UIPL 11-23.pdf

EMPLOYMENT AND TRAINING ADMINISTRATION

ADVISORY SYSTEM

U.S. DEPARTMENT OF LABOR

Washington, D.C. 20210

CLASSIFICATION

Unemployment Insurance

CORRESPONDENCE SYMBOL

OUI/DPM

DATE

July 13, 2023

RESCISSIONS

None

EXPIRATION DATE

Continuing

ADVISORY: UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 11-23

TO: STATE WORKFORCE AGENCIES

FROM: BRENT PARTON

Acting Assistant Secretary

SUBJECT: Announcement of Grant Opportunities and National Identity (ID) Verification

Offering under the American Rescue Plan Act (ARPA)

1. Purpose. To announce a comprehensive and strategic approach to deploying remaining

Unemployment Insurance (UI) modernization funds to strengthen the integrity of the UI system. This Unemployment Insurance Program Letter (UIPL) announces three new funding opportunities to strengthen program integrity and resiliency, as well as an opportunity for states to participate in a National ID Verification Offering for both online and in-person ID verification services.

2. Action Requested. The U.S. Department of Labor’s (Department) Employment and

Training Administration (ETA) requests that State Workforce Agency Administrators:

• Review the opportunity to participate in the National ID Verification Offering described in Section 4.c. of this UIPL and contact their appropriate ETA Regional

Office to express interest by August 18, 2023 in the online or in-person services, or both. These non-binding notifications will help inform the Department’s planning for the designation of resources to support implementation activities.

• Review the funding opportunities described in Sections 4.b. for Integrity, 4.d. for

Information Technology (IT) Modernization, and 4.e. for Tiger Teams of this UIPL.

• Coordinate with appropriate state staff to develop Initial Applications for opportunities the state wishes to apply for, as described in Sections 4.b.vi.C.2., 4.d.iv.B., and 4.e.ii.B. of this UIPL.

• Submit all Initial Application materials under Sections 4.b., 4.d., and 4.e.

electronically to https://www.grants.gov/ no later than 11:59 pm Eastern Time on

August 18, 2023. Note that grants provided under the IT Modernization funding opportunity will be awarded to states that submit complete and responsive applications in the order such applications were received as long as funding remains available, as described in more detail under Section 4.d.iv.B. of this UIPL.

https://www.grants.gov/

3. Summary and Background.

a. Summary – The Fiscal Responsibility Act of 2023 (FRA), enacted on June 2, 2023, reduced total funding provided by Section 2118(a) of the Coronavirus Aid, Relief, and

Economic Security (CARES) Act, as amended by Section 9032 of ARPA, for modernization of the UI program from $2 to $1 billion, leaving approximately $500 million in unobligated funds available to the Department and its state partners to pursue the three goals under ARPA: (1) preventing and detecting fraud; (2) promoting equitable access; and (3) ensuring the timely payment of benefits concerning the UI program.

During the COVID-19 pandemic, Congress expanded the UI system to enable it to quickly deliver additional aid that supported millions of Americans and spurred the economic recovery from the pandemic. The pandemic also revealed deep vulnerabilities resulting from years of underinvestment in the system. State UI agencies entered the

COVID-19 pandemic after experiencing the lowest claims workload in 50 years, and thus the lowest administrative funding, which significantly impacted resources and staffing levels available to the states to manage the huge influx of claims. To add further complication to state unemployment compensation (UC) program operations, the frequency and complexity of fraud attacks against state UC programs increased significantly during the pandemic. States were forced to respond to and address relentless and sophisticated fraud attacks that continued to evolve to circumvent the prevention and detection tools and strategies states had in place.

The Department remains committed to leveraging the remaining funds to support meaningful transformation in the UI system so workers and the economy can continue to rely on it to deliver benefits and protect taxpayer dollars. The Department is deploying the remaining funds in concert with a government-wide focus on combating identity fraud in government programs, which intensified during the pandemic and continues.

This UIPL represents a key component of the Department’s response to the report1 by the

U.S. Government Accountability Office (GAO) in June 2022, that designated the UI program as High Risk, and called for the Department to act to transform the program in areas of fraud prevention, infrastructure, and service delivery. In line with GAO recommendations, this UIPL unveils a comprehensive, strategic approach to deploying remaining UI modernization funds to improve the future integrity of the UI system— directing the available funds and Department-provided supports to states to address fraud prevention and system modernization.

The vulnerability of the UI system to fraud is a symptom of systemic challenges, especially the condition and design of IT systems, which were unable to fully respond to the huge increase in claims and exponential growth in complex fraud attacks during the pandemic. The development of resilient IT systems that can continuously adapt to changing conditions and integrate evolving fraud prevention technologies needed to

1 GAO-22-105162, Unemployment Insurance: Transformation Needed to Address Program Design, Infrastructure, and Integrity Risks, published June 2022, https://www.gao.gov/assets/gao-22-105162.pdf.

https://www.gao.gov/assets/gao-22-105162.pdf protect the program is a critical component of a comprehensive program integrity strategy. Such investments in IT infrastructure protect the system from fraud, while also providing a mechanism to promote equitable access, increase timely access to benefits and deliver improved customer experience. These IT investments complement targeted antifraud strategies like ID verification, data analytics, and cross-matching that will also be expanded through the funding in this UIPL—including a new national offering of government-operated ID verification services through Login.gov and the U.S. Postal

Service (USPS) to states.

