Feds say South Dakota overpaid $36 million in unemployment benefits during COVID pandemic

A federal report says at least $36 million in unemployment benefits were wrongfully distributed to South Dakotans, fraudulently or mistakenly, from March 2020 to March 2023. The state has recovered a third of the money.

Much of the money flowed from federal legislation designed to mitigate the economic fallout of the COVID-19 pandemic. The federal funds also helped protect the state unemployment insurance fund, which is supported by a tax on employers.

“The unprecedented demand for benefits and need to quickly implement the new programs increased the risk of fraud,” according to the new report from the U.S. Government Accountability Office (GAO).

The GAO designated the unemployment insurance system as high risk in June 2022. Seto Bagdoyan, an audit director with GAO’s Forensic Audits and Investigative Service team, said the designation moved concerns about the system to the “absolute top of the pile.”

South Dakota and other states paid historic amounts of unemployment benefits during the height of the pandemic. The state Department of Labor and Regulation issued weekly news releases about claims until June 2021; at that point, the state had paid a total of $384.9 million in state and federal benefits since pandemic-related claims began in March 2020.

The U.S. Department of Labor awarded states money during the pandemic to help them vet applicants; South Dakota received about $8.5 million for that purpose.

The GAO said South Dakota found about $2.7 million in fraudulent payments to people who probably had unemployment insurance before the pandemic began. Since those people were already in the system, it was easier to get that money back, Bagdoyan said. So far, the state has recovered about $1.1 million of that money.

The state found around $4.6 million in fraudulent payments to individuals who signed up for pandemic-specific unemployment programs. Those people likely weren’t in the system before, which made getting that money back harder, according to Bagdoyan.

“In fact, these fraudsters may have used stolen or fake identities to apply for and receive unemployment benefits,” he said.

Only $937,022 from that category has been recovered in South Dakota.

The report also mentions a separate class of non-fraudulent, “honest mistakes” (administrative errors on the part of state agencies or applicants).

The state has recovered $3.8 million from $7.5 million of non-fraudulent overpayments to people who were likely already in the unemployment insurance system before the pandemic.

Regarding pandemic-specific programs, the state overpaid $21.4 million, recovered $6 million and waived $3.4 million.

The state Department of Labor and Regulation declined an interview but answered some South Dakota Searchlight questions by email. Department spokesperson Dawn Dovre said the Division of Reemployment Assistance waived the recovery of some overpayments “because the claimant was not at fault for the overpayment, and it would be against equity and good conscience or defeat the purpose of the program.”

Nationally, from March 2020 to March 2023, at least $55.8 billion in unemployment insurance benefits was wrongly disbursed, and 12% has been recouped, according to the GAO. Recovery rates vary by state. South Dakota’s rate is 33%, while neighboring North Dakota and Montana have recovered 12% and 21% of their overpayments, respectively.

The GAO report suggests that overpayments exceeded the amounts identified by states. The office estimated the true amount of overpayments nationally was $100 billion to $135 billion, constituting 11% to 15% of all unemployment benefits. That estimate emerged from a comprehensive analysis of expenditures, particularly spotlighting the pandemic-specific unemployment program’s high fraud risk, according to the report.

“Fraudulent activities frequently go undetected due to their deceptive nature and the limited resources available to investigate and adjudicate fraud,” the GAO report said.

This article originally appeared on Sioux Falls Argus Leader: Feds: SD overpaid $36 million in unemployment benefits during pandemic