U.S. Seeks to Recoup Billions in Unemployment Benefits Paid Out in Error

March 14, 2012 — -- States across America doled out $13.7 billion in "improper" unemployment payments last year alone, according to the U.S. Department of Labor. The figure is down from more than $17 billion the previous year. However, federal officials say the vast majority of American states are not yet participating in a program designed to collect from people who received unemployment wrongfully.

The program, called the Treasury Offset Program, allows state governments to hand over the names of people who were overpaid to the Internal Revenue Service. The I.R.S. then subsequently confiscates tax refunds of those individuals and returns the money to the appropriate state government.

New York, Wisconsin, and Michigan were the first three states to hop on board last year. By the end of 2011, they had collected more than $26 million. This year, Maryland, Mississippi, Pennsylvania, Illinois, and Alabama have hopped on board.

While federal officials estimate those returns would skyrocket if everyone took part, they say the rest of the country has yet to join in. The result, they say, is that large amounts of public money remains in the hands of those it doesn't belong to.

"It's a big cost," Secretary of Labor Hilda Solis told ABC News. "It is important because it's obviously taxpayer money and it's employer-based money that they pay into the system. We are responsible to help oversee and monitor and we work with the states who actually implement these programs. They need tools to better recover and understand where those improper payments are going."

Solis and the Department of Labor have for years adopted a number of policies designed to fight improper payments by states. For instance, in April of 2011 they mandated that states begin checking a federal database of people who had recently received jobs, to make sure unemployment benefit checks were not also sent out to people who were actually working again. California is the only state that has failed to comply to date, relying instead on their own State Directory of New Hires.

However, until this week, the Department of Labor had seemed to focus on stopping payments themselves from going out improperly, while failing to include the federal "collection" program in its published core strategies to address improper payments.

Following questions from ABC News, Secretary Solis and federal officials promised that would immediately change. On Tuesday, the Department followed through, updating its "core strategies" online to include working with states to adopt the Treasury Offset Program. In addition, the Department of Labor also posted online Tuesday the progress of every state in America, reporting which states have adopted the program and which states have failed to do so.

The Department says in addition to outright fraud, much of the $13 billion problem can be attributed to failings in state oversight and simple errors. In some cases, lack of proper oversight allows people to continue collecting unemployment long after they begin working at a new job.

Other cases have grabbed headlines across the nation for their brazenness.

In California, nearly $20,000 went to convicted killer Anthony "The Chopper" Garcia, who received $1,600 a month in unemployment checks for nearly a year and a half while sitting in prison. Garcia is currently serving a 60 year to life sentence. He allegedly had family and friends cash the checks for him, who are now awaiting trial on related fraud charges.