WASHINGTON, D.C. — Acting U.S. Secretary of Labor Keith Sonderling sent letters to 53 states and U.S. territories demanding action to address waste, fraud, and abuse within the unemployment insurance program. The letters threaten to withhold administrative funds from states, marking the first time in history that the Department of Labor has issued such a threat for this purpose.

Sonderling said, "We are officially putting governors on notice. The American people will no longer tolerate the blatant waste, fraud, and abuse of their hard-earned tax dollars. If states allow it, they will suffer the consequences." In a television interview, he said, "I will essentially cut off the states' administrative funds and then they won't be able to administer this unemployment insurance due to the fraud."

The department named California, New York, and Illinois in its claims, but did not provide data on fraud or alleged fraud in state unemployment systems in its communications. The department claims California owes $20 billion to the federal government for a federal loan received during the pandemic. The state has previously struggled to pay off a similar federal loan received during an economic recession. The state's unemployment payroll tax system has remained unchanged since 1984, with a taxable wage ceiling of $7,000 and a maximum tax rate of 5.4 percent. Legislators in the state have been working to resolve unemployment funding issues.

The department claims New York loses an estimated $2 million per day in unemployment insurance fraud and improper payments without differentiating between the two. The department also claims Illinois has improper payments totaling $320 million, at a rate of 14 percent. Improper payments are generally not classified as fraud and are often attributed to outdated technology. The estimated improper payment rate across the U.S. is 14.9 percent. Florida reports an improper payment rate of 36.43 percent, more than double the state's rate of 16.85 percent, based on data from 2021 to 2024.

During the television interview, Sonderling claimed that governors of Democrat-led states have the highest fraud rates without citing evidence or data. Michele Evermore, a senior fellow, said, "Fraud is still a problem and it hasn't gone away since the start of the pandemic but this press release is part of the problem." She added, "No state wants to pay fraudulent benefits to criminal actors. It should be an all of government, all of society response, instead of calling out governors they have a political beef with."

The Government Accountability Office estimated fraud in U.S. unemployment insurance between April 2020 and May 2023 was between $100 billion and $135 million. The department argued that the Government Accountability Office's fraud estimate was overstated.