US Department of Labor announces funding to states to modernize unemployment insurance system, combat fraud, address equity

WASHINGTON, DC – The U.S. Department of Labor today announced a series of actions to modernize and reform a cornerstone of our economic infrastructure, the unemployment insurance system. Over the last year alone, the unemployment insurance system has helped nearly 53 million workers stay afloat during a pandemic and economic crisis and put nearly $800 billion into the economy – staving off an even deeper recession.

At the same time, this crisis only further exposed longstanding challenges in UI. While the core of these challenges will need to be addressed through comprehensive UI reform, the department will start with the $2 billion allocated as a part of the American Rescue Plan Act, aimed specifically at addressing the most acute challenges states have faced over the last year.

The American Rescue Plan Act provided $2 billion in funding to the department to prevent and detect fraud, promote equitable access, ensure timely payment of benefits and reduce backlogs.

“The pandemic underscored the need for modernization of the 53 different systems that administer unemployment insurance benefits in the United States, and it exposed significant vulnerabilities in state technology to criminals looking for an opportunity,” said U.S. Secretary of Labor Marty Walsh. “The Biden-Harris administration and Congress provided the means to reform this critical safety net for future crises, and our department is committed to executing that mission in a way that leaves no community behind.”

Administered by the department’s Employment and Training Administration, ARPA Fraud Grants totaling $140 million will be awarded to states for fraud prevention measures, including identification verification subscription costs, establishing and expanding data analytics and implementing cybersecurity defense strategies.

Another $260 million in Equity Grants will be awarded to improve claimant outreach and customer service processes, implement strategies to reduce backlog and improve access for lower-income claimants. These first-of-their-kind grants will provide funding for states to improve public awareness and service delivery as the department seeks to address potential racial and ethnic disparities in the administration and delivery of UI benefits in some states.

The department will also allocate $100 million in previously unobligated CARES Act funds to combat fraud and implement cybersecurity measures in the Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation programs beyond the expiration of benefits.

This administration is deeply concerned by the widespread inherited fraud in the UI system perpetrated by a new wave of criminal syndicates. Dealing with this issue has been a top priority for this Administration and the department has taken numerous steps to help detect and fight multi-state fraud and identity theft. One example of this is the improvements to data sharing that were a significant change in policy from the prior administration, whereby the department has provided the Inspector General direct access to UI data for the entirety of the pandemic relief period and made the continuation of such access a condition of the fraud grants. 

Funding from the ARPA will enable the department to tackle the most acute problems facing the unemployment insurance system in the short-term while also working to address long-term challenges by improving state processes and building a modern, modular information technology system that is accessible, safe and more resilient in the face of future surges in claims.

The department today announced additional strategies in its comprehensive approach to improving the UI system. These include:

• Direct technical assistance through tiger teams. Multi-disciplinary tiger teams, composed of experts across many disciplines including fraud specialists, equity and customer service experience specialists, UI program specialists, behavioral insights specialists, business intelligence analysts, computer systems engineers/architects and project managers, will deploy to states to conduct intensive discovery assessments, provide resources for identification verification and propose solutions to address fraud and equitable access.
• Tools to address immediate fraud concerns. Identity verification is a critical tool in paying unemployment benefits to eligible individuals. Yet too few states have the resources, expertise, and capacity needed to effectively work with vendors to address the wide-ranging attacks that the UI system has experienced from organized criminal enterprises. The department issued a blanket purchase agreement to work with three vendors to employ cross-matching technology to verify applicants’ identities at the time of filing for unemployment programs and tools to identify suspicious attributes after claims are filed. LexisNexis, TransUnion and V3Gate partnering with ID.Me are all compliant with the National Institute of Standards’ Identity Assurance Level 2 and Authenticator Assurance Level 2, and these vendors will work with states to: develop identification verification options that do not require computer access, offer customer service in claimants’ native languages and provide accessibility standards to serve the disability community.  
• Modernizing antiquated state technology. The pandemic has only underscored states’ desperate need for technological support and improvements. Many state systems are operating on outdated technology, which made it difficult for them to rapidly respond to changes in law and economic conditions. The department has partnered with the U.S. Digital Service to start the transformative project of centrally developing open, modular technology solutions that states may adopt as part of ongoing modernization and improvement efforts. Additional plans included shared IT solutions designed to integrate with state systems and provide software to support end-to-end administration of UI, including benefit delivery, employer tools and appeals and working with states’ IT staff to develop and implement plans that build resilience in UI systems across the country.

This comprehensive plan will enable the department to establish a system that is efficient and scalable and meets its promise of providing benefits to protect workers who lose their jobs through no fault of their own and help better sustain the economy during future economic downturns. The Department of Labor is committed to strengthening the Unemployment Insurance system to ensure that it works for all workers, and to ensuring that unemployed workers have access to quality reemployment services that can help workers transition back into the labor market and into quality jobs.

Read more on the UI Modernization plan.