Washington’s unemployment fraud may have hit $650 million; state recovers $333 million

Two weeks after revelations of a massive fraud scheme that briefly shut down Washington’s unemployment system, state officials have acknowledged that the scale of theft was probably between $550 million to $650 million, or as much as one of every $8 paid in benefits during the pandemic.

Of that vast sum, the state has recovered $333 million, the state Employment Security Department (ESD) announced Thursday.

But efforts to root out the fraud continue to slow legitimate benefits payments for tens of thousands of out-of-work people in Washington, Suzi LeVine, ESD commissioner, said during a news conference.

Although investigators have cleared many of the roughly 200,000 individuals whose jobless claims were being scrutinized for potential fraud, LeVine said, around 140,000 are still being held up for review.

While the ESD expects to resolve roughly 50,000 of those in coming days, “unfortunately for some, however, it will still take longer,” she said. But LeVine emphasized that “legitimate” claimants “will be paid retroactive to the date of eligibility”— even if their claims aren’t approved until after federal benefits technically expire. “You will be paid all of the benefits,” she said.

That may not come soon enough for people like Farrah Kelly, a 43-year-old Clark County area resident who had been receiving benefits since mid-March but said they were suspended after “the fraud came about,” Kelly wrote in an email to The Seattle Times. Even after fulfilling ESD’s request for additional documentation, Kelly said, “I haven’t been paid in almost four weeks.”

The new estimate of the scope of the fraud has already spurred ESD’s critics, including state Republicans who have called for LeVine’s resignation. “Why aren’t Democrats holding Employment Security Department Commissioner Suzi LeVine accountable after her office left us vulnerable and ultimately scammed out of up to $1 BILLION dollars in taxpayer money?” said state Republican chair Caleb Heimlich in an email Thursday.

Heimlich’s figure of “up to $1 billion” reportedly came from state Sen. Ann Rivers, who said that during a call between ESD and legislators earlier this week, “references apparently were made to losses of $500 [million]  in federal dollars and $350 [million] in state dollars … totaling $850 [million], which is closer to a billion dollars,” said Senate Republican spokesperson Eric Campell in an email Thursday.

ESD spokesperson Nick Demerice reiterated the agency’s estimate: “We’ve done great deal of analysis and we believe the number to be between $550 million and $650 million.”

Federal authorities have blamed the fraud in part on a Nigerian-based crime operation, dubbed “Scattered Canary,” that used stolen personal data to file tens of thousands of bogus jobless claims in Washington and other states.

Until Thursday, ESD officials would only describe the fraud losses as being “hundreds of millions of dollars,” while investigators were still trying to cull fraudulent claims from the deluge of legitimate claims resulting from the coronavirus pandemic.

If Thursday’s estimate from ESD bears out, it will mean fraud accounted for 11%-13% of the $4.9 billion ESD has paid out since March 7, when the first big pandemic-related layoffs began. By comparison, according to The Wall Street Journal, the U.S. Department of Labor estimates that 10% of unemployment benefits payments made in 2019 were “improper”, or “should not have been made,” while 3% were fraudulent.

LeVine argued that the $333 million in recovered funds represented “an exceptional ratio in these circumstances.” She also repeated earlier arguments that the scale of the fraud reflected Washington’s early start in offering emergency federal benefits, including a $600 weekly payment, that made the state an attractive target for criminals.

The fraud remains under investigation by federal authorities, including the U.S. Department of Justice. Emily Langlie, spokeswoman for U.S. Attorney Brian Moran, said federal law enforcement “moved very quickly” to alert banks to be on the watch out for such fraudulent activities.

Langlie said the Secret Service and the Office of the Inspector General at the Social Security Administration “deserve some credit for making sure as much money as possible was returned to the state,” adding, “those efforts are ongoing.”

LeVine said most of the funds ESD has paid out during the pandemic come from emergency federal legislation. Washington’s unemployment trust fund still contains $3.4 billion as of May 28, down from $4.7 billion prior to the crisis, according to ESD officials.

Although state officials say criminals may still be attempting to file fraudulent claims, the success of the state’s anti-fraud efforts were reflected in the sharp decline in new weekly jobless claims.

For the week ending May 30, the state received just 31,224 new, or “initial”, claims for unemployment insurance, a decline of 36% from the prior week, and the second weekly decline since the initial estimate of the fraud was disclosed May 21.

Prior to that, Washington had been one of the few states where initial jobless claims were still rising. LeVine attributed some of last week’s decrease to the partial reopening of the state economy.

Nationally, initial weekly jobless claims fell 11.7%, to 1.9 million, according to figures released Thursday by the U.S. Labor Department.

On Thursday, LeVine included the state’s unemployment fraud as part on a larger wave. She cited a report by the U.S. Department of Labor’s Office of Inspector General that predicted as much as $26 billion in fraud losses this year.

On Monday, Labor Department Inspector General Scott Dahl warned a House committee briefing that more than $26 billion in jobless benefits could be at risk during the pandemic, with “a large portion of that … pocketed by fraudsters instead of going to legitimate workers,” according to The Wall Street Journal.

But while other states have also reported being hit by unemployment insurance fraud, Washington’s fraud, which state officials first disclosed in early May, appears to be the largest thus far.

That has left ESD struggling to simultaneously halt one of the largest frauds in state history without interfering with relief payments to jobless workers during one of the worst economic disasters in living memory.

Even before the fraud was discovered, the ESD was laboring to process the hundreds of thousands of jobless claims stemming from an economic crisis that would push up the state unemployment rate to 15.4% for April.

Adding to the challenge, ESD had to process expanded federal benefits to workers, such as the self-employed, who are traditionally ineligible for regular unemployment benefits — and whose work history can be hard to verify.

As a result, tens of thousands of state workers had difficulty filing claims or receiving benefits and many workers said they went weeks without receiving benefits. Adding to the frustration, claimants were often unable get through on the ESD helplines, even after being on hold for hours.

ESD’s efforts to speed that process have been complicated by the fraud crackdown, which has required the agency to re-verify the identities of roughly 200,000 claimants. In many cases, workers who had been receiving payments for weeks say those payments were halted as the agency conducts additional verification by asking claimants to upload additional documents. Demerice said investigators must closely scrutinize each identity document because fraudsters have already tried to undercut the verification process by uploading fake documents.

“The fact that innocent people are caught in the fraud net, which means their payments have been stopped or delayed, is the most infuriating and disheartening part of this effort,” LeVine said Thursday. “We know they are frustrated, angry, and scared.”

That’s the story for Travis Titterness, 42, a commercial refrigeration technician from Port Angeles who saw benefits stop a month ago after ESD requested extra documentation to verify his identity. He said hasn’t gotten a response — or a dollar — since.

“I’m not a fraud,” Titterness said, but a “single dad with bills and hungry kids.”

LeVine acknowledged that the fraud crackdown had also “thrown a wrench” into efforts to process the agency’s prior backlog of delayed claims. Although the agency had initially promised to resolve those claims by mid-June, resources “that we’ve put in place around fraud and catching those criminals is increasingly looking like they will have an impact on our timeline,” LeVine said. “This fraud situation and these criminals set us back.”

Seattle Times staff reporter Jim Brunner contributed to this report.