The Department is excited to partner with states to maximize the impact of these funding opportunities to support transformations in the UI program. The systematic challenges exposed by the pandemic evolved over decades and will take years to remedy, but the investments outlined in this UIPL, in addition to the related funding provided in previous

UIPLs,2 mark one of the most ambitious efforts to date to drive such change.

UIPL Structure. This UIPL includes subsections for Integrity grants, a National ID

Verification Offering, IT Modernization grants, and Tiger Team grants. To aid states in navigating this UIPL, Attachment XVI provides section references and page numbers.

By packaging these opportunities together, the Department seeks to establish a coordinated approach nationally and among the states.

States should leverage these funding opportunities to develop multi-faceted, state-specific antifraud and UI modernization strategies, and request grant funding for a spectrum of projects that complement and strengthen each other.

• Integrity Grants. Section 4.b. of this UIPL announces up to $100 million in grants to states to take immediate steps to protect the UI program from fraudulent activity and to increase resources dedicated to overpayment recovery, by strengthening ID verification and implementing recommended and required fraud prevention and overpayment recovery strategies. Attachments I, II, and III to this UIPL provide supporting information.

• National ID Verification Offering. The Department is providing online and in-person opportunities to strengthen ID verification now and into the future. Over the

2 On August 11, 2021, the Department issued UIPL No. 22-21, which provided states with $140 million in ARPA funding for fraud detection and prevention, including ID verification and overpayment recovery activities, in all UC programs. The Department also made available up to $525 million in CARES Act funding to assist states with efforts to prevent and detect fraud and to recover fraud overpayments in certain CARES Act UC programs. See

UIPL Nos. 28-20; 28-20, Change 1; 28-20, Change 2; and 28-20, Change 4. Additionally, UIPL No. 23-21 provided up to $260 million in funding to assist states with activities that promote equitable access to all UC programs.

Under UIPL No. 11-22, ETA awarded grant funding to selected states to participate in the ARPA UI Navigator

Program which helps workers learn about, apply for, and, if eligible, receive UI benefits and related services (i.e., navigate the UI program) and supports state agencies in delivering timely benefits to workers—especially individuals in groups that are historically underserved, marginalized, and adversely affected by persistent poverty and inequality. UIPL No. 02-22, provided up to $200 million in funding to support states with implementation of recommendations made following a Tiger Team consultative assessment for fraud prevention and detection, promoting equitable access, and ensuring the timely payment of benefits, including backlog reduction, for all UC programs.

next two (2) years, subject to the availability of funding and necessary agreements being in place, the Department will use ARPA funds to make available to states government-operated ID verification systems developed by the U.S. General Services

Administration (GSA) to verify identities online through Login.gov and by the USPS to verify identities in person at participating USPS retail locations nationwide, as described in Section 4.c. of this UIPL. The Department will cover the transaction costs for ID verification for participating states during this process. This partnership will further inform whether there is a need for standardized mechanisms for ID verification within the UI system as a potential long-term, federally supported sustainable public offering to states.

States may use Integrity Grant funding under Section 4.b. of this UIPL to offset the costs of integrating these Department-funded services with their state operations – including online ID verification services, in-person ID verification services, or both.

Attachment V to this UIPL provides supporting information.

• IT Modernization Grants. The condition of state UI technologies was a key reason that state UI systems were overwhelmed by the surge of claims at the start of the pandemic and were unable to more fully protect against fraud while implementing

Congress’s temporary extension of unemployment benefits to additional populations.

As described in Section 4.d. of this UIPL, the Department is investing funds to help states adopt new strategies to modernize and rearchitect their UI programs to better defend against fraud threats now and prepare for challenges in the future.

Attachments VI, VII, VIII, IX, and XV to this UIPL provide supporting information.

• Tiger Team Grants. Fraud prevention can and must be achieved while providing equitable access to benefits and delivering timely payment of benefits. For example, about two-thirds of all Tiger Team recommendations to date either directly or indirectly support program integrity. Many equitable access improvements already supported by the UI modernization work, like the conversion of UI forms into plain language, make it easier for individuals to accurately file UI applications and reduce improper payments. To further support these activities, the Department will provide approximately $77 million dollars in funding for states (in addition to the $37.8 million already obligated) to implement the negotiated recommendations that states have developed in partnership with the Department’s multi-disciplinary Tiger Team initiative. These negotiated recommendations directly and indirectly address fraud prevention, as well as timely payment of benefits and equitable access to benefits.

Moreover, these recommendations promote technology changes that will improve customer experience in navigating applications and required online interactions between workers, employers, and states–changes that fulfill all three ARPA goals.

Attachment X to this UIPL provides updated allocation amounts by state.

States may use information in Attachments XI, XII, and XIII to this UIPL to support completion of grant applications across multiple sections of the UIPL. Attachment XIV to this UIPL identifies additional resources, strategies, tools, and services available for states.

