By Al Barbarino

Law360 (November 30, 2020, 10:18 PM EST ) The U.S. Government Accountability Office warned Monday that "urgent actions" are needed to help track and ensure the integrity of COVID-19-related financial relief efforts, suggesting that key unemployment insurance data has been inaccurate and more reporting is needed to address potential widespread fraud.

The watchdog said the U.S. Department of Labor has been reporting "flawed estimates" of the number of individuals receiving unemployment benefits, inaccurately skewing a key economic indicator, while the Office of Management and Budget should issue guidance to tackle potentially fraudulent payments. 

The DOL has continued to use the number of so-called continued claims to represent the number of individuals claiming benefits, but the measure is an inaccurate one during the current crisis in part due to "backlogs in processing historic numbers of claims in many states."

"Various issues arising from the pandemic have made this practice problematic — potentially overstating the number of individuals in certain circumstances and understating the number in others," according to the report.

Challenges among states in implementing the newly-created Pandemic Unemployment Assistance program, including addressing potential fraud, have further skewed the tally, the GAO argued.

In one instance, the GAO noted that the DOL reported a 200,000 dip in nationwide claims on July 4, but Arizona — which logged 2.3 million claims the previous week — had stopped reporting data that week due to suspected fraud in the PUA program.

The GAO recommended that the DOL revise its weekly estimates to clarify that they "do not accurately estimate the number of unique individuals claiming benefits," urging the agency to pursue options to correct its reports to address the actual number of individuals claiming benefits.

While the DOL agreed with the recommendations, it pushed back against the GAO's additional suggestion to re-report the numbers retroactively to January 2020, arguing that state unemployment programs are already too burdened to comply.

The GAO also noted that most states have initially paid PUA claimants only the minimum allowable benefit rather than calculating their benefits based on their prior earnings, while DOL officials told the watchdog they didn't know how many states had begun to address and repay the differences. No formal recommendation to address this discrepancy was made in the report.

The GAO further identified concerns about the reporting of so-called improper payments under COVID-19 relief programs — payments that should not have been made or were made incorrectly, including those resulting from fraud.

As of Sept. 30, the federal government has appropriated $2.6 trillion in COVID-19 relief funds, the report noted. 

But unlike programs addressing prior crises — like relief related to the 2017 hurricanes and California wildfires — COVID-19 relief laws did not require agencies to deem programs receiving the funds as "susceptible to significant improper payments."

"Congress should consider, in any future legislation appropriating COVID-19 relief funds, designating all executive agency programs and activities making more than $100 million in payments from COVID-19 relief funds as 'susceptible to significant improper payments,'" the report offered up for consideration. 

The GAO recommended that the OMB develop and issue guidance directing agencies to include COVID-19 relief funding in their "improper payment estimation methodologies" to better track potential fraud. 

"Even if improper payments are limited to 1 percent of the COVID-19 relief funds appropriated to date, this would equate to $2.6 billion," the report said. 

The watchdog added that "OMB staff [had] neither agreed nor disagreed" with the recommendation and had requested further information regarding "key risks."

"We clarified this portion of our recommendation by including examples of risks identified by OMB that are likely to alter payment integrity risks," the report stated.

The DOL and the OMB did not immediately respond to requests for comment.

The GAO also recommended that the Small Business Administration, which runs the forgivable loan program known as the Paycheck Protection Program, "expeditiously estimate improper payments and report estimates and error rates" based on concerns of potentially "widespread" fraud.

In a response letter, the SBA noted that it is already conducting "comprehensive improper payment testing," having initiated the process before the recommendation was made. It added that it is going beyond that by working to prevent these payments through a "sophisticated loan review process."

--Editing by Steven Edelstone.

For a reprint of this article, please contact reprints@law360.com.