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Colorado auditor finds $73 million in “likely fraudulent” unemployment payments, including to dead people

The Colorado Department of Labor, which has confirmed only $30 million in fraudulent payments, said that the additional cases likely will be “determined to be legitimate.”

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Colorado may have paid $73 million in fraudulent unemployment benefits, with payments made to dead people, inmates and underage applicants, a state audit found, more than double the $30 million state labor officials had previously confirmed was improperly paid.

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“Despite the numerous steps that the department has taken to prevent and detect fraud, our audit identified likely or potentially fraudulent claims that the department didn’t identify,” Ethan Greenberg, senior auditor with the Colorado Office of the State Auditor, told the legislative audit committee hearing Monday.

The auditor’s report found 8,200 unduplicated claims for $73.1 million in payments between March 1, 2020 and April 30. Those include:

  • $3.87 million to 1,065 deceased claimants, which included “some claimants who’d been deceased for years”
  • $5.04 million to 696 incarcerated claimants. Incarcerated residents are ineligible for unemployment benefits
  • $101,630 to 18 people “not of working age”
  • $18.5 million to 2,919 people who were considered “potentially fraudsters” and had suspicious bank accounts
  • $52.7 million to 4,354 claimants with multiple indicators of fraud

There was overlap and duplication in the fraud claims found by the auditor’s office, but the unduplicated amount is $73.1 million, as seen in the chart below.

Read the audit HERE

The Colorado Office of the State Auditor found that the state Department of Labor and Employment paid $73.1 million in unemployment claims that were “likely fraudulent.” Of those, about $9 million was paid to deceased or incarcerated people who were not eligible for benefits. (Screenshot)

Greenberg said that while the Colorado Department of Labor and Employment created numerous ways to detect fraud among applicants — using 10 fraud flags in June 2020, and about 70 in August — the auditor’s office wasn’t privy to those. Instead, auditors created their own set of 25 fraud indicators to determine that $73.1 million in payments were “likely fraudulent.” 

“Likely fraudulent means there’s no explanation for why a legitimate claimant would have this characteristic, such as a deceased person’s Social Security number,” Greenberg said. 

But that doesn’t mean all of the claims identified are fraudulent, he added. Of the $18.5 million tied to suspicious bank accounts, auditors sent 18 over to CDLE to investigate further. CDLE found that six were not fraudulent, but the rest were still under investigation.

Auditors recommended the labor department adopt its fraud indicators, a condition Daniel Chase, the agency’s chief of staff, agreed to. The labor department also will accept other recommendations that were kept confidential in the report to prevent fraudsters from gleaning more ways to trick unemployment systems. 

“We’ll work to improve and control our internal controls as recommended in the confidential report,” Chase said during the hearing.

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While the labor department’s $30 million tally of fraud payments is less than half what the auditors found, the number is based on investigated claims that were deemed fraudulent by staff, agency officials have said. The new claims by the auditor’s office must still be investigated. But Phil Spesshardt, director of the Unemployment Insurance Division, said that a lot of what the auditor found may not be fraud.

“The claims and figures cited by the auditor in today’s hearing represent suspected fraud and further review and analysis consistent with (U.S. Department of Labor) requirements is required to determine how much of that total represents confirmed fraud,” he said. “Through investigations, it is likely that many of the claims identified in the audit as potentially fraudulent will be determined to be legitimate.”

How could this happen?

As businesses rushed to limit losses early in the pandemic by cutting staff, federal aid provided a way for workers to stay home and collect income to pay their bills. At the start, the money flowed freely with few limitations. The auditor’s office noted three main contributors to CDLE paying $73 million to potential fraudsters: 

  • Gov. Jared Polis’ executive order in March 2020 required CDLE to pay unemployment benefits within 10 days, and determine eligibility later. Before the pandemic, CDLE took four to six weeks to verify eligibility. 
  • Federal pandemic programs, such as Pandemic Unemployment Assistance for gig workers, thrust new responsibility on state unemployment agencies. It also allowed for minimal verification — PUA users just had to certify that they were eligible for benefits.
  • Colorado was about to move to a more efficient computer system, but delayed it as CDLE rushed to get benefits to the unemployed. The change to the new computer system, called MyUI+, didn’t occur until January.

Colorado had more than 1.2 million continued claims for unemployment in May 2020, according to the auditor’s analysis. Normally, that number hovers around 18,600, which was the weekly average in 2019.

The Colorado Department of Labor and Employment office in Denver’s Capitol Hill neighborhood on March 21, 2020. (Eric Lubbers, The Colorado Sun)

With the unprecedented number of requests and limited oversight, imposters flooded the system in Colorado and nationwide. A rash of claims using a stolen identity eventually caused the state to put thousands of applicants on hold in order to investigate further. According to the auditor’s report, CDLE had 1.6 million claims on hold and were still waiting for an investigation as of May — and of those, 47,650 were deemed fraudulent but had already been paid $31.2 million.