Two-step application process. The grant application and award process for all funding opportunities announced with this UIPL will be completed in two stages, an Initial

Application and a later Full Project Plan. To receive funding, the state must complete an

Initial Application for each funding opportunity it is pursuing as described in the respective subsections of this UIPL. To facilitate a coordinated approach at the national level, the Department has set the same deadline for all of the Initial Applications contained in this UIPL, August 18, 2023.

Upon receipt and processing of an approvable Initial Application, a Notice of Award

(NOA) for the applicable funding opportunity will be sent to the state with a condition of award restricting access to the funds until the grant is amended to include a Full Project

Plan. To draw down these funds, the state must subsequently submit the Full Project

Plan for each NOA to resolve the condition of award, as described in the respective subsections of this UIPL.

Grant terms and conditions. The funding opportunities described in Sections 4.b. for

Integrity Grants, 4.d. for IT Modernization Grants, and 4.e. for Tiger Team Grants of this

UIPL are separate and distinct, with each requiring a separate two-step application process and specific reporting requirements. The periods of performance for each funding opportunity are described in the respective subsections of this UIPL.

Additionally, states choosing to participate in any of the grant opportunities announced in this UIPL must agree to share confidential UC data with the Department of Labor’s

Office of Inspector General (DOL-OIG) for the purposes of both audits and fraud investigations. The collaboration between the Department, states, and the DOL-OIG has led to successful collaboration with law enforcement (including the National

Unemployment Insurance Fraud Task Force within the U.S. Department of Justice)3 and the prosecution of criminals who perpetrated fraud against pandemic UI programs.

b. Background – On March 11, 2021, the President signed ARPA into law (Public Law

(Pub. L.) 117-2). Section 9032, ARPA, created a new Section 2118 of the CARES Act and provided for a $2,000,000,000 appropriation to the Secretary of Labor (Secretary) to:

(1) detect and prevent fraud, (2) to promote equitable access, and (3) to ensure timely payment of benefits to eligible workers with respect to UC programs. ARPA describes allowable uses of these funds, including awarding grants for such purposes to states and territories administering UC programs and for systemwide infrastructure investment and development.

On June 3, 2023, the President signed the FRA into law (Pub. L. 118-5). Section 24 of

Title I of division B of FRA permanently rescinds $1,000,000,000 of the unobligated balances of amounts made available by section 2118(a) of Title II of Division A of the

CARES Act, as added by Section 9032 of ARPA. UIPL No. 10-23 was published on

3 U.S. Department of Justice, “National Unemployment Insurance Fraud Task Force,” https://www.justice.gov/coronavirus/national-unemployment-insurance-fraud-task-force.

https://www.justice.gov/coronavirus/national-unemployment-insurance-fraud-task-force

July 13, 2023, and rescinded previous funding opportunity announcements which were impacted by the statutory funding rescission.4

The DOL-OIG issued two alert memorandums,5 identifying potentially fraudulent UI benefits paid in four specific high-risk areas, which included individuals with Social

Security Numbers (SSNs): (1) filed in multiple states, (2) of deceased persons, (3) used to file UI claims with suspicious email accounts, and (4) of federal prisoners. The

Department has taken action to support states in actively and aggressively addressing UI fraud and reducing improper payments and many actions have targeted the specific types of fraud identified by the DOL-OIG. In addition to adding the UI program to its High

Risk list in June 2022, GAO issued two reports6 recommending the Department assess fraud risks to the UI program in alignment with GAO’s Fraud Risk Framework.7 The

Department is actively working to enhance its existing UI fraud risk management processes, to align with leading practices as provided in the GAO’s Fraud Risk

Framework, and will continue to identify, evaluate, and address UI fraud risks.

Fraud prevention cannot be accomplished through any single strategy, but rather requires a combination of immediate, intermediate, and long-term changes in systems and processes. ETA’s efforts to address fraud risks and improve integrity in the UC programs includes providing guidance, technical assistance, and funding to states to combat fraud and reduce improper payments and requiring states to submit an Integrity Action Plan

(IAP) as part of its State Quality Service Plan (SQSP). ETA is also investing in developing new and enhancing existing tools, datasets, and resources and making them available to aid states in more quickly identifying potential improper payments and fraud.

The UC program is a vital safety net for unemployed workers and an economic stabilizer for communities impacted by unemployment events. At the most fundamental level, equity within the UC program means the provision of UC payments to eligible workers, regardless of one’s background, in a timely and fair manner, with an application process that is readily accessible to all workers. Specifically, equity within the UC program

4 UIPL No. 10-23 cancels UIPL No. 22-21, Change 2; UIPL No. 23-21, Change 5; UIPL No. 02-22, Change 3; and

UIPL No. 07-23. Additionally, it announces that any further pending applications under UIPL No. 23-21 will not be processed.

