Louisiana paid out at least $405 million in unemployment insurance to ineligible workers, audit finds

Paperwork backlog and recently-passed legislation are to blame

$405 million UI overpaid
On July 22, Step Up Louisiana participated in a caravan to the offices of U.S. Senators Bill Cassidy and John Kennedy, both Republicans, with messages on their cars urging them to protect the $600 payments that unemployed workers have been receiving from the federal government. (Photo courtesy of Step Up Louisiana)

Louisiana paid more than $405 million in fraudulent or ineligible pandemic relief benefits to nearly 100,000 people as an overwhelmed unemployment system was also affected by legislation passed by lawmakers last year, according to a report by the Louisiana Legislative Auditor.

The Legislative Auditor’s office conducted a review of all state and federal COVID-19-related unemployment and lost wage assistance claims that the Louisiana Workforce Commission paid to Louisiana residents who earned more than $250 per week. The auditors chose that threshold because applicants who made more than $247 per week are not entitled to unemployment benefits, according to the report.

“Overall, we found that LWC made approximately $405.3 million in State and Federal UI payments to individuals who do not appear to have been eligible for these programs based on their income,” the report states.

Temporary Legislative Auditor Thomas Cole released his report on March 31; it identifies two primary causes for the overpayments: (1) a huge backlog of applications due to the economic downturn catalyzed by the coronavirus; and (2) wage reporting delays by companies who took advantage of pro-business legislation, Act 243, that state lawmakers passed during the 2020 Regular Session. 

In a March 23 response to the findings, Louisiana Workforce Commission Secretary Ava Dejoie wrote that the federal and state pandemic benefits programs “greatly incentivized countless criminal enterprises and bad actors to take advantage of already overwhelmed state workforce agencies nationwide.”

According to the Workforce Commission, overpayments can be classified as fraudulent or non-fraudulent depending on a determination of the individual’s intent.

“LWC indicated that its ability to verify individuals’ eligibility for unemployment benefits was hampered by the significant increase in the number of applications submitted during the COVID-19 pandemic and legislative action that gave employers additional time to submit their wage reports to LWC,” the report states.

In a typical calendar year such as 2019, the Workforce Commission gets about 103,000 initial unemployment claims for an average of almost 2,000 per week. Compare that to just the first four weeks of the pandemic when the commission received 443,586 initial unemployment claims for an average of over 88,000 claims per week, according to the report.

The large volume of paperwork combined with the lack of responses from other employers, some of which temporarily closed due to the state lockdown order, limited the Workforce Commission’s ability to process the applications based on complete and verified information. “As a result, LWC paid unemployment benefits totaling $359.6 million to 96,053 individuals…who do not appear to have been eligible to receive unemployment benefits.”

The legislation made things more complicated for the Workforce Commission. Act 243, which extended the deadline for employers to report worker wages, “was passed to ease the burden on businesses by allowing them to do less paper work and to defer associated taxes,” but the extension hindered the commission’s ability to make eligibility decisions based on complete information, according to the report. This accounted for an estimated $45.7 million given to 26,703 individuals who later appeared to be ineligible. 

Moreover, chances are the figure for total overpayments is actually higher than $405 million, according to a footnote in the report that states the finding is likely understated, as the Workforce Commission was unable to provide the Legislative Auditor with data for unemployment applications submitted after August 15, 2020. The commission also did not analyze self-employed or gig workers receiving Pandemic Unemployment Assistance because their wages were not reported.

The $405 million fraudulent and ineligible claims paid to 97,585 accounts for about 17 percent of the total $6.87 billion in pandemic unemployment relief payments for 694,391 individuals in Louisiana last year.

Dejoie wrote that her office will continue to work through the nearly 100,000 cases to classify each as either fraudulent or a simple overpayment, according to the Workforce Commission’s response to the findings. Once classified, the Workforce Commission will either enter into a payment agreement with the claimant or file a garnishment order to collect any income tax returns. An additional 25% penalty is assessed on fraud cases.

“My administration continues to work diligently to detect and investigate potential unreported earnings fraud,” Dejoie wrote. “Your review and report identifies some of the many unprecedented challenges my administration has faced since the start of the Pandemic.”

She also noted that the commission is weeks away from implementing a new identity verification system that will reduce the strain of identity theft fraud schemes.

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