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.

In Massachusetts, local leaders pushed the governor to file legislation for statewide reform, after it was revealed that retired public employees were receiving pension checks and unemployment benefits at the same time.

Antiquated Systems Contributing to Payment Mistakes

Solis told ABC News that much of the wasteful spending could be attributed to unusually old computer systems states continue to rely on to keep track of their unemployment rolls.

"A lot has to do with antiquated systems that haven't been updated, like computerized systems that are maybe 20 or 30 years old that can't detect appropriately incoming information that should be applied or updated," Solis said.

"You could have an employee who was terminated or lost their job for whatever reason and then comes back or may starts employment again and doesn't report when exactly they start to work," she told ABC News. "They may collect in that time period, say, three weeks' worth of [unemployment] benefits."

A July 2010 survey by the National Association of State Work Force Agencies and Information Technology Support Center found that the average age of a state benefits system was 22 years; the oldest system, 42 years.

According to the association, with the computers so aged, they have a difficult time detecting fraud, abuse or simple mistakes.

Solis said that $192 million had been set aside to help upgrade the states' systems but that individual governments needed to look in their own coffers for additional funds.

Six states -- Colorado, Arizona, Indiana, Louisiana, Virginia and Washington -- are currently on a special federal "high priority" watchlist due to ongoing high rates of improper payments.

Mark Everson, the commissioner of Indiana's Department of Workforce Development, which runs the state's unemployment insurance system, called Indiana's 60 percent improper payment rate from last year misleading.

"That's just poppycock. To suggest that 60 percent of the people shouldn't have been drawing benefits, which is what they're suggesting, that just makes no sense at all," he said. "If you believe that, then 224,000 people should've been thrown off the unemployment rolls. That's just crazy."

Everson said that much of the problem in Indiana traces back to people failing to properly register for the state's job bank, or to properly step through every one of what he said were unusually challenging steps in Indiana to qualify for unemployment.

"I don't think these can be characterized as improper payments," he said.

However, the federal government stood by its numbers, saying Indiana had not properly complied with its own state laws, and was not enforcing the safeguards its own legislature put in place against improper payments. "We're holding them accountable to that," Solis said. "We're saying that you're not closing the gap when it comes to improper payments."

Everson did note that his office was working with the Labor Department to improve its procedures and make its system tighter.

When asked why Indiana had also failed to adopt the Treasury Offset Program to work with I.R.S. to collect money, Everson told ABC News he would begin the process of implementing the program after Indiana completed a large computer infrastructure upgrade. He expects that upgrade to be complete by the end of the year. Everson also said he believes the money he could collect every year by participating in the Treasury Offset Program would be enough to pay for his state's entire computer upgrade.

U.S. Holding States Accountable

Solis said her department had previously reached out to states to encourage their participation. However, she told ABC News she would soon sharpen the message to those who failed to jump on board.

"Our message to them is that we need their cooperation," Solis said. "We will be contacting them."

According to the Department of Labor, this is how the states currently rate:

These states are working with the IRS to collect improper unemployment payments:

New York WisconsinMichigan MarylandMississippiPennsylvania IllinoisAlabama

These states are trying to begin working with the IRS to collect improper unemployment payments:

ArizonaArkansasConnecticutDelawareDistrict of ColumbiaFloridaGeorgiaHawaiiKansasKentuckyLouisianaMinnesotaNorth CarolinaNew JerseyPuerto RicoOregonSouth DakotaWashingtonWest Virginia

Every other state in America has no plans to take part in the program, according to federal officials.