5 Report No. 19-21-002-03-315, Alert Memorandum: The Employment and Training Administration (ETA) Needs to

Ensure State Workforce Agencies (SWA) Implement Effective Unemployment Insurance Program Fraud Controls for High-Risk Areas, published February 22, 2021, https://www.oig.dol.gov/public/reports/oa/2021/19-21-002-03-

315.pdf and Report No. 19-22-005-03-315, Alert Memorandum: Potentially Fraudulent Unemployment Insurance

Payments in High-Risk Areas Increased to $45.6 Billion, published September 21, 2022, https://www.oig.dol.gov/public/reports/oa/2022/19-22-005-03-315.pdf.

6 GAO-22-105051, Additional Actions Needed to Improve Accountability and Program Effectiveness of Federal

Response, published October 2021, https://www.gao.gov/assets/gao-22-105051.pdf and GAO-23-105523, Unemployment Insurance: Data Indicate Substantial Levels of Fraud during the Pandemic; DOL Should Implement an Antifraud Strategy, published December 2022, https://www.gao.gov/assets/gao-23-105523.pdf.

7 GAO-15-593SP, A Framework for Managing Fraud Risks in Federal Programs, published July 2015, https://www.gao.gov/assets/gao-15-593sp.pdf.

https://www.oig.dol.gov/public/reports/oa/2021/19-21-002-03-315.pdf https://www.oig.dol.gov/public/reports/oa/2021/19-21-002-03-315.pdf https://www.oig.dol.gov/public/reports/oa/2022/19-22-005-03-315.pdf https://www.gao.gov/assets/gao-22-105051.pdf https://www.gao.gov/assets/gao-23-105523.pdf https://www.gao.gov/assets/gao-15-593sp.pdf includes a wide variety of factors such as eliminating administrative barriers to benefit receipt for eligible individuals, reducing workload backlogs, improving the timeliness and accuracy of UC payments, and ensuring equity in fraud prevention, detection, and recovery activities.

On January 20, 2021, the President issued Executive Order (EO) 13985 concerning advancing racial equity and support for underserved communities. This EO articulates the importance of advancing equity for all, including people of color and others who have been historically underserved, marginalized, and adversely affected by persistent poverty and inequality. This includes addressing disparities in accessing government programs facing individuals and communities including, but not limited to, low-wage workers, Black and Hispanic/Latinx workers, individuals with disabilities, individuals with limited

English proficiency, women, and individuals living in rural areas. Advancing equity requires a systematic approach to embedding fairness in decision making processes and eliminating barriers to access. Public programs must be designed to serve all individuals.

For this reason, the Federal Government should, consistent with applicable law, allocate resources to address the historic failure to ensure equitable access to individuals in underserved communities along with the individuals from those communities. Ensuring access to UC is a longstanding priority of the Department. On October 1, 2015, UIPL

No. 02-16 was issued, which articulates the applicable access requirements under federal law and provides states guidance to assist with their compliance with these requirements.

Change 1 to UIPL No. 02-16, which was issued on May 11, 2020, highlights additional state responsibilities regarding access to UC.

4. Guidance.

a. Relationship Between Grants. With previous funding opportunities and other assistance under ARPA, the Department has provided states with multiple resources to protect the system from fraud while preserving equitable access to benefits. The additional funding opportunities described in this UIPL are designed to complement these efforts, either by funding new activities or by expanding on, accelerating, or enhancing existing efforts. As each state considers where to focus their immediate attention across these funding opportunities, it should consider the purpose of the grants, the periods of performance, and the capacity and priority of state operations. It is the collective responsibility of the Department and states to use these investments strategically and to demonstrate meaningful improvements that drive longer-term investment and more sustained results.

As noted throughout this UIPL, the Department is deploying a two-step application process. At the time of preparing a Full Project Plan (as described in more detail below), the state will have the opportunity to propose an amended period of performance to account for the time needed to appropriately execute the full scope of these grant projects.

If the sum of all complete and responsive applications submitted under a specific funding opportunity under Sections 4.b., 4.d., and 4.e. of this UIPL is less than the available funds available under that funding opportunity, the Department may use the remaining unobligated balance to increase the funding for awards under one or more of the other funding opportunities contained in this UIPL. Final award amounts will be determined subject to the availability of funds.

b. Strengthening Integrity in the UI System. This section of the UIPL provides states with information on both required and strongly recommended strategies, tools, and services for UI fraud risk mitigation, improper payment reduction, and overpayment recovery; and announces the availability of up to $100 million to strengthen UI program integrity, including ID verification, fraud prevention and detection, and overpayment recovery efforts in all UC programs.

