Billions of dollars in improper and fraudulent payments by New York's unemployment system were made during the COVID-19 pandemic due to weak oversight and a failure to make needed updates to how money is sent to people in genuine need, according to an audit released Tuesday by the state comptroller's office. 

The audit pointed to more than a decade of state Department of Labor officials not providing needed updates to an aging unemployment system despite warnings dating back to 2010 and identified in 2015 audit.  

Failure to make the changes other than "ad hoc workarounds" led to scammers taking advantage of a skyrocketing unemployment rate in March 2020 when businesses and public gathering spaces were shuttered in order to slow the spread of the COVID-19 pandemic. The shutdown led to a flood of calls to the state Department of Labor by newly jobless people seeking benefits. 

A record $19 billion was spent on unemployment insurance benefits during the initial closure has the jobless rate spiked. 

It also led to billions of dollars in estimated fraud and improper payments.

“The state Department of Labor’s antiquated UI system was ill-equipped to handle the challenges posed by the extraordinary demand caused by the pandemic for unemployment benefits and more lenient federal eligibility requirements,” NYS Comptroller Thomas DiNapoli said. “The agency resorted to stop-gap measures to paper over problems, and this proved to be costly to the state, businesses, and New Yorkers. The department needs to recoup fraudulent payments and correct its mistakes. I was pleased the department agreed with our recommendations and is moving to implement them.”

The Department of Labor did not immediately respond to a request for comment. 

Business organizations in New York blasted the results of the audit, calling it a "wake up call" for the governor and state Legislature.

The business community had already been pushing for the state government to relieve businesses of a boost in unemployment costs due to increased interest on borrowed debt from the federal government. 

"This stunning incompetence demands immediate accountability and action," said Justin Wilcox, the executive director of the business-allied Upstate United. "Governor Hochul should pledge to fully refund the $159 million that employers were forced to pay through an interest assessment surcharge in September. Additionally, Governor Hochul and legislative leaders must pay down New York’s $7.7 billion debt to the federal government."

Working together to resolve New York’s unemployment insurance crisis will ultimately benefit consumers, workers and employers. Let’s get it done.”

DiNapoli's office on Tuesday said labor officials would not provide auditors with information that could have enabled them to determine how many improper payments were made and the total amount. The agency was also slow to provide information that delayed the audit from being completed, DiNapoli's office said. 

The audit itself examined the period between January 2020 and March 2022. 

New York's unemployment system struggled with fraud prior to the start of the pandemic. In 2019, a report by the federal government found New York's improper payment rate was 10.34%, with a fraud rate of 4.51%. 

During the pandemic, the improper payment rate in New York ballooned to more than 28% and fraud rate reached more than 17%.

It's estimated New York was defrauded out of $11 billion during the 2020-21 fiscal year, which covered much of the initial months of COVID pandemic. DiNapoli's audit cautions that figure likely understates the actual amount. 

State auditors tested a sample of 53 claims and found about a third received benefits that exceeded the allowable amount. Audits also sampled an additional 118 claims and found 96 were improperly paid nearly $2.8 million. 

An outdated system also led to problems with monitoring and analyzing fraudulent claims. The Department of Labor could not find the root cause for the overpayments and failed to implement oversight to address weakness in the system. 

Officials at the Department of Labor have sought to highlight their efforts to counteract fraud and make sure proper payments. 

In September, Gov. Kathy Hochul and Commissioner Roberta Reardon announced efforts to crackdown on fraud had led to identifying $11 million in improper payments in August alone and is on pace to find $110 million in fraudulent payments overall this year. 

The Hochul administration has also pointed to a four-year plan to update customer service and anti-fraud programs within the department.