Audit: Colorado paid $73 million in bogus unemployment aid

DENVER  | A state audit has found that Colorado likely or potentially paid $73.1 million in fraudulent unemployment claims during the coronavirus pandemic’s first year, including $3.9 million on behalf of dead people and $5 million on behalf of people who were unqualified because they were incarcerated.

The Office of the State Auditor report released Monday cited a nationwide surge in criminal identity theft used to seek federal and state pandemic unemployment aid as an underlying factor in payments in the names of dead and incarcerated people. It also cited pressure to expedite federal Pandemic Unemployment Assistance, a federal loosening of restrictions in disbursement, and inadequate state quality controls to capture the cascade of fraudulent claims.

The office reviewed more than 4 million unemployment benefits claims from March 1, 2020, though April 30, 2021. It found likely or potential fraudulent payments for 8,200 claims in its report.

Claims rose dramatically after coronavirus was found in Colorado in March 2020, with 852,000 residents receiving $6.9 billion in unemployment benefits payments in 2020, compared to $400,000 million in total payments in 2019. Some 577,000 residents received $4.6 billion in benefits from Jan. 1 through Oct. 31, 2021.

Coping with a drastic surge in claims for state and federal unemployment assistance programs, the state labor department also didn’t promptly resolve most customer complaints involving unemployment insurance fraud, The Denver Post reported.

Colorado’s labor department relied on a third-party contract to check death records against benefits claims until April 2021, when it strengthened its fraud detection by also requiring real-time documentation and biometrics screenings to verify an applicant’s identity, the audit said. That measure strengthened measures to detect fraud involving identities of the deceased, it said.

The department also relied on third-party vendors to cross-check applications against inmate databases, it said.

Unemployment fraud during the pandemic is a national phenomenon. And according to the auditor’s report, fraud totals were at least $20 billion in California, $4.4 billion in Arizona, more than $600 million in Washington, $462 million in Ohio and $380 million in Kansas.

Colorado’s Department of Labor and Employment did place holds on 266,000 claims to check their validity, but resolved only 70,000 in the period covered by the review, the audit said. It took the department an average of seven weeks to resolve a hold.

Auditors recommended improvements in fraud prevention and detection; more quickly addressing claims for assistance; and improving its handling of complaints. The department accepted the recommendations and pledged to have a new system in place by March 2022 “for tracking, investigating, and resolving all complaints timely (sic) and maintaining data about the resolutions.”