UI program integrity includes ID verification, fraud prevention and detection, improper payment reduction, fraud risk mitigation, the recovery of overpayments, the prevention of underpayments, the timely and accurate payment of benefits, and ensuring equitable access in all UC programs. ETA continuously develops and oversees implementation of integrity strategies that target the root causes of improper payments. The Department regularly evaluates and updates its antifraud strategies and is committed to ensuring its

UI fraud risk management activities are conducted in alignment with GAO’s Fraud Risk

Framework. GAO’s Fraud Risk Framework calls for a strategic approach for assessing and managing fraud risks. Since the UI program is a federal-state partnership, which means both the Department and state UI agencies are responsible for ensuring UI program integrity, states must also evaluate UI fraud risks and implement and maintain sufficient controls to effectively prevent fraud and reduce improper payments.

i. ID Verification in UC programs. Section 1137(a)(1), of the Social Security Act

(SSA), provides for states to require that individuals furnish their SSN as a condition of eligibility for benefits. As noted in Section 3.A.(1) of UIPL No. 35-95, any system planned or implemented to provide ease and convenience for filing claims must provide safeguards, including a way to ensure that the name and SSN used to establish eligibility for UC belongs to the individual filing the claim. Therefore, this provision of the SSA requires that states verify an individual’s identity to ensure that the individual filing the claim is the owner of the name and SSN used when establishing eligibility. The strongest method by which states can ensure the name and SSN belong to the individual applying for UC is by conducting evidence-based

ID verification. Evidence-based ID verification includes activities such as an individual presenting ID documents (i.e., official government-issued documentation, control over a device, account or address known to be associated with an identity, or biometric information) at a physical location, through a virtual platform, or through other state-developed processes or procedures that validate or verify an individual’s identity.

Evidence-based ID verification is most effective at preventing ID fraud:

• During the UC application process,

• Immediately following the completion of an initial claim,

• During any break in the claim series (e.g., additional and reopened claims), or

• When a claim is prioritized for investigation based on results of cross-matching or data analytics and evidence-based ID verification has not already been completed.

The Department encourages states to employ different fraud prevention and ID verification strategies at different points throughout the life of the claim. At a minimum, states must use a risk-based approach to determine which claims should be subject to evidence-based ID verification. A risk-based approach involves states using cross-matches and data analytics to identify suspicious activity that may be indicative of fraud. States must prioritize the investigation of claims having the greatest risks, and where appropriate, require the completion of evidence-based ID verification.

Cross-matching and data analytics are most effective when conducted in real-time during the UC application and/or initial claims process. Cross-matching and data analytics should also be conducted when a state identifies a change to key user data

(e.g., bank account or mailing address information) on an existing claim, which may raise suspicion of “claim hijacking” or “claim or account takeover”. The state should immediately take action by flagging the claim for investigation and conducting account verification services (AVS)/bank account verification (BAV) and/or other data analysis to ensure the change was made by the legitimate owner of the claim.

As workloads fluctuate and fraud schemes evolve, the Department expects states to continuously monitor their fraud management operations and collective ID verification efforts for effectiveness and adaptation.

A Note on ID Proofing. As defined by the National Institute of Standards and

Technology (NIST),8 ID proofing is the process by which a credentialed service provider (CSP)9 collects, validates, and verifies information about a person to establish that an individual is who they claim to be. ID proofing is one of many options states may use to conduct evidence-based ID verification.

States implementing ID proofing in their UC programs must implement solutions/services that balance equitable access with alignment to NIST digital identity guidelines. For example, states that utilize ID proofing are required to provide a non-digital alternative ID verification option(s) such as in-person ID verification at locations like participating USPS retail locations or American Job

Centers. States are encouraged to continue to refine and expand non-digital ID verification option(s) with funds from this opportunity, leveraging resources in their states where individuals can go or have gone to have their identity proofed.

8 NIST Special Publication (SP) 800-63 provides technical requirements for implementing digital identity services.

The publication includes: an overview of identity frameworks; using authenticators, credentials, and assertions in a digital system; and a risk-based process to select assurance levels at https://pages.nist.gov/800-63-3/sp800-63-

3.html.

9 NIST SP 800-63 defines a CSP, as a trusted entity that issues or registers subscriber authenticators and issues electronic credentials to subscribers. A CSP may be an independent third-party or issue credentials for its own use.

https://pages.nist.gov/800-63-3/sp800-63-3.html https://pages.nist.gov/800-63-3/sp800-63-3.html

ii. Fraud Prevention and Detection Activities. An antifraud strategy describes existing fraud control activities as well as any new control activities a program may adopt to address residual fraud risks. ETA issued UIPL No. 23-20, on May 11, 2020, reminding states of required and recommended program integrity functions for the

UC programs. In this subsection, ETA is consolidating and clarifying these activities and expanding the recommended program integrity functions as outlined below. ETA reiterates the importance of conducting the required program integrity functions and encourages states to incorporate all recommended functions into a state’s fraud management operations. States must continue to use, operate, and maintain the required integrity controls and the required overpayment recovery activities discussed below at all times, including during times of mass unemployment events, absent specific statutory authorization allowing suspension of such controls or activities.

ETA also strongly encourages states to use, operate, and maintain the recommended integrity controls and recommended overpayment recovery activities discussed below during such periods.

In accordance with UIPL Nos. 02-16 and 02-16, Change 1, states must ensure that the fraud prevention and detection technologies/strategies they use do not create barriers that prevent or limit access for some individuals in violation of applicable federal equal opportunity or nondiscrimination laws. This may include identifying potential barriers that may impact historically underserved and marginalized populations when making design decisions and training team members on equity-related issues and processes.

States should continuously evaluate their fraud prevention and detection activities from the perspective of equitable access (see Section 4.b.iv. for more information on evaluating data to ensure effectiveness and equity in ID verification and fraud prevention and detection).

