Government Failed To Recover $473M In Suspected Covid Fraud

A recent House Ways and Means subcommittee hearing managed a unique feat by showcasing the federal government at its best and worst simultaneously. Best, in the sense that lawmakers drew attention to a potential opportunity for taxpayers to recover fraudulent benefits paid out during the pandemic. Worst, in the sense that repeated inaction by federal bureaucrats made the hearing necessary at all.

I noted nearly three years ago that federal auditors estimate that between $100 billion and $135 billion of the roughly $900 billion in Covid-related unemployment benefits constituted fraud. But even though enforcement efforts have recouped on taxpayers’ behalf a mere fraction of that amount, government officials appear unwilling to act when nearly $1 billion of potentially recoverable cash lies right underneath their noses.

Unclaimed Debit Card Dollars

The hearing featured testimony from the Department of Labor’s inspector general, who on Jan. 30 and Feb. 10 issued separate alert memoranda to officials within the department. Each memo came as a result of subpoenas the inspector general sent to four banks last August, requesting information about prepaid debit cards that the institutions issued as part of pandemic-era unemployment benefits.

The prepaid debit cards provide a way for “unbanked” or “under-banked” individuals to access benefits under the unemployment compensation program. But they also pose an obvious risk of fraud, given the lack of a tracing mechanism associated with this disposable method of payment.

According to the inspector general’s testimony, his office found a total of $720 million in “potentially fraudulently obtained funds” being held by the two banks. This sum only includes analysis of two of the four banks the inspector general sent subpoenas to last summer, so it could well grow as auditors analyze data from the other two institutions.

Government in Action — and Inaction 

If that part of the testimony constitutes good news, other sections should anger taxpayers. First, due to inaction by investigators and financial institutions, another $192 million of “potentially fraudulently obtained” funds on prepaid cards was surrendered under state unclaimed property laws. Most states have laws whereby if accounts sit unused for a period of time (which varies by state), the dollars get sent to unclaimed property administrators. There, the funds are subject to different legal standards and often commingled with dollars obtained elsewhere, making it more difficult (but not impossible) for federal taxpayers to recover proceeds from fraud.

Worse yet, of the $720 million in funds not yet surrendered to unclaimed property laws, almost $473 million — or nearly two-thirds — had previously been flagged. Those flags came as part of an inspector general report that I wrote about in the fall of 2022, which focused on unemployment claims made 1) in multiple states, 2) to Social Security numbers associated with deceased persons, 3) using suspicious email accounts, or 4) by federal prisoners.

Just Stop the Crooks

In other words, banks and the Department of Labor have known about roughly half a billion dollars in potentially fraudulent funds just sitting in these prepaid card accounts for over three years, yet they have done exactly nothing about it. To borrow a quip from my high school chemistry teacher, that’s what separates the federal government from the smart people.

In any kind of normal universe, the March 5 hearing would not have raised attention to an ongoing issue as much as celebrated action the federal government had already taken to halt this fraud. The inspector general reports on Jan. 30 and Feb. 10 would have led to immediate action, and members of Congress could have thanked the federal Department of Labor, the state agencies that administer unemployment benefits, and the banks themselves for responding swiftly to recover taxpayers’ hard-earned dollars. Instead, the department has yet to issue any guidance to the states, and the banks will sit on their hands unless and until both the feds and the states give them clear instructions on seizing and recovering the funds.

With “action” like this, it’s no wonder the federal government has a massive fraud problem on its hands. For once, Congress actually tried to do something about it by calling the hearing to draw attention to the issue. But unfortunately, Congress has created a Leviathan too big to manage, giving fraudsters an easy opportunity to pick taxpayers’ pockets by the billions.