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Audit finds New York lost billions due to fraud


(The Center Square) – Government watchdogs and business advocates are calling on New York to take action after an audit report released by State Comptroller Thomas DiNapoli, found the state’s unemployment insurance system lost billions during the first year of the COVID-19 pandemic due to fraudulent claims.

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      DiNapoli said using U.S. Department of Labor data regarding New York, it could be estimated the state paid out approximately $11 billion in fraudulent claims during the 2020-21 fiscal year, which started on April 1, 2020. However, a statement from DiNapoli’s office included a caveat to that figure.

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      “This likely understates the actual amount, as New York (State Department of Labor) acknowledged that the temporary programs had a significantly higher risk of fraud,” the statement read. 

      The federal government expanded unemployment insurance during the early stages of the pandemic to cover workers who were forced out of jobs due to government shutdowns. The audit report found the state’s obsolete system for processing unemployment claims opened the door for rampant fraud. 

      State officials, the audit noted, had been warned for more than a decade that its system needed upgrades.

      “The agency resorted to stop-gap measures to paper over problems, and this proved to be costly to the state, businesses, and New Yorkers,” DiNapoli said. “The department needs to recoup fraudulent payments and correct its mistakes.”

      Business owners in New York have complained about the state’s running of the unemployment insurance system. In particular, they’ve been critical of New York, being one of just a few states that have not repaid the federal government for the pandemic unemployment loan it received.

      New York’s bill is $7.7 billion, and the failure to pay that off, led to employers shelling out $159 million in interest penalties in September.

      Justin Wilcox, executive director of Upstate United, said in a statement, DiNapoli’s report must serve as “a wake-up call” for Gov. Kathy Hochul and lawmakers in Albany.

      “The New York State Department of Labor’s numerous failures show a total disregard for New Yorkers who needed help during the pandemic as well as employers who continue to bear the burden of the state’s ongoing unemployment insurance crisis,” Wilcox said.

      The nonpartisan, pro-economic growth advocacy group wants the state to repay business owners for the surcharge, and start paying down the debt.

      DiNapoli was also critical of state labor officials’ actions during the review, noting officials often did not provide auditors with the information requested. And when information was provided, the response was so slow—in one case, auditors waited more than six months for information, which caused delays in finishing the report.

      Peter Warren, the director of research with the Empire Center for Public Policy, wasn’t shocked by the finding.

      “Unlike her peers in many other states, Labor Commissioner Roberta Reardon has steadfastly refused to this day to provide the public or the Legislature an estimate of how many billions in fraudulent unemployment insurance (UI) claims her office paid out during the pandemic,” Warren wrote in a blog post regarding the audit.

      In its response to the audit, the New York State Department of Labor said it is working on implementing a new system, and its four-year plan to improve technology is 50% complete.

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