Pa. Spent $690 Million on Overpayments for Unemployment Compensation

By Eric Boehm | PA Independent

HARRISBURG – Pennsylvania recently implemented new work-search requirements for people getting unemployment compensation, but data from the federal government says the state is overpaying benefits at a high level.

Pennsylvania distributed more than $690 million in overpayments of unemployment compensation money between July 2011 and June 2012, according to new data from the U.S. Department of Labor’s Benefit Accuracy Measurement program. Overpayments are usually the result of fraud, clerical errors and inaccurate reporting by employees and employers.

That total is nearly double the $376 million in overpayments made during the previous 12 months, largely due to the state’s new, stricter, work-search rules that require claimants to be actively seeking work by applying to at least two positions each week they get benefits.

“That is the driving factor for the increase we see in Pennsylvania,” said Jason Kuruvilla, spokesman for the U.S. Department of Labor.

For the period report examines, unemployment in Pennsylvania ranged from 8.1 percent to 7.4 percent.  Unemployment was 7.8 percent in November 2012, the most recent month available.

Improper payments to workers who failed to meet those work-search requirements accounted for $250 million of Pennsylvania’s total during 2011-12.

In the 2011 report, Pennsylvania recorded zero overpayments due to search requirements — because the state had no such requirements. They were implemented in January 2012.

In last year’s report,overpayments because of failure to meet work-search requirements jumped to 8 percent of all unemployment payments.

Data seems to indicate many claimants are still receiving benefits without meeting the work-search requirement, though those payments are now classified as “improper” instead of “proper.”

Sara Goulet, spokeswoman for the state Department of Labor and Industry, agreed that unemployment overpayments are up, in part, because of the new requirements.

While the new requirements have been in place for a year, the department is awaiting the approval of some procedures before enforcing the rule.

“So, claimants essentially received an extended grace period to comply,” Goulet wrote in an email. “We know that more people than ever are complying with work-search requirements, but until we can enforce work-search, we won’t know for sure what kind of compliance we have.”

The Keystone State’s improper payment rate of 23 percent was the third highest in the nation — topped only by Nebraska and Indiana — but the Department of Labor cautions against making state-versus-state comparisons because each state has its own rules for unemployment compensation eligibility.

Still, Pennsylvania’s total is mind-boggling on its own.

Since July 2009, Pennsylvania has paid out more than $1.5 billion in erroneous unemployment payments. That’s nearly 15 percent of the $10.6 billion the state has paid out during that time.

So how do all those improper payments get through the system?

Some are the result of outright fraud – about $158 million during 2011-12, according to the federal report – but most are due to recipients who fail to report they have been hired and continue to collect benefits, clerical errors on the part of employers or the state Department of Labor and improper reporting of firings by employers.

In the event of fraudulent payments, the state can investigate and prosecute — but on an individual basis that can be more costly than it is worth to recover overpaid benefits.

Kevin Shivers is executive director of the Pennsylvania branch of the National Federation of Independent Businesses, which represents small businesses. Shivers said the state is on the right track to ensure unemployment benefits are only for workers temporarily in need of assistance as they look for new jobs.

“The goal of an unemployment compensation system should be for individuals to return to work; that’s why it was important to implement the work-search requirements,” he said.

But there is good news for Pennsylvania.

Goulet said the department is working to reduce overpayments in several ways – including working with the state treasury to recoup overpayments due to fraud.

The department submitted the names of 9,300 claimants to the state treasury last February and have so far recouped payments of more than $9 million from 4,300 claimants, she said.

A new task force within the department is charged with ferreting out waste, fraud and abuse. Part of its duties includes contacting employers that have not responded to department requests for claimants’ justification.

The pilot program has so far uncovered about $60,000 in overpayments, Goulet said.

Nationally, states paid more than $45 billion in unemployment compensation between July 2011 and June 2012. About $5 billion of that total — more than 11 percent — was improperly paid and about $1 billion was the result of fraud, according to the U.S. Department of Labor data.

Each year, the U.S. Department of Labor draws about 24,000 cases at random from the states, with at least 360 cases from each state.

In an attempt to reduce the amount of improper unemployment payments, the federal government spent $191 million in grants to 40 states — Pennsylvania got about $1.25 million — in 2011.

Kuruvilla said most of that money was used for educational initiatives, such as informing recipients their unemployment benefits are supposed to end when they take a new job, not when they receive their first paycheck.

Overall, it’s had a small effect — the national rate of improper payments declined to $4.8 billion in 2012 from $5.1 billion in 2011, even though some states, such as Pennsylvania, saw an increase.

Contact Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.