There's No Final Number Yet for Pandemic Fraud, Oversight Leaders Tell Congress

Top oversight officials told lawmakers on the Senate Homeland Security and Governmental Affairs Committee on Thursday that getting a top-line number for pandemic relief fraud isn't yet feasible as they work around data gaps and ongoing recovery efforts. 

"I wish I could answer that right now," Department of Justice Inspector General Michael Horowitz and chair of the Pandemic Response Accountability Committee told ranking member Sen. Rob Portman (R-Ohio) when asked about fraud levels in the $5 trillion-plus in pandemic relief spending. 

Horowtiz estimated that the final tally will be upwards of $100 billion, although he stressed he couldn't offer precision. 

"We don't have all the data just yet. Secondly, we have lots of cases ongoing and of course there's a difference between an improper payment – of which there's billions and hundreds of billions of dollars – and fraud, and we've got to sort that out through the investigative process," Horowitz continued.

Fraud is also getting renewed attention from the White House as of late, with a new chief prosecutor for COVID-19 fraud and a forthcoming executive order on identity theft, something that Jason Miller, deputy director for management at the Office of Management and Budget highlighted during the hearing. 

That order, Miller said in prepared testimony, will focus "on preventing and detecting identity theft involving public benefits, while protecting privacy and civil liberties and preventing bias that results in disparate outcomes."

In fiscal year 2021, there was an estimated $281 billion in improper payments, according to agency data reported to OMB. That number was up $75 billion over FY2020 and double the level reported in FY2017.

Since that measure includes mistakes beyond fraud, like under- and over-payments, it doesn't offer a clear picture of fraudulent payments specifically. 

And it's also not a complete estimate, since some agencies haven't handed over data, and others gave estimates that aren't "rigorous," said Gene Dodaro, head of the Government Accountability Office.

Witnesses told Congress that one problem is the lack of good data. 

Current guidance doesn't require agencies to estimate improper payment levels in the first year of new programs, something GAO urged Congress to change. Most agencies didn't report estimates for new relief programs for fiscal year 2021, Dodaro testified.

The oversight community also had to re-establish analytical capabilities. 

The analytical arm of the recovery board stood up in the wake of the 2008 financial crisis was shut down in 2015. The new Pandemic Analytics Center of Excellence, part of the new pandemic oversight committee, wasn't established for over a year after agencies started doling out relief funds. Dodaro suggested Congress make it permanent. 

Witnesses also pointed to data gaps and reliability issues about pandemic spending and how that money is being used, a problem that, in turn, affected the oversight communities' ability to look into programs.

"Early on, we had difficulty obtaining spending data on certain significant pandemic programs and few agencies required relief recipients to provide detail about how they were spending federal funds that they received," Horowitz wrote in his testimony. 

Dodaro asked Congress in his testimony for several legislative measures in this area, like new improper payment and fraud risk management reporting requirements; certification requirements for improper payment estimates and quality requirements for federal spending data that's publicly available; and new guidance for internal control plans in agencies.

Several witnesses pointed to the fraud issues in the unemployment insurance program and Paycheck Protection Program and others administered by the Small Business Administration specifically.

Lack of internal controls to oversee relief funds; the inconsistent management of fraud risks in some agencies and lack of improper payment reporting requirements for new programs, like many stood up in the pandemic, all contributed to these levels of fraud, the GAO says.

States administering the unemployment insurance program were dealing with staffing shortages and out-of-date technology. The benefits had weak controls and had recently received a huge infusion of funds, making them a target of fraud, the Department of Labor's Inspector General Larry Turner told lawmakers. 

Turner also noted in his testimony that some of these same weaknesses led to long delays among some deserving applicants in receiving benefits. 

As of December 2021, the Labor Department reported an improper payment rate of 18.71%, although that doesn't include the newer program created for gig workers during the pandemic, Turner said.

The estimate means that of the $872.5 billion in pandemic UI payments, at least $163 billion in pandemic UI benefits could have been paid improperly, "with a significant portion attributable to fraud," he said. The actual rate is likely higher. 

The government is working to recover stolen funds. 

The watchdog of the Labor Department's investigations have already resulted in 749 unemployment-related fraud indictments and over $830 million of recovered funds. 

GAO's Dodaro wrote in his written testimony that 417 people pleaded guilty and 11 have been convicted at trial of federal charges of defrauding pandemic relief programs. 

Horowitz wrote that the work of the PRAC and other inspectors general have led to 1,272 indictments and complaints, 949 arrests, and 455 convictions.

Still, as far as recovering funds given to fraudsters goes, "we believe that it's going to be somewhat difficult to get that back," said Turner of the amount of fraud in the unemployment space.

Beyond the loss of government money, the issue also can cause massive delays for victims of identity fraud who do need benefits and slow down their delivery of payments as they work through surges of claims, witnesses said.

Identity theft also impacts people who legitimately need benefits but have had their identity stolen, Horowitz said. 

"What happens is … when people in underserved communities seek to apply for those benefits that are the ones legitimately entitled to, but their identities have been stolen, it turns out they're the ones being questioned as if they're the fraudsters. They're the ones that struggle to get their identities back," Horowitz said.