Feds estimate Minnesota overpaid about $430 million in unemployment benefits during pandemic

Minnesota overpaid an estimated hundreds of millions of dollars in unemployment insurance during the pandemic, mostly because of errors made by people claiming benefits, the U.S. Department of Labor says.

The department estimates the state overpaid about $430 million in jobless benefits from July 2020 through June 2023 based on an audit of a sample of more than 1,400 claims.

But the Labor Department also estimated Minnesota’s unemployment insurance overpayment and fraud rates were among the lowest in the country. Ninety-five percent of the state’s estimated overpayments were attributed to errors by claimants, employers or a combination of both.

Nearly three dozen states had unemployment insurance overpayments totaling hundreds of millions of dollars during the three-year period, according to the Labor Department’s estimates; some reached into the billions.

“We tend to think of the pandemic experience as kind of a perfect storm for unemployment insurance and the issue of improper payments,” said Andrew Stettner, director of UI modernization at the Labor Department. “States went into that moment with some of the least funding they ever had for the administrative background needed to process payments properly. Then you had claims spike by 3,000%, so this unimaginable increase.”

Stettner said the unprecedented amount of money that flowed during the pandemic must be considered when looking at the overpayment estimates.

“We paid out $980 billion during the pandemic nationally, so even a small percentage [of overpayments] is going to seem gargantuan when it comes out,” he said.

Minnesota paid out roughly $15 billion in unemployment benefits during the pandemic, said Evan Rowe, deputy commissioner at the state Department of Employment and Economic Development, which administers the unemployment insurance program. The program was “a critical lifeline to hundreds of thousands, close to a million Minnesotans during that period,” Rowe said.

“I think any of the overpayment numbers need to be shared in that context,” he said, defending the state’s work in getting aid to people during a crisis. “We take antifraud measures and payment accuracy overall really seriously.”

Minnesota was among just a handful of states that had overpayment rates below 10%, according to the Labor Department. Its estimated fraud rate was also among the lowest at about 2%.

A report published by the federal Government Accountability Office (GAO) last fall stated that Minnesota has recovered about $77 million of its pandemic-era unemployment insurance overpayments.

Rowe said that figure is accurate and the state continues to try to recover overpayments.

The GAO report estimated that as much as $135 billion in unemployment benefits were illegally claimed in the U.S. during the pandemic.

“The full extent of UI fraud during the pandemic will likely never be known with certainty,” the report stated.

Like the Labor Department, the GAO acknowledged the urgent circumstances that fueled the overpayments.

“The unprecedented demand for UI benefits and the urgency with which states implemented the new programs during the pandemic increased the risk of improper payments, including, but not limited to, those due to fraud,” the agency said.

The rush to deliver aid to people led to mistakes in other programs, too.

Minnesota’s nonpartisan Office of the Legislative Auditor recently found the state Department of Labor and Industry didn’t adequately verify the eligibility of people who received checks from a $500 million frontline worker pay program. Auditors found the Minnesota agency didn’t verify some hours and in-person work requirements, instead relying on employees’ self-reported work details.

The legislative auditor estimated roughly 40% of those who received $487 payments through the program were either ineligible or their eligibility couldn’t be confirmed, with the latter making up most of the 40%.

State Sen. Eric Pratt, R-Prior Lake, said state agencies must strengthen their internal processes and controls to prevent further money from being lost.

“I’m disappointed that we saw the amount of fraud loss that we had,” said Pratt, who previously did risk management and fraud prevention work in the banking industry. “It’s always better to try to prevent fraud than try to catch it on the back end.”