Unemployment fraud during the pandemic could be up to $400 billion, and the majority of the funds are likely to have ended up in the hands of crime syndicates — making this not just a matter of colossal inefficiency but added impacts of national security.
The economic impact of COVID-19 is well documented. Businesses across all sectors felt the effects of national lockdowns and movement restrictions. Governments had to act quickly to protect these businesses and their employees from the financial effects. Altogether authorities have spent about 2.2% of the global GPD (approx. 2 trillion USD) to combat the effects of COVID. Most of this stimulus funding was provided in cash assistance.
Authorities chose cash to refuel the economy as they saw it as the quickest solution to an urgent issue, however, did it have the biggest impact? Did the simplicity come with a sacrifice of efficiency?
Cash is very easy to distribute and requires no integration to spend, but on the flip side it is impossible to direct where, when, and if it is spent.
As a result, stimulus funds can be misspent, and this creates incentive for fraud. In the U.S, “widespread fraud at the state level in pandemic unemployment insurance is one of the most serious challenges" said White House economist Gene Sperling.
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With the amount of state distributed money rising the rewards for fraud increases with it. It has got to the extent where the dark web now has people offering unemployment fraud on a software as a service package.
With fraud the likelihood money intended to help individuals and to boost spending at struggling local businesses ends up in the wrong pockets grows significantly.
Haywood Talcove, the CEO of LexisNexis Risk Solutions, estimates that at least 70% of the money stolen by impostors ultimately left the U.S, much of it ending up in the hands of criminal syndicates in China, Nigeria, Russia and elsewhere.
These insights are hard to accurately validate due to cash being completely untraceable, extra resources are used on surveys and impact assessments to gauge the inefficiencies.
Government funding problems are now highlighted with the mass scale distribution and fraud seen under COVID. Authorities are now looking to innovative, tech-based solutions as the answer to these problems.
"President Biden has been clear that this type of activity from criminal syndicates is despicable and unacceptable. It is why we passed $2 billion for UI modernizations in the American Rescue Plan, instituted a Department of Justice Anti-Fraud Task Force and an all-of-government Identity Theft and Public Benefits Initiative.”
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The key to ending the issues with fraud takes two approaches:
1. Stop the fraudulent claims
Stopping the money from being given to the wrong people. However, this is difficult and can absorb large amounts of resources in detailed applicant checks. Also, these checks slow down the time from application to receiving funds, increasing this time gap can be dangerous.
2. Ensure that the funding is only spent where and how it is meant to:
This works in multiple ways.
People are less incentivised to steal access to purchasing power if it can only be spent in restricted markets (e.g. funds are only redeemable at local food shops and restaurants), the risk of being caught and the and resources that go into committing state fraud are too serious if there is no big picture win (e.g. a house, a new car, a new watch), instead just $80,000 worth of food for example.
Set spending rules that ensure to spend government benefits you must spend a portion of your own money (e.g. 50% grant, 50% personal earnings). This means that fraudsters would have to burn through considerable amounts of their own cash to gain access to material goods through fraud.
The impact of fraud can be reduced even if unworthy people are still stealing funds. If funds are ensured to go to businesses that need government help to survive then then the negative of giving unjust funds is mitigated with the greater impact achieved.
Unbox is at the forefront of a new world of closed-loop purchasing power distribution networks which we believe are the way to solve the issues currently with grants and renumeration systems. Our solutions improve the efficiency of funding flows by allowing full control and feedback into where given funds are distributed. As a result, organisations can either have the same impact with a smaller budget or keep the current budget but increase the impact they have significantly.
See Unbox your City to find out more about how our solution works.