A. Required Fraud Prevention and Detection Activities. States must use, operate, and maintain the following integrity controls to prevent and detect fraud.

• ID Verification (Section 1137(a)(1) of the Social Security Act and UIPL

No. 35-95) including proper notification and adjudication when an eligibility issue arises (UIPL No. 16-21);

• National Directory of New Hires cross-match (UIPL Nos. 13-19 and 19-

11, Training and Employment Notice (TEN) No. 05-20);

• Quarterly Wage Records cross-match (20 C.F.R. 603.23);

• Systematic Alien Verification for Entitlement (SAVE) (Section 1137(d) of the Social Security Act (42 U.S.C. §1320b-7)); and

• Referral of allegations reasonably believed to constitute UC fraud, waste, abuse, mismanagement, or misconduct to DOL-OIG (UIPL No. 04-17, Change 1).

B. Recommended Fraud Prevention and Detection Activities. ETA strongly recommends states implement, use, operate, and maintain the following integrity controls.

• UI Integrity Center’s Integrity Data Hub (IDH) (see Attachment XIV of this UIPL for details on IDH functionalities/resources);

• Digital Authentication, such as Multifactor Authentication (MFA);

• Device Fingerprint/Reputation Management, which establishes a combination of inputs (i.e., digital identity) to assist in the authentication of a user’s identity during ongoing use of online state UI systems;

• Fraud Risk Scoring (i.e., Case Management Prioritization), which includes using sophisticated risk analytics to assign a risk-based score to claims to detect suspicious activity early in the claims process, as well as minimize the number of false positives to protect legitimate individuals from being flagged for suspected fraud and avoid disproportionately assigning high risk scores to particular groups of individuals;

• Comparisons and cross-matches that detect shared characteristics (e.g., phone numbers, mailing addresses, email addresses, and banking information) on multiple claims;

• Social Security Administration cross-matches (i.e., Unemployment

Insurance Query (UIQ), Prisoner Update Processing System (PUPS), Death Master File) (see Attachment XIV of this UIPL for details regarding

PUPS);

• Federal, state, and local incarceration cross-matches;10

• Deceased Records cross-matches;

• Vital Statistics cross-matches;

• State Directory of New Hires cross-match;

• Department of Motor Vehicle cross-match;

• Interstate Benefits (IB) cross-match;

• State Identification Inquiry (SID) and IB8606 enhancements made to the

Interstate Connection (ICON) network cross-match to prevent concurrent claim filing in multiple states;

• State Information Data Exchange System (SIDES) (TEN No. 12-16) (see

Attachment XIV of this UIPL for details regarding SIDES);

• Use of a unique identifier to identify individuals instead of using the full

SSN;

• Fictitious employer cross-matches;

• Periodic IT security assessments and audits consistent with NIST-compliant IT security guidelines (UIPL No. 04-21);

10 Data sets from jails and prisons may not be updated in real time and therefore may lag in the reported incarceration entrance and/or release dates. Additionally, data sets may contain unreliable identity information.

ETA reminds states to factor these things in when reviewing incarceration data cross-match results. After receiving incarceration cross-match information, states must conduct appropriate investigations to determine eligibility. See

UIPL No. 01-22.

• Adequate internal controls to protect the integrity and security of state assets (UIPL No. 14-17); and

• Implement a cross-functional integrity task force to develop and implement state-specific action plans to reduce UI improper payments

(UIPL No. 19-11).

C. Effectively Conducting Fraud Prevention and Detection Activities. Simply deploying a fraud prevention and detection tool, implementing an ID verification/proofing solution, or adding a new cross-match is not the most effective strategy for fraud prevention and ID verification. To effectively prevent and detect fraud, states should consider where in the UI process every tool, solution, and resource is best used and how investigations are prioritized to prevent fraud and reduce improper payments.

States should think strategically about how cross-match results are triaged and prioritize claims for investigation that have a higher probability of fraud or the potential to result in large improper payments. States should be judicious in deciding which cross-matches trigger an immediate hold on benefits, and which require further investigation before a payment series is stopped. ID verification investigations are time sensitive, especially in situations where payment has already been made on a claim and the individual fails to respond by the deadline. After the response deadline passes and no response is received, states should act quickly to stop future payments from occurring by issuing an immediate failure to respond denial (see Section 4 of UIPL No. 16-

21).

Further, states should consider the frequency of cross-matches within the life of the claim – some are more effective when run often and continuously throughout the claim lifecycle. For example, a multi-state cross-match may be most effective if conducted during the initial claim application or immediately following the initial claim and prior to issuing payment. Vital statistics, deceased records, and incarceration cross-matches are critical activities that are effective if conducted during the initial claim process, and prior to issuing first payment, and may also be highly effective at continuing to confirm UI eligibility throughout the life of the claim. Other activities, such as a suspicious email domain cross-match or AVS/BAV may be appropriate to run once or on an ad hoc basis when an email address or bank account is suspect, updated, or changed on a claim.

