The Department of Labor (DoL) is rolling out a new plan to deploy its remaining unemployment insurance (UI) modernization funding to strengthen state UI systems and prevent fraud after Congress slashed the program’s funding in June.

Meanwhile, the Government Accountability Office (GAO) said in a new report that the Labor Department is showing some management gaps in its efforts to assist states with the UI system modernization efforts.

As part of the debt ceiling compromise, the Fiscal Responsibility Act of 2023 – enacted on June 2 – Congress cut the UI program’s funding from $2 billion to $1 billion, leaving about $500 million remaining in funds available to the department and its state partners.

In an Unemployment Insurance Program Letter sent to states on July 13, DoL outlines its new approach, which includes three new funding opportunities to strengthen the program’s integrity and resiliency, as well as an opportunity for states to participate in a National ID Verification Offering for both online and in-person ID verification services.

“The department remains committed to leveraging the remaining funds to support meaningful transformation in the UI system so workers and the economy can continue to rely on it to deliver benefits and protect taxpayer dollars,” the letter says. “The department is deploying the remaining funds in concert with a government-wide focus on combating identity fraud in government programs, which intensified during the pandemic and continues.”

Congress created four new UI programs during the pandemic, and evidence suggests the total amount of fraud in these programs was over $60 billion – and could be much higher.

However, DoL said because UI programs are jointly funded by the Federal government and administered by states, there is no “perfect IT system” or single solution.

Nevertheless, the agency’s new approach looks to strengthen the program’s IT infrastructure to protect the system from fraud, promote equitable access, and increase timely access to benefits.

“The vulnerability of the UI system to fraud is a symptom of systemic challenges, especially the condition and design of IT systems, which were unable to fully respond to the huge increase in claims and exponential growth in complex fraud attacks during the pandemic,” the letter says. “The development of resilient IT systems that can continuously adapt to changing conditions and integrate evolving fraud prevention technologies needed to protect the program is a critical component of a comprehensive program integrity strategy.”

Specifically, DoL is allocating $100 million in grants to states for fraud prevention and recovery efforts, $200 million for states to invest in IT modernization projects that increase the resiliency of UI systems, and $77 million for states to implement the negotiated recommendations from DoL’s “tiger team” initiative.

The other funding will be used to offer new government-operated ID verification services to states – either online through the General Services Administration’s (GSA), or in person at participating U.S. Postal Service (USPS) retail locations nationwide.

States need to let DoL know if they’re interested in the online or in-person services, or both, by August 18.

“The department is excited to partner with states to maximize the impact of these funding opportunities to support transformations in the UI program,” the letter says. “The systematic challenges exposed by the pandemic evolved over decades and will take years to remedy, but the investments outlined in this [letter] … mark one of the most ambitious efforts to date to drive such change.”

GAO Chimes In

In regard to the states’ IT modernization projects, the Government Accountability Office (GAO) offered some recommendations for DoL in a report published on July 24.

GAO analyzed eight states that are modernizing their UI IT systems and found that DoL has some gaps in managing its efforts to assist states with their modernization efforts. For example, DoL fully implemented key contract management activities on its first pilot, but “did not fully implement leading pilot design practices such as developing a data analysis plan and ensuring stakeholder communication.”

“Until DoL finalizes IT standards and measures state UI IT performance, the department will be limited in its ability to monitor whether states’ UI systems are performing efficiently and effectively,” the report says.

Going forward, the watchdog agency recommended that DoL address pilot design weaknesses, establish standards for states’ UI IT performance, and then measure such performance.

DoL agreed with the first recommendation to update its processes for UI pilots to reflect leading practices for pilot design and partially agreed with the other two. GAO continues to believe all recommendations are valid.

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