The U.S. Department of Labor has ordered governors across all 50 states and three territories to strengthen identity verification measures in unemployment insurance programs, warning that jurisdictions failing to curb fraud could face unprecedented federal funding cuts.
The move comes as the Trump administration intensifies efforts to recover billions of dollars lost to fraudulent and improper unemployment claims that surged during the COVID-19 pandemic. Labor officials said weak verification systems allowed criminals to exploit stolen identities and collect benefits across multiple states, costing taxpayers billions.
Acting Labor Secretary Keith Sonderling said letters sent to governors require states to verify claimants before payments are issued, replacing what he described as a “pay first, verify later” approach that enabled widespread abuse.
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“The Department of Labor is going to take unprecedented action to stop this fraud,” Sonderling said, adding that the agency would use every available enforcement tool, including withholding administrative funding from states that fail to comply with federal requirements.
The department said stronger safeguards will include confirming claimant identities, ensuring benefits are not being sent to criminal organizations or overseas recipients, and verifying that applicants are genuinely eligible for unemployment assistance.
Federal officials estimate improper unemployment insurance payments reached roughly 14% nationwide during the pandemic-era surge in claims. In some cases, the same Social Security number was reportedly used to obtain benefits in multiple states.
Several large states were singled out for heightened scrutiny. According to Sonderling, New York is currently issuing more than $2 million a day in improper unemployment-related payments, while California owes more than $20 billion to the federal unemployment trust fund.
He also cited New York, New Jersey, Pennsylvania, Massachusetts, and Illinois, saying the five states collectively made more than $2.5 billion in improper unemployment payments last year.
The crackdown is being coordinated through Vice President JD Vance’s anti-fraud task force, which administration officials say has already recovered more than $512 million in improperly distributed funds from Maryland alone.
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“One of the most basic ways to stop fraud is to verify that public benefits are actually flowing to the intended recipients,” Vance said, praising the Labor Department’s efforts to tighten oversight of benefit programs.
The administration argues that unemployment insurance should function as a temporary safety net for workers