States should take the following three actions to strengthen fraud prevention and detection using the IDH:

1. Take advantage of, and use, all IDH functionality;

2. Implement IDH web service/real-time connectivity, if possible; and

3. Submit all UC initial and continued claims to the IDH in real-time, or daily, at minimum.

iii. Overpayment Recovery Activities. UIPL No. 23-20 also reminded states of required and recommended overpayment recovery activities.11 Overpayment recovery is critical to protect both state UI trust funds and federal funds and must be given the same priority as fraud prevention and detection activities.

A. Required Overpayment Recovery Activities. States must implement, use, and maintain the following activities to recover overpayments.

• Benefit Offsets (Title II, Subtitle A of the Middle-Class Tax Relief and

Job Creation Act of 2012, UIPL No. 05-13, and Section 5 of UIPL No. 13-

20, Change 2);

• Treasury Offset Program (TOP) for applicable covered debt (Bipartisan

Budget Act of 2013, UIPL Nos. 02-19, 12-14, and 04-20);12

• Cross Program Offset Recovery Agreement (CPORA) (UIPL No. 05-13);

and

• Interstate Reciprocal Offset Recovery Arrangement (IRORA) (UIPL No.

05-13).

B. Recommended Overpayment Recovery Activities. ETA strongly recommends that states implement, use, and maintain the following activities to recover overpayments.

• Negotiating repayment plans;

• Accepting repayments through various methods (e.g., online, via debit/credit card);

• State Income Tax Offset Program;

• Wage garnishments;

• Property liens and assessments;

• Offsets of lottery winnings, homestead exemptions, and other benefits;

• Active participation in probate and/or bankruptcy proceedings regarding an individual with an outstanding overpayment;

• Skip tracing;

• Work proactively and collaboratively with banks and financial institutions to detect suspicious activity, ensure that accounts are not unduly suspended, and recover overpayments (UIPL No. 19-21);

• Civil actions;

• Credit bureau referrals;

• State/federal prosecution;

11 States may, under limited circumstances, elect to waive recovery of certain established non-fraud overpayments.

For overpayments in the regular UI program, these circumstances are defined in state law. For overpayments under the temporary pandemic-related UC programs, refer to UIPL Nos. 20-21 and 20-21, Change 1.

12 Covered debt includes past-due debts that are the result of claimant fraud or unreported earnings, uncollected employer contributions, and any penalties and interest assessed on such debt (26 U.S.C. § 6402(f)(4)).

• Penalties and interest on overpayments in compliance with state and federal law;

• Collection agency referrals when state staff is limited, or debt is uncollectable by other means;13

• Implementing a voluntary fraud self-disclosure program (see Section

4.b.iii.C. of this UIPL for more details); and

• Other recovery methods as determined by state law or policy.

C. Effectively Conducting Overpayment Recovery Activities. States may consider implementing a voluntary fraud self-disclosure program, which may help increase the recovery of UI fraud overpayments. Voluntary fraud self-disclosure programs may provide benefits to states such as revealing previously unknown fraud, waste, and abuse; reducing a state’s time and resources spent on data analytics and investigations; and enabling a state to identity, establish, and collect overpaid benefits.

In establishing a voluntary fraud self-disclosure program, states may consider such actions as reducing overpayment penalties (monetary14 or penalty weeks) and/or forgoing or reducing civil/criminal actions for individuals who voluntarily self-report their fraudulent activity involving the UI program.

While state law will ultimately control what, if anything, a state can modify with respect to these activities, ETA encourages states to work with stakeholders to determine if a voluntary fraud self-disclosure program could be a beneficial added component to the state’s UI overpayment recovery efforts.

ETA also suggests that states consider an escalated approach to claimant communications for overpayment recovery activities. For example, an individual with a non-fraud overpayment may successfully resolve their overpayment after receiving clear communication with instructions on how to establish a repayment plan and a clear explanation regarding any overpayment waiver processes. Only if the non-fraud overpayment is not waived and an individual fails to establish or comply with a repayment plan after a period of time that the state deems appropriate, should the state send an escalating notice for further recovery activities. See the UI Modernization website located at https://www.dol.gov/agencies/eta/ui-modernization, specifically information provided at https://www.dol.gov/agencies/eta/ui-modernization/language-portfolio for support with plain language conversions to simplify terminology complexity when communicating with claimants.

13 The immediate deposit and withdrawal standards prohibit states from paying third-party collection agencies out of a recovered overpayment. See 3304(a)(3), FUTA; 303(a)(4), SSA; 3304(a)(4), FUTA, 303(a)(5), SSA.

14 The Trade Adjustment Assistance Extension Act of 2011 (TAAEA) amended sections 303 and 453A of the SSA and Sections 3303, 3304, and 3309 of FUTA to require states to impose a monetary penalty (an amount not less than

15 percent of the erroneous payment) on claimants whose fraudulent acts resulted in overpayments (see UIPL No.