The bulk of fraudulent payments identified by the auditor’s office were part of the federal PUA program for out-of-work gig workers, contractors and the self-employed. Since March 2020, Colorado has paid $1.59 billion to PUA users, which at its peak week in July 2020 included 156,299 claimants. PUA benefits ended Sept. 4 in Colorado.

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The early rush meant that accounts that may not have been approved in the past got paid, including to people who were long deceased. One explanation, according to the auditors report, was that the state contracted with Accurint since 2016 for death records, but the data was not complete and came from credit reporting agencies, 15 individual states and the Social Security Administration’s Death Master File. 

CDLE also used a company called Appriss for national incarceration data, which excluded Colorado Department of Corrections data. Some of the local inmate data came from a company called On Point Technology, but the contract appears to have ended in March 2020.

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Spesshardt said he can’t speak to the auditor’s method for finding the new fraud, but added that this was not an issue anymore because of the labor department’s requirement that all people seeking unemployment benefits must use identity verification system ID.me. The tool requires users to show their face and provide personal data to confirm their identity.

“Since April 2021, the department has required all claimants to complete a liveness check as part of the ID.me identity verification process, which has effectively eliminated this issue,” he said.

CDLE has referred just four cases to authorities, the agency said last week. But the auditor’s office learned that the state labor department is now involved in more than 130 active criminal investigations, although not all are being handled by Colorado authorities. 

The U.S. Department of Labor does share some criminal investigations affecting Colorado. One included Rhode Island resident Francois Parker who said he was a babysitter and falsely claimed he worked in Colorado. He was paid $3,292 by CDLE, in addition to more than $70,000 in claims filed in other states.

“Altogether, we identified $73,123,710 in likely or potentially fraudulent claims that the department paid, which the department did not identify as fraud prior to our audit work,” the auditor’s report said. “Unemployment benefits fraud is a high-risk area for the state, which the department will need to continue to combat using additional fraud prevention controls.”

Hangups, fraud holds and long waits

As the state labor department clamped down on fraudulent activity in June 2020, thousands of unemployed workers found their calls unanswered or their benefits put on hold. And that earned more criticism from the auditor’s office. 

The agency didn’t have a written policy on resolving resolutions or a tracking system to show how long requests were taking. Auditors found that nearly 200,000 claims weren’t resolved — or at least there was no data or resolution date. 

“When the department doesn’t resolve fraud holds for legitimate claimants, it can delay when they receive their benefits. Also claimants who have unresolved issues are more likely to call and email the department multiple times, taking up the department’s limited resources,” Kate Shiroff, audit supervisor for the auditor’s office, said during the hearing.

A small group of unemployed Coloradans gather at the Colorado Department of Labor downtown to voice their complaints that they have not received their pandemic unemployment payments on Feb. 8, 2021, in Denver, Colorado. (Kathryn Scott, Special to The Colorado Sun)

The peak was In April 2020, when the department got more than 11 million calls, averaging 55 calls per claimant.

Between July 2020 and June, about 52,000 claimants asked for help more than once. One person asked 112 times over a 46-day period, Shiroff said.

Of the 70,134 resolved fraud holds between July 2020 and June, one third were resolved within seven days, another third took up to 60 days. Approximately 676 claimants in the last third waited more than 210 days. 

CDLE told auditors that they resolved many cases after adopting identity verification system ID.me in January for applicants with holds, and in April for everyone on unemployment. Informing applicants to use ID.me was the resolution. The agency plans to have a written policy in place by March. 

The Colorado Office of the State Auditor found that the state Department of Labor and Employment did not have a policy in place to document resolved unemployment claims, leading some users to not see resolution for more than 200 days. (Screenshot)

“I find it shocking and completely unacceptable if there wasn’t a written policy at the very minimum for keeping records for when a claim was resolved,” Rep. Colin Larson, a Littleton Republican, said during the hearing. “Why is it going to take until March to get a formalized policy for doing something as simple as documenting that the claim was, in fact, resolved?”

Chase, with the labor department, responded that the agency does track resolved claims and accounts but not in a system “that’s nice and neat and easy.” CDLE has since added some written policies but doesn’t expect the full process to be final until March. 

“A lot of that has to do with the changing nature of fraud,” Chase said. “Fraud is not the same now as it was last year. Fraud is very different for us. These investigations are very complex and are coming about with different things. And so we need to make sure that we have policies that take all of that into account.”

CORRECTION: This story was updated at 9:12 a.m. on Dec. 7, 2021 to correct the spelling of Ethan Greenberg’s name and to note that the hearing was part of the legislative audit committee.