Policymakers looking to recoup any unemployment insurance money lost to fraud during the pandemic, or to stop future fraud, might benefit from watching a bit more Star Wars. The Andor series, in particular, provides a valuable lesson on effective data sharing and not being constrained by old systems that cannot meet modern challenges.
In the show, the Rebellion’s activities are spread across multiple sectors, but managers only know about their respective sectors and cannot see the bigger picture. Series antagonist Dedra Meero manages to access data from a different sector, pointing out to colleagues that it’s unlikely that “the Rebellion plans its actions around the artificially constructed boundaries of our sectors.”
This scene came to mind as I watched February’s House Ways and Means hearing on Unemployment Insurance (UI) fraud during the COVID-19 pandemic. UI benefits increased dramatically during the pandemic and were made available to many more workers, including people without substantial employment history (such as recent college graduates or gig workers). UI was a crucial lifeline for many families during the pandemic, and the program’s success is a crucial contributing factor to today’s vibrant labor market. The UI system was designed in 1935, and has since not been substantially reformed to account for the vast differences in information technology.
Unfortunately, opening up UI benefits more broadly meant that it was ripe for exploitation by fraudsters and criminal enterprises. The Government Accountability Office estimated that total UI fraud during the pandemic was at least $60 billion and may be substantially higher. That is a sizable chunk of the almost $900 billion distributed during the pandemic.
Like the situation in Andor, a significant factor in UI fraud was the inability of different state UI agencies to share data between themselves effectively. The Department of Labor’s Office of the Inspector General has determined that over $28 billion in UI payments went to claimants receiving UI in multiple states. The state DOLs, already overwhelmed by the vast number of UI applications, could not check in real-time whether an applicant was already receiving UI in a different state. Even after the fact, states did not share information with the Office of the Inspector General (OIG), forcing it to subpoena state workforce agencies to get the data to inspect for fraud.
But unlike Andor, the main problem in sharing data across state lines cannot be solved by simply getting the data. Even when the OIG received data from the states, they often found that it was incomplete or incompatible with other states. This made it difficult– or impossible– to combine them into a single database allowing the OIG to verify that a person was only receiving UI in a single state.
The UI program is run at the state level, with each state enjoying significant leeway in designing programs that work for them. But when states have problems that cross state boundaries– the rampant UI fraud we experienced during the pandemic the result is an easily exploitable structural weakness.
Coming out of February’s hearing, Ways and Means Chair Smith (R, MO-08) introduced the “Protecting Taxpayers and Victims of Unemployment Fraud Act” (“Unemployment Fraud Act” or “UFA”). UFA creates incentives for states to more vigilantly pursue recouping fraudulent claims during the pandemic, by allowing states to retain 25% of any recovered fraud payments (since the federal government provided the financing for UI expansions, any monies recovered would normally go back to the federal government. This is a good idea – but unfortunately it is paid for by eliminating the funds that are currently being used to fight fraud at the federal level. Because so much UI fraud occurred across state lines, removing these funds will make finding and prosecuting fraud harder.
Andor offers a valuable lesson on the importance of effective data sharing, and of shedding outdated systems that can’t meet modern challenges. As Meero noted, “systems change, or they die.” Or, as Representative Mike Kelly (R-PA) said during the hearing “Let’s fix the damn thing.”