By Paul Roberts

The Seattle Times

Emergency actions taken last May to halt a massive fraud in Washington’s unemployment system prevented at least $200 million in additional losses on top of the more than half-a-billion dollars taken by scammers, officials said Monday.

But officials also acknowledged that the sophisticated scheme, which ultimately siphoned off $576 million in state and federal benefits, started in early March, two months before the Employment Security Department (ESD) abruptly halted all payments to investigate the fraud.

Monday’s disclosures, presented during a wide-ranging news conference by ESD Commissioner Suzi LeVine, marked the first significant new insights into the fraud that the agency has shared in nearly two months.

LeVine also offered additional data on workers waiting for ESD to review their stalled claims, and issued a warning to Washingtonians not to expect quick payment of any new federal money offered by Congress to replace the enhanced $600 weekly benefit that just expired.

Although White House officials and congressional leaders are negotiating an extension of the benefit, it could take four to five months to “retool our system” to get payments flowing, LeVine said.

Much of the news conference focused on new details about the fraud. For the first time, agency officials shared a precise estimate for the number of bogus claims that criminals filed and the state inadvertently paid benefits on: 86,449. They also gave the more specific dollar amount of $576 million.

An ESD timeline shows that most of the fraudulent claims were filed in early May. But it also shows that criminals were testing Washington’s unemployment system with a smaller number of claims in the weeks after the first big pandemic layoffs in early March.

The number of fraudulent claims rose from around 50 the first week of March, with about $389,000 paid on them, to around 700 claims, and $4.8 million paid on them, by mid-April, based on an average of around $6,663 per fraudulent claim.

Washington was one of the first states to be hit by unemployment fraud, which many other states have subsequently disclosed.

The peak of the fraud attack occurred during the seven-day period ending May 8, when nearly $410 million, or 56.4% of total benefits paid, went to fraudsters, ESD data showed.

LeVine also noted how rapidly fraudulent claims fell after the state temporarily suspended payments and stepped up fraud countermeasures in mid-May.

In the seven days ending May 13, ESD averaged 15,200 fraudulent claims a day. By May 20, the number had fallen to 1,000.

By the week ending July 24, the most recent period for which data is available, losses from the fraud stood at about $311,000, or 0.05% of total claims paid that week. “There is always someone trying to pretend to be someone else to get benefits,” said ESD spokesperson Nick Demerice

By halting weekly benefits payments on the 86,449 bogus claims, the agency avoided an additional $200 million in losses for that week, ESD data shows.

But LeVine said that because paid claims typically included funds for backdated claims going back an average of 5.1 weeks, actual avoided losses might have been as high as $1.5 billion

Anti-fraud measures also prevented many additional bogus claims from being filed.

Levine said the agency has since recovered $340 million in stolen funds. That’s slightly less than earlier recovery estimates and reflects the fact that $33 million of the funds returned to ESD by banks were actually legitimate payments to genuine claimants, and have been sent back out or will soon be, LeVine said.

But the fraud countermeasures, which saw the state freeze payments on nearly 200,000 claims flagged for suspected fraud, also resulted in delays for many legitimate claimants.

While those legitimate claims were eventually resolved and payments resumed, the delays added to the agency’s already substantial backlog of claims that had been suspended or denied prior to the fraud or have been suspended or denied since then.

On Monday, LeVine acknowledged that, as of July 25, 30,152 workers who had their benefit payments suspended by the ESD for non-fraud issues were still waiting for the agency to resolve their claims. In some cases, workers had received only a few payments before the suspensions, and have been waiting weeks or even months for ESD to resolve the claims.

This, too, marked something of a shift for ESD, which before Monday had been sharing figures about a separate category of delayed claimant: those who had filed a claim but had not received a single payment. Those individuals, who numbered around 81,000 in June, had all their claims resolved as of Friday, LeVine said.

LeVine also worked to set expectations as the state moves into a new phase of the pandemic, and as workers confront a job market likely to be very different from the pre-COVID version.

Although workers receiving benefits won’t be required to search for a job until after Sept. 1, “we will need to support the record number of workers whose jobs aren’t coming back, and who need help to find another job and the new skills,” LeVine said.

LeVine also offered considerable detail about the challenges of implementing whatever benefit extensions Congress may pass.

Each time the federal government allocates new unemployment benefits, state benefits systems must be reconfigured to get that money to workers. The more complex those benefits, the longer it takes to reconfigure.

For example, some in Congress want to replace the flat $600 payment the federal government had added to regular state benefits — up to $844 in Washington — with a variable one that would ensure that combined federal and state benefits equaled 70% of workers’ previous wages.

Some proposals have called for paying workers an interim flat benefit of less than $600 through early October before shifting to the wage-based benefit.

But LeVine warned that implementing such a complicated formula would require agencies to calculate benefits individually, which might take until November. “It’s like rolling out a new benefit,” she said.

Simpler formulas, such as those based on the average wage of all workers in a given state, as opposed to each individual worker, would be far easier to implement, LeVine said.

“It’s one thing to pass a law,” LeVine said. “It’s another thing to implement a law.”

An earlier version of this article used an outdated figure for the maximum weekly benefit available under the regular state program.