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Millions in unemployment benefits improperly allocated, state audit finds

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Photo of Maryland flag at Annapolis State House (WBFF)
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A state audit of Maryland's unemployment benefits system found millions of dollars of benefits were improperly allocated during the pandemic (and the years immediately preceding it).

The audit covered April 17, 2017, through November 15, 2020.

The Maryland Department of Labor's Division of Unemployment Insurance (DUI) operations were greatly impacted due to the COVID pandemic, the Department of Legislative Services said in its report. The agency was hit with a six-fold increase in demand, with DUI reporting over 642,000 claimants in fiscal year 2021 (which resulted in payouts of approximately $8.8 billion) compared to 103,000 paid claimants in 2019, and a peak of 300,000 initial claims in May 2020.

The resulting stress on the system, brought on by this sharp increase in demand for DUI's services and benefits, as well as the implementation of a new automated information and pay-out system, BEACON, required the expansion and modification of agency operations. All of this led to some breakdowns in the normal and proper order of benefits claims and payouts, which are how the two major categories of findings and recommendations are grouped in the 63-page document.

For example, to start, the report details how DUI "did not conduct certain critical matches used to identify fraudulent or improper claims. Investigators say they "conducted three matches to replicate four of the DUI matches using data obtained from BEACON of individuals receiving unemployment insurance payments during the period April 2020 to January 2021 or December 2021." They found at least $32.3 million in potentially improper benefits payments, including to active state employees, incarcerated persons, and deceased individuals – they also note that "The questionable payments identified by these matches do not necessarily mean that the named recipient received the payment. For example, the named recipient may have been a victim of identity theft."

Along these lines, DUI did not have that proper measures in place – especially within the BEACON system – to prevent and detect duplicate payments. The audit found "$43.3 million in 32 potentially duplicate payments made to 12,500 claimants between April 2020 and December 2021, where we could not determine that DUI identified or investigated the potentially duplicated payments."

“For example,” investigators write, “one claimant received 19 payments for one benefit week totaling $5,210, and another received 16 payments for one benefit week totaling $7,616. These claimants should have received only $374 and $476, respectively, for the applicable benefit week.”

DUI also neglected to conduct “timely” verifications of claimants’ income levels as required, resulting in potential overpayments for a specific agency-run program. This specific program had paid out $5.9 billion as of January 2021, but it is unknown how much of this pay out resulted in duplicate payments.

As part of this failure on the data front, the audit found that DUI did not the proper procedures to certify that those filing claims using a foreign IP address were eligible for benefits. Based on records from the period of September 2017 through April 2020, there were 3,724 claimants that filed from a foreign IP address for benefits payments totaling $3.6 million. The report did not specify how many of those claims or how much of that money was improperly paid out. However, the agency did cancel its geo-mapping service in April 2020, which "impairs DUI’s ability to identify and investigate claims and certifications from foreign IP addresses, and the ability to update BEACON with a more complete and comprehensive list of restricted addresses."

Up until 2021, DUI distributed benefits through government-issued debit cards (that method was discontinued in May 2021 in favor of direct deposit and or check). Claimants could request a reissued card if the original was lost or damaged. Between July 2017 and January 2021, there were 354,445 reissued cards in circulation and there was a total of $23.1 million remaining on 30,000 expired or never-activated cards – which was never properly recirculated to the benefit coffers.

Investigators found that there was no review process to ensure that cards were reissued only in the proper circumstances. “The lack of review is significant because the employee responsible for reissuing cards was also responsible for updating claimant mailing addresses in the sponsoring bank’s records, and had access to update a claimant’s address in BEACON,” investigations write. “As a result, the employee was in a position to identify an inactive card, reissue a new card to a different address (such as a PO box), and misappropriate the funds.” Conducting a smaller study on 23 reissued cards where the cards were sent to addresses out of state or multiple were sent to the same address – and for which DUI could not provide documentation or “adequate explanation” for this occurrence – investigators found that a total of $315,000 was paid out to these 23 cards.

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Overall, the audit determined that the Division of Unemployment Insurance's accountability and compliance level was unsatisfactory.

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