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$11 billion was stolen from taxpayers in a massive fraud — will officials just ignore it?

If a government agency loses $11 billion, do New York’s legislators make a sound?

That’s the question in Albany after Comptroller Tom DiNapoli issued his investigation into what was likely the most expensive administrative mishap in state history: the massive theft of unemployment insurance funds in the early days of the coronavirus pandemic.

Most news coverage has focused on DiNapoli’s estimate that New York’s UI system lost at least $11 billion to fraud between April 2020 and March 2021. It’s a slap in the face to the employers now paying back about $9 billion, plus interest, borrowed from the federal government to fund many of those bad claims. The resultant hit works out to about $200 per employee.

But the price tag isn’t the worst part of the story, which begins in 2010 when the concerns were first raised about states using outdated equipment and software to administer unemployment claims. The problems weren’t fixed, and the 2020 flood overwhelmed the Labor Department.

Many of the reasons the fraud wasn't caught was there was no system in place to stop the fraud.
Tom DiNapoli’s audit found that New York lost $11 billion to unemployment fraud during 2020.
Anthony Behar/Sipa USA

In their panic to meet lockdown-induced demand, the Labor Department “resorted to stop-gap measures to paper over problems,” DiNapoli said. The agency’s workarounds paid people out of the wrong accounts, overpaid them in other instances, and opened the door to rampant fraud.

The Labor Department repeatedly blamed identity theft for its fraud problems — but the audit revealed they didn’t implement a system that could meaningfully curb identify theft until February 2021. Labor Department officials still can’t say how many fraudulent claims were paid or how long it took to detect them.

Audits revealing incompetence and bad decisions aren’t uncommon. But DiNapoli’s team, to their lasting credit, found something worse: Labor Department officials had gone rogue, repeatedly misleading legislators and the public. When Labor Commissioner Roberta Reardon addressed lawmakers in January 2022, she said the department had “prevented over $36 billion from falling into the hands of criminals.” Auditors, however, found that claim couldn’t be substantiated.

Meanwhile, when lawmakers pushed Reardon to estimate how much fraud wasn’t prevented, she hemmed and hawed and ultimately gave them nothing. Fearing comparisons with other states, Reardon told one committee she was “reluctant to give you a number.” And she never did.

Worst of all, when auditors began probing, department officials stonewalled their requests for information, taking “often more than 5 months” to turn over material. That had the convenient effect of delaying the final audit’s release until mid-November — a week after Election Day.

Labor Department officials still can’t say how many fraudulent claims were paid or how long it took to detect them.
The Labor Department repeatedly blamed identity theft for its fraud problems.
Loop Images/Universal Images Group via Getty Images

The question now turns to what New York’s 213 senators and assemblymembers, who are paid to oversee state agencies, will do about any of this.

In another era, a mishap anywhere near this scale would have triggered a flurry of subpoenas, substantive hearings, and the prospect of impeachment for the agency officials involved — even if they hadn’t tried to cover it up.

But lawmakers in recent decades lost their appetite to hold state agencies accountable, fearing retribution from the governor. If state lawmakers ignore DiNapoli’s findings, the employers now footing the bill for New York’s unemployment debt deserve to be more outraged with them than with the people who let $11 billion slip out the door.

Ken Girardin is a fellow at the Empire Center for Public Policy in Albany.

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