02-12). States may not waive or reduce this penalty assessed on fraud overpayments below the mandatory 15 percent.

https://www.dol.gov/agencies/eta/ui-modernization https://www.dol.gov/agencies/eta/ui-modernization/language-portfolio https://www.dol.gov/agencies/eta/ui-modernization/language-portfolio

Attachment IV to this UIPL provides considerations for states in providing individual notifications and processing refunds under the CARES Act UC programs that states are encouraged to consider expanding to the regular UI program as well. As provided in UIPL No. 20-21, Change 1, the Department strongly encourages states to waive the recovery of overpaid benefits in qualifying cases under the CARES Act UC programs. Given the scale of the challenge of implementing state UI and CARES Act UC programs accurately, many individuals received an overpayment of benefits due to no fault of their own. The CARES Act, as amended, provides that states may waive recovery for overpayments under the CARES Act UC programs when two conditions are met: (1) when the claimant was without fault in creation of the overpayment and (2) recovery of overpayment would be against equity and good conscience. Under no circumstances may a state waive recovery of an overpayment that is fraudulent.

iv. Evaluating Data to Ensure Effectiveness and Equity. A critical part of fraud risk management includes evaluating outcomes using a risk-based approach and adapting activities to improve fraud risk management. States should monitor and evaluate the effectiveness of fraud prevention and improper payment reduction activities, to adapt to changing risks and continuously improve the effectiveness of their fraud management operations. This includes collecting and analyzing data for fraud trends and identifying potential control deficiencies. Effective monitoring and evaluation focuses on measuring outcomes and progress toward the achievement of objectives, rather than simply reviewing outputs and progress in implementing control activities.

Results of the monitoring and evaluations should be used to improve the design and implementation of fraud risk management activities.

As states are implementing and refining processes for digital authentication, ID verification, cross-matching, data analytics, and other fraud prevention and detection activities, states must consider and address any equitable access impacts. One of the most common barriers to equitable access is an ID verification process that is difficult to complete. Examples of difficulty in completing ID verification processes may involve individuals with limited English proficiency; individuals with limited access to, or understanding of, technology; or instructions that are unclear or cumbersome.

Another common barrier is states erroneously flagging legitimate claim activity as suspicious. This can result in delays for eligible individuals to receive UI benefits – a matter which is further exacerbated when states are experiencing high workload volumes, making it difficult for individuals to contact the state unemployment agency. States must ensure there is at least one timely, effective, and accessible non-digital alternative to online ID verification. This non-digital option should not be overly burdensome on applicants, limit access to public benefits programs or the timely receipt of benefits, or stigmatize members of the public in any way.

ETA strongly recommends that states implement data collection and analysis to review their fraud prevention and detection activities – monitoring for barriers to equitable access and taking swift action to mitigate such barriers.15 The data for this analysis may come from system datapoints, customer surveys, periodic user interviews, and case samples. States should work with their service providers or with their in-house fraud management operations to identify and resolve any barriers or equitable access impacts resulting from ID verification practices and data analytics and cross-matching services.

When using a CSP for ID proofing or a third-party ID verification solution, ETA recommends that states establish, within their contracts, a process to receive

Personally Identifiable Information (PII) and data on an individual’s ID verification status (i.e., verified, not verified, pending, inconclusive) within a service provider’s system or solution. To be able to properly respond to customer inquiries, states should have access to such information in real-time (if possible), but no later than 24 hours after an individual started the ID verification process and whenever there is a change in the ID verification status. By knowing the individual’s ID verification status, the state can also ensure that appropriate instructions and next steps are provided to the individual. The Department outlined stringent technical, service level, business performance, and equity requirements in its solicitation for ID verification/proofing services described in TEN No. 06-21. ETA recommends that states incorporate similar provisions in their ID verification solicitations and contracts with service providers. Attachment III to this UIPL describes recommended contract provisions for ID verification/proofing services and solutions.

DOL-OIG recently issued an Alert Memorandum16 highlighting concerns about states’ use of ID verification service providers, specifically those employing the use of facial recognition technology, and the impact these ID verification/proofing services may have on equitable and secure access to UI benefits. ETA strongly encourages states to carefully review ID verification/proofing solutions that use biometrics such as facial recognition. While these solutions may help to reduce ID fraud, they may have negative implications for or lead to violations of states’ nondiscrimination obligations under Section 188 of Workforce Innovation and

Opportunity Act (WIOA). States are reminded that a non-digital alternative option for ID verification must be available and not require substantially more time, hardship, or delay to complete. Furthermore, states using ID verification/proofing solutions that employ the use of facial recognition technology, must test the system for biases and work with the service provider to identify and resolve any biases or barriers to equitable access resulting from the ID verification process.

15 As described in UIPL No. 11-14, the Department’s regulations also require state compliance with the U.S. Office of Management and Budget (OMB) guidelines on the collection of data based on race or ethnicity. See 29 CFR §

38.41(d). States must provide information about the reasons for a data request, and the ways in which the data may be used before asking about a claimant’s race/ethnicity, sex, age, or disability status.

16 Report No. 19-23-005-03-315, Alert Memorandum: ETA and States Need to Ensure the Use of Identity

Verification Service Contractors Results in Equitable Access to UI Benefits and Secure Biometric Data, published

March 31, 2023, https://www.oig.dol.gov/public/reports/oa/2023/19-23-005-03-315.pdf.

https://www.oig.dol.gov/public/re…