US tells states to deal with unemployment fraud or face penalties

“We are officially putting governors on notice,” Acting Labor Secretary Keith Sonderling said in a statement Wednesday. “The American people will no longer tolerate the blatant waste, fraud, and abuse of their hard-earned tax dollars — no state should allow it either. If states allow it, they will suffer the consequences.”

Labor Department offers few details

The Labor Department said Wednesday that poor oversight, outdated technology, weak identity verification and lax controls have “allowed unprecedented fraud to flourish.”

In its announcement, it cited problems in California, Illinois and New York — three states where Democrats are in control.

Government audits of a sample of cases from last year suggested that nearly $1 in $9 in the programs was an overpayment — and that most of those were for reasons other than fraud. They varied by state, but many involved work-search requirements or eligibility disputes after someone left a job.

There also doesn't appear to be a strong connection between which party governs a state and how much overpayment or fraud there is.

California Gov. Gavin Newsom ’s office blasted the move and criticized “lax regulations and rushed distribution” of unemployment benefits by the first Trump administration during the COVID-19 pandemic.

“Meanwhile California outperforms other states in addressing fraud,” Newsom spokesperson Marissa Saldivar said in a statement.

Illinois Gov. JB Pritzker criticized what he said were the Labor Department's vague threats.

“The Trump Administration continues to govern by press release,” he said in a statement, arguing that the White House has been cutting resources used to modernize systems and prevent fraud.

The Labor Department said states would receive further directives in coming weeks.

Unemployment insurance has come into question before

The nonpartisan Government Accountability Office estimated that fraud accounted for between 11% and 15% of the amount paid out through unemployment insurance programs from April 2020 through May 2023, when the nation was under a public health emergency for the pandemic.

During that time — which included the last months of Trump's first term and over half of former President Joe Biden's time in office — access to the funds was eased, and the government noticed the issues as the money was going out.

In the new letter to the states, the department said that consequences from pandemic-era fraud “are still playing out.”

The administration has focused on fraud in state-federal programs

Vice President JD Vance is overseeing an anti-fraud task force focused on potential misuse of social programs.

The Department of Health and Human Services tried to withhold money for child care subsidies and other social service programs from five states — all governed by Democrats — but has been rebuffed by a court. The department has also announced it’s using artificial intelligence to police how states and other recipients of federal dollars are auditing their programs.

The Department of Agriculture has threatened to withhold administrative funds from states that don’t provide data on participants in the Supplemental Nutrition Assistance Program, including their immigration status.

Associated Press writer Sophie Austin in Sacramento, California, contributed.