$600M Unemployment Fraud Theft ESD's Fault: State Auditor

OLYMPIA, WA — The rush to pay out unemployment benefits during the mass layoffs at the start of the pandemic allowed scammers to steal $600 million from Washington through fraudulent unemployment claims, according to a new report by State Auditor Pat McCarthy.

The auditor's report, released Friday, blames the Employment Security Department for a lack of security and errors in accounting that allowed the fraudsters to sneak their way through the system.

In total, an estimated 122,000 "known or probable" fraudulent claims were paid out, for a total of $600 million lost. Of that money, the ESD and the federal Department of Justice have managed to recover $250 million. $350.9 million remains lost, though efforts to reclaim those funds continue. In their findings, the auditor's report recommends that the ESD continue to work to recoup that money and that they improve internal security to better detect fraudulent claims before they are paid out in the future.

As for errors in accounting, the auditor points to failures at multiple levels. The State Board for Community and Technical Colleges failed to balance their financial data before the state closed its books, the Office of Financial Management didn't accurately find and separate fake from legitimate payments, and the ESD didn't report all receivables that resulted from fraudulent claims. The report includes several recommendations to each department to avoid repeating similar mistakes in the future.

The auditor notes that the ESD was facing a significant challenge: this year the department was asked to pay out 684 percent more money than the year before, and serve 390 percent more people. The large claim volume, new federal initiatives, the governor's order to waive the one-week waiting period before payouts, and difficulties adapting to the new Pandemic Unemployment Assistance Program all contributed to the confusion. However, the report ultimately lays the blame on the ESD for failing to accurately vet claims and fully account for losses due to fraud.

In their response to the auditor's findings, the ESD says they have taking significant steps to improve security since the theft, expanding staffing, adding a two-day hold on payments and more thorough verification process, which they say have been effective in preventing fraud since June.

“We so appreciate the feedback this audit provides and are proud that all of their recommendations are actions we’ve already taken," said Employment Security Department Commissioner Suzi LeVine. " Additionally, the areas they’ve identified as causes have already been disclosed, identified and – where it is in the state’s power to do so – acted upon."

As The Seattle Times reports, this is the first of five ongoing audits into the unemployment fraud losses. The remaining four are expected to be released over the next few months.