More than $73M in unemployment benefits paid to potential fraudsters, audit finds

Requests for assistance took an average of seven weeks for CDLE to resolve

By: - December 7, 2021 5:30 am

People march to the Colorado State Capitol demanding answers from the Colorado Department of Labor and Employment about a lack of financial relief from the state on Feb. 8, 2021, in Denver, Colorado. Many protestors, who were unemployed due to the coronavirus pandemic, said they had not received unemployment assistance since November. (Michael Ciaglo/Getty Images)

Colorado paid more than $73 million in unemployment benefits to likely or potential fraudsters from March 2020 through April 2021, according to a new report from the state auditor’s office.

The dubious payouts included approximately $3.9 million in benefits paid on behalf of dead people and $100,000 on behalf of children younger than working age. Another $46 million went to people with “multiple indicators of fraud,” such as suspicious mailing addresses or email addresses and internet protocol, or IP, addresses associated with devices in other countries, $18.5 million to people with suspicious bank account information, and more than $5 million to people in prison, who are not eligible for unemployment benefits.

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The audit report, released Monday, also found issues with how the Colorado Department of Labor and Employment responded to requests for assistance from people who had been put on a fraud hold, delaying them from receiving unemployment benefits. The department lacked evidence to demonstrate it had resolved nearly three-quarters of the requests it received related to fraud holds.

“It’s important to protect taxpayer resources by having measures in place to prevent and detect fraudulent claims,” audit manager Jenny Page said in a Monday statement. “But it’s also important to have effective processes in place to assist those individuals whose legitimate claims may have been put on hold as a result of these same fraud prevention and detection measures.”

The requests for assistance with fraud holds where CDLE had documented a resolution took an average of seven weeks to address, the audit found. But many took longer: 16% of requests took 61 to 120 days to resolve, and 6% took more than 120 days.

“I mean, 120 days is ridiculous,” state Rep. Colin Larson, a Littleton Republican, said during a Monday presentation on the audit findings for the Legislative Audit Committee. “If I was 120 days negligent in remitting my sales tax to the state of Colorado, I would accrue fines and several harassing phone calls.”

Daniel Chase, chief of staff for CDLE, agreed that those timeframes were unacceptable. He said the department was “actively” working “to get that number down as much as possible.”

During the audit period, CDLE was dealing with an unprecedented number of requests for help, due to the hundreds of thousands of Coloradans who suddenly lost their jobs due to the COVID-19 pandemic, and the thousands of potential fraudsters who sought to take advantage of the overwhelmed government agency. In 2020, the department received 11 times the number of unemployment claims as in 2019.

About 852,000 Coloradans were paid a total of $6.9 billion in unemployment benefits in 2020, and 577,000 Coloradans were paid $4.6 billion between January and October of 2021, according to the audit report.

The $73 million paid to potentially fraudulent claimants during the audit period made up a relatively small portion of the total payouts. Still, auditors found 8,200 claims from March 2020 through April 2021 that raised a red flag. Unemployment insurance fraud can fall into one of two categories, according to the audit report: benefits fraud, which occurs when a person misrepresents their earnings or employment in order to get benefits; or identity fraud, which refers to when someone uses a stolen identity to obtain benefits.

In their report, auditors recommended that CDLE:

  • Improve its methods for preventing, detecting and investigating unemployment fraud
  • Investigate claims that auditors identified as potentially fraudulent, and, as necessary, recover payments and refer cases to law enforcement
  • Investigate and address requests for help with fraud holds in a timely manner, and document resolutions for all requests
  • Track, investigate and resolve complaints; analyze complaint data to identify problems; and take action as appropriate to fix the problems

CDLE agreed with the auditors’ recommendations, and the department is already in the process of implementing some of them, according to Chase.

Last week, representatives from CDLE told lawmakers on the Joint Budget Committee that during the pandemic, the state had paid $30 million in claims that were later confirmed to be fraudulent. That doesn’t include the $73 million that auditors identified as potentially or likely to be fraudulent.

Other states had problems, too. California officials say the state paid at least $20 billion in fraudulent unemployment claims, the Los Angeles Times reported in October. In Ohio, a recent audit found $475 million in fraudulent claims were paid from March 2020 to February 2021.

CDLE offices
The Colorado Department of Labor and Employment offices at 251 E. 12th Ave. in Denver. (Quentin Young/Colorado Newsline)

Pandemic meant new state and federal benefits

Part of the reason for the massive fraud is that during the pandemic, unemployed people were supposed to be able to access more benefits than usual, due to the unprecedented nature of the economic crisis. Unemployment peaked at 15% nationwide — the highest unemployment rate since at least 1948, the audit report notes.

Colorado typically pays 26 weeks of regular unemployment benefits to eligible unemployed people. To qualify, Coloradans must have received wages during at least 12 of the preceding 15 months, from an employer who withheld taxes and reported their income on a W-2 form. They must be unemployed through no fault of their own, able and willing to work, and actively seeking a new job.

With an executive order, Colorado Gov. Jared Polis, a Democrat, temporarily suspended the requirement for recipients of unemployment benefits to actively seek work. The order was in place from March 2020 through January 2021.

When the unemployment rate exceeds a certain threshold, as was the case from August to November of 2020, Colorado pays extended unemployment benefits on top of the 26 weeks of regular benefits.

Meanwhile, federal pandemic relief measures passed by Congress provided additional money for the unemployed. Those extra federal benefits included 53 weeks of Pandemic Emergency Unemployment Compensation, or PEUC, for people who had exhausted their federal benefits. Self-employed individuals and contractors — who normally aren’t eligible for unemployment benefits — could access up to 79 weeks of federal Pandemic Unemployment Assistance, or PUA.

There was also Federal Pandemic Unemployment Compensation, or FPUC, which provided an extra $600 per week from late March through July 2020, and $300 per week from December 2020 through Sept. 6, 2021. Some people were eligible for $300 per week through Lost Wages Assistance, or LWA, from July to September 2020, when FPUC was not available.

Finally, unemployed people who earned at least $5,000 in self-employment income in 2019 were eligible for Mixed Earner Unemployment Compensation, or MEUC, which provided an extra $100 per week from late December 2020 through Sept. 6, 2021.

Policy changes designed to respond to the suddenly huge demand for unemployment benefits created more opportunity for fraud, the audit report pointed out. Following U.S. Department of Labor guidance, Polis issued an executive order requiring CDLE to pay benefits within 10 days of receiving a claim. The order was in effect until August.

“Before the pandemic, the Department took 4 to 6 weeks to process claims before paying benefits, which allowed time for Department staff to contact employers and verify claimant employment and wages,” the audit report notes. “To meet the new timeliness requirements, from March 2020 through early August 2021, the Department did not conduct employment and wage checks before paying benefits.”

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Faith Miller
Faith Miller

Reporter Faith Miller covers the Colorado Legislature, immigration and other stories for Colorado Newsline.

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