used on this project.”
The agency predicts the renovated system will be operational by the end of Q1 in 2022.
- Staffing resources were insufficient to manage the increased number of new claims.
By late April 2020 the OESC had hired an army of claims representatives to staff its call center and online chat feature in order to handle the tsunami of claims for unemployment benefits. The addition of more than 1,000 helpdesk agents to the call center, plus more than 200 helpdesk agents who assist Tier 2 specialists in handling more detailed, escalated claims.
- States had difficulty ensuring that benefit programs were implemented and claimants were paid promptly.
From passage of the CARES Act to the first payment of a claim, the DOL IG reported, it took on average, 50 days for the Pandemic Emergency Unemployment Compensation (PEUC) program (in Oklahoma it was 52 days; in Kansas it was 66), 38 days for the Pandemic Unemployment Assistance (PUA) program (compared to 31 days in Oklahoma, 61 in Kansas), and 25 days for the Federal Pandemic Unemployment Compensation (FPUC) program (compared to 10 days in Oklahoma, 27 in Kansas).
The Employment and Training Administration standard for promptness of UI payments is to pay claimants within 14 or 21 days, the DOL IG wrote.
As a result of myriad issues, jobless Americans experienced financial hardships because of delays in receiving unemployment benefits.
B2W INCENTIVE BEING PAID
The OESC recently announced a decline in initial claims. For the file week ending July 17 the number of initial claims totaled 4,394, a 43.5% decrease from the previous week.
The Unemployment Insurance Trust Fund, from which jobless benefits are paid, held a balance of $194 million on August 2, 2021. In comparison, the trust fund balance on May 24, 2020, was $1.484 billion, the highest it had been in at least 22 years, an OESC spokesman said.
The agency also continues to examine applications for Governor Stitt’s Back-to-Work incentive, OESC spokesman Nick Buscemi said.
“We are continuing to review applications for the Back-to-Work Initiative,” Zumwalt said. The OESC has received more than 2,100 applications from eligible claimants, “and we are continuing to pay out the $1,200 to those applicants once approved,” she said. “We expect to see a higher influx of eligible applicants in August and early September as claimants wrap up their six consecutive weeks of employment.”
The OESC encourages all claimants who had an active claim between May 2 through May 15, 2021, and who have completed their six consecutive weeks of employment with an Oklahoma employer, to apply for the Back-to-Work Initiative at https://oklahoma.gov/oesc/individuals.
Manual review of each application takes OESC staff about two weeks to complete, the agency reported.