Comptroller’s audit: State loses $11 billion in fraud after failing to fix outdated unemployment system

ALBANY, N.Y. — An audit released on Tuesday by New York State Comptroller Tom DiNapoli indicates that New York State lost at least $11 billion due to unemployment fraud during the first year of the COVID19 pandemic.   Unemployment Insurance fraud is a topic News10NBC Investigative Reporter Jennifer Lewke has been reporting on since the start of the pandemic. 

Auditors say the $11 billion may actually be an underestimate because the Department of Labor refused to turn over data that would have given them a more precise number.

According to the audit, the DOL failed to replace a “long-troubled” system that has been outdated since 2010, making it easy for criminals to steal money.  Auditors found that DOL had to compensate for its outdated system by overriding existing controls designed to prevent improper payments and implemented a “pay and chase” approach which increased the risk of overpayments, payments charged to the wrong funding source, and fraud.

In many cases, auditor say DOL could not identify the root cause of overpayments and fraud and did not implement controls to address weaknesses in the system once it realized there were major issues.  

When DOL did get its verification system, ID.Me in place, auditors found the system failed to capture information to ensure it not only prevented fraudulent claims but balanced the ease of access for legitimate applicants.  While DOL acknowledged that certain groups like the elderly and low-income applicants may encounter difficulties with the verification process, it did not keep data on applicant experiences which could have helped the department fine-tune the process in the future.

In addition to the issues with verifying and processing the actual claims of people looking for benefits, auditors found DOL did not take some critical steps to secure the system itself or the personal information of the millions of New Yorkers that is in it. Auditors determined DOL failed to encrypt certain information, did not enforce strong access controls or authentication rules, and did not have a policy in place to ensure systems logs were monitored. Some of its changes to the UI system made in response to the pandemic did not meet all the necessary requirements of the State’s Office of Information Technology Services  Change Management Process and Policy, intended to ensure the mitigation of risks and minimize disruption of critical services.

DiNapoli’s office made the following recommendations to DOL which the agency said in its written response it is or will implement:

  • Continue the development of the replacement UI system and ensure its timely implementation.
  • Take steps, including collecting and analyzing data related to the identity verification process, to ensure the correct balance between fraudulent identity detection and a streamlined process for those in need of UI benefits.
  • Follow up on the questionable claims identified by this audit to ensure adjustments have been made so they are paid from the proper funding source and overpayments are recovered, as warranted.
  • Ensure the current and new UI system and data comply with provisions of the NYS Information Security Policy-the Classification, Authentication, Encryption, and Logging Standards, as well as the ITS Operations Change Management Process and Policy.
  • Improve the timeliness of cooperation with state oversight inquiries to ensure transparent and accountable agency operations.

DiNapoli’s office also says DOL’s failure to provide auditors with information and its slow response to requests delayed the audit’s completion and the agency was unable to provide supporting documentation on the over $36 billion in fraudulent claims the Commissioner of Labor said that it had prevented.

New York State Department of Labor Statement:

“The COVID-19 pandemic placed an unprecedented amount of stress on unemployment insurance systems nationwide. Despite this challenge, our system acted as a critical lifeline for nearly five million New Yorkers. The New York State Department of Labor is already implementing changes to improve the system and address the audit’s findings. We are halfway through a four-year modernization plan that will enhance the overall experience for UI beneficiaries and reduce fraud. We’re stepping up our fraud investigations and we’ve made data on UI benefits available on a new, public dashboard. NYSDOL remains committed to protecting our UI system while ensuring all qualified New Yorkers have access to benefits.”

Read full DOL response here:

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