Pandemic unemployment fraud estimates higher than initially thought. The number could reach $700 million.

Andrew Bahl
Topeka Capital-Journal
A report from the Division of Legislative Post Audit estimates as much as $700 million was paid out in fraudulent unemployment claims. Legislative members met Monday to discuss the findings.

New estimates show potentially as much as $700 million in fraudulent unemployment benefits were paid out during the COVID-19 pandemic, a figure which is higher than previously estimated but one that is contested by the Kansas Department of Labor.

A fuller report from the Legislature's non-partisan auditing arm, released Monday, turned up $100 million more in fraudulent payouts than previously thought. The overall amount of fraud is believed to be split almost evenly between the state's UI program and federal unemployment assistance set up during the COVID-19 pandemic.

A first part of the report, released in February, pegged the amount of fraud at $600 million. Competing estimates, released by KDOL at the time, had a much lower figure of around $290 million.

More:Kansas Department of Labor, legislative auditors at odds over scale of unemployment fraud

The nearly $700 million fraud estimate would account for roughly a quarter of the $2.8 billion in unemployment payouts that occurred during the pandemic.

But the audit also notes that more than $2 billion in bogus claims were blocked from being paid out, meaning that 70% of potential fraudulent payments were halted. There is no estimate on how much of the fraud paid out might be recovered, although the audit said Bank of America had identified $7.4 million that eventually could be recouped.

Kansas Department of Labor assistant secretary Peter Brady discusses a report about fraudulent unemployment claims paid out during the COVID-19 pandemic.

Kansas Labor department  argues fraud estimates should be lower

KDOL and the Division of Legislative Post Audit agree on about $380 million in fraud. The other $300 million or so was uncovered by KDOL's systems, with the agency believing that much of it implicates legitimate claimants who were erroneously flagged as fraud.

Because of this, the agency said it shouldn't be included in the overall estimates, although it acknowledged the figure likely includes some fraudulent payments.

"We think there's a lot of things in the $360 million," Peter Brady, deputy secretary at KDOL, told the Legislative Post Audit Committee. "Some might be imposter fraud. A good chunk of it is going to be wage or other type of fraud and a good chunk of it's going to be legitimate people." 

LPA and Republican legislators said they believed the $700 million figure to be accurate.

"To me, it makes sense that it was included in your overall assumption," said Rep. Kristey Williams, R-Augusta.

Rep. Kristey Williams, R-Augusta, chairs a Legislative Post Audit Committee hearing about an unemployment fraud report.

Republicans have said the agency should have heeded warnings from the U.S. Department of Labor and put fraud protections in place sooner. In February, KDOL started requiring a higher level of authentication for logins to their claimant portal, something they say has effectively stopped fraud in its tracks.

Sen. Caryn Tyson, R-Parker, said it could have been a byproduct of instability within the agency. The department has cycled through four permanent or acting leaders since the pandemic began, culminating in the swearing in of current secretary, Amber Schultz, in April.

More:Kansas Labor Department gets $11 million to continue current level of surge staffing for unemployment system

Audit notes KDOL computer woes, issues at call center

Gov. Laura Kelly's administration has argued an out-of-date computer system made matters worse, making it harder to adapt to the rapidly changing suite of federal programs, as well as putting barriers in the way of implementing fraud controls.

The report also echoed those factors, labeling the state's mainframe computer system, which the bulk of the UI process relies on, as "outdated, piecemeal, and poorly maintained" and saying it contributed heavily to the agency's woes. Meanwhile, when the pandemic hit the agency had 33 call center representatives to answer a flood of calls, as new claims swelled from 3,000 in February, 2020 to over 66,000 a month later.

Sen. Caryn Tyson, R-Parker, asks a question Monday about an audit into potential pandemic unemployment fraud during a meeting of the Legislative Post Audit Committee.

But the report did note the agency's efforts to hire more employees to answer calls from claimants didn't meaningfully increase its efficiency in that regard. KDOL said its staffing peaked at roughly 650 customer service representatives, as it spent millions in enlisting the firm Accenture to boost its call takers.

"We ramped up and we didn't see results," Tyson said.

More:Kansas July tax receipts beat estimate by $60M as COVID resurgence threatens economic recovery

A fuller, outside audit of the agency will eventually be completed at the behest of the state's Unemployment Compensation Modernization and Improvement Council, a group of legislators, business leaders and agency staff created earlier this year.

Kelly also said in February that her administration was planning on commissioning its own independent review of the agency, although it is unclear if they will instead use the council's audit.