Waste and fraud plague government spending in the best of times. Yet a new report reveals that due to the rapid expansion of unemployment welfare programs in 2020 amid the COVID-19 pandemic, examples of fraud have been even more rampant over the last year.
On Wednesday, the fiscally-conservative Foundation for Government Accountability published its report: “The Top 10 Examples of Outrageous Unemployment Fraud in 2020—And How to Fix It.” Here are summaries of seven of the report’s key examples.
1. 'Scattered Canary' Nigerian Fraud Ring Raids Washington State Benefits
In Washington State, a Nigerian fraud ring made off with an estimated $650 to $850 million in stolen taxpayer money through fraudulent unemployment claims. Even state employees at the Employment Security Department were among those who fell victim to the Nigerian scammers’ identity theft gambit.
2. Rapper ‘Nuke Bizzle’ Arrested for Allegedly Stealing $1.2 Million
Pro tip: When committing crimes, don’t make a music video about it. That’s what Rapper ‘Nuke Bizzle’ reportedly did after allegedly filing false unemployment claims to the tune of $1.2 million.
“A hip-hop artist named Nuke Bizzle has been arrested on identity theft and fraud charges after federal authorities caught wind of a music video in which he raps about taking part in an unemployment scam,” Fox News reported. “His music video for the song ‘EDD’ was posted on his YouTube account back on Sept. 11 and has racked up more than 530,000 views. It features him and another rapper boasting about taking money using other people's EDD debit cards.”
3. Governor Falls Victim to Identity Theft
As far as fraud is concerned, Arkansas Governor Asa Hutchinson warned that “it can happen to anyone.” Then, it literally happened to him. In August, Arkansas state officials froze roughly 37,000 unemployment claims due to suspected fraud. One was a filing in Hutchinson’s name, even though the governor never requested benefits.
4. Prisoners Carry Out Massive Unemployment Scam From Behind Bars
The verification process and requirements for expanded benefits were so loose that actual prisoners, while still incarcerated, were able to steal huge sums of money from behind bars. The FGA reports that in Pennsylvania alone roughly $200 million was lost to this type of fraud with 10,000 inmates attempting to carry it out.
The state may be able to claw back some of these funds, but the scandal nonetheless exposes just how insecure the system was. And one can only wonder how many more fraudsters went undetected.
5. More Fraud Than Not in Maryland?
The FGA found that in Maryland, at one point nearly 95 percent of claims were investigated as potentially fraudulent. That might be a sign that something isn’t quite right...
6. Defrauded California Woman Gets Real-Time Text Updates
Tawyna Coogan tried to report that someone was claiming benefits in her name to California state authorities, but they were unresponsive. According to a local ABC news station, “After she left [a] message, apparently nothing was done and her EDD debit card was drained.” She received updates via text as the scammer emptied her account.
"The first text message came in, and it was 'your balance is like $50,'” Coogan recounted. “Then five minutes later it came in and 'your balance is now $30.' Five minutes later it comes in and says my balance is $8.53.”
7. Woman Steals Half a Million Using ‘Dark Web’
Also in California, a woman taught herself how to file fraudulent unemployment claims using a YouTube video and stole more than $534,000!
“A Menifee woman admitted in federal court Wednesday, Dec. 16, that she fraudulently obtained more than a half-million dollars in state unemployment benefits in just six months,” the Press-Enterprise reports.
“[Cara] Kirk-Connell admitted using more than 50 stolen names and Social Security numbers to net $534,149 that the state is distributing under the Coronavirus Aid, Relief, and Economic Security Act," the local paper recounts. "She had spent $270,000 before her arrest. Kirk-Connell purchased some of the identities on the dark web and watched a YouTube video that taught viewers how to steal the benefits.”
Analyzing Runaway Unemployment Fraud in Context
To understand why such egregious examples of fraud have become commonplace, we must step back and look at the problem in its broader context.
When the COVID-19 pandemic struck, state and local governments responded with sweeping lockdowns. This pushed tens of millions of Americans on to unemployment benefits at the same time that Congress passed a massive expansion of these very programs.
In the $2 trillion March CARES Act, the federal government expanded unemployment benefits to include numerous new categories of workers such as gig economy drivers and added a $600 federal weekly supplement on top of existing state-level benefits.
The goal of these policy changes was to provide relief to those millions of Americans adversely impacted by COVID-19 and government lockdowns. Lawmakers sought to help the unemployed keep food on the table and keep their wallets full to maintain consumer spending.
Yet such a vast expansion of the welfare system meant that for roughly 70 percent of the unemployed, unemployment benefits paid more than their usual job. This had the unintended consequence of directly disincentivizing work at the very time we were trying to launch an economic recovery.
Even setting the obvious labor disincentive this policy created aside, another unexpected outcome was that this cash-flush, hastily expanded system was a scammer’s dream. Fraudsters quickly took advantage. In 2020, the FGA reports, an astounding $36 billion was lost to fraudulent unemployment claims. For reference, that’s significantly more than the entire unemployment system paid out in 2019.
By hastily funneling massive amounts of cash into already-inefficient welfare systems, the government set itself up for failure—and set the taxpayer up for massive losses.
It is true that the unique problems posed by the COVID-19 pandemic and rushed government responses likely led to worse fraud than usual. But the rampant fraud and waste that have plagued COVID relief programs aren’t bugs, but features of the system.
Government spending is inherently prone to waste and inefficiency.
It’s simple: Government bureaucrats are tasked with spending other peoples’ money on other people. Human behavior is, at its core, a question of incentives. Systems that create incentives for efficiency—like the profit motive does in a private business—inevitably promote it. Likewise, systems that do not incentivize people to be judicious with resources inevitably lead to inefficiency.
Nobel-prize-winning economist Milton Friedman famously explained this phenomenon as it applies to government bureaucrats.
“If I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get,” Friedman wrote in Free to Choose. “And that’s government.”
So, while the examples of COVID unemployment fraud exposed by this new report are indeed outrageous, they shouldn’t be surprising at all.
Read the FGA’s full report here.