PHOENIX — Arizona's unemployment system paid an estimated $4.4 billion in fraudulent unemployment claims funded through the federal CARES Act, a recent state audit found.
The report, completed by the Arizona Auditor General, details the Arizona Department of Economic Security's (DES), failure to implement critical identity and security features for Pandemic Unemployment Assistance (PUA), and other newly created federal unemployment programs for part-time, contract, or self-employed workers. The programs began accepting claims in May 2020.
"DES did not implement the 3 mandated, and 4 of the 8 strongly recommended, identity theft and anti-fraud measures" prior to paying out the first benefits on May 18, the report said.
Upon the first coronavirus-related closures in March 2020, DES was almost immediately overwhelmed. The agency continued to receive an unprecedented number of claims throughout the first several months of the PUA program.
ABC15 reported on dozens of claimants who complained about not being able to get through to the agency or get questions answered about eligibility.
According to DES data, the agency went from receiving 3,357 first-time claims for regular state unemployment benefits for the week of March 7, to accepting 109,020 combined regular and PUA first-time claims the week of May 16. That number peaked at 578,334 combined new claims for the week of October 10 -- PUA accounted for 570,409 of them. Many were fraudulent.
In the audit DES gave several reasons for not putting required security features in place before it started paying benefits, including the increased volume in claims and confusion about federal laws, requirements, and guidance for the programs.
ABC15 reported on some of that confusion among workers contracted by DES to assist with processing claims.
The agency blamed new software implementation and computer programming issues that prevented it from being able to conduct the federal anti-fraud measures; it also reported not having the staff needed to process the volume of claims being received.
In a September 2021 blog post, DES noted that with loosened federal jobless benefit requirements for non-traditional workers, “anyone with a name, date of birth, address, and social security number could self-attest to being unemployed and receive benefits with limited scrutiny.”
State Representative Mitzi Epstein (D-Tempe), who has long pushed for an update to the state’s unemployment system software and processes, believes that at least some of the losses could have been prevented and that updates system were a legislative priority. She said other states plan for mass unemployment events.
“But Arizona didn’t have that, so when the pandemic hit we are wandering around, trying to make up a plan as we go," she said. “Like we’re walking around in the dark with our eyes closed.”
Throughout the pandemic, DES implemented fraud detection and identity verification software including ID.me, which for months gave legitimate claimants headaches while attempting to verify their identity.
DES estimates its use of various anti-fraud software has prevented more than $75 million in additional fraud claims, according to the audit. As of September 2021, more than 64,000 identity theft claims have been investigated and $1.4 billion in fraudulent claims recovered. The agency said it turned over 200 cases to the Arizona Attorney General's Office and that 100 have been charged criminally.
DES sent ABC15 a statement saying in part: “While no one could have expected just how significant an impact the pandemic was going to have, we acknowledge there were issues with the Unemployment Insurance program throughout the pandemic. The Department is committed to transparency and continuous improvement...”
Epstein said the situation has improved and that the agency has released a request for proposal for more updated software, but she believes a permanent fix requires a willing legislature.
“It’s the legislature’s job to get them the tools they need to get in the budget they need to be doing a good plan for the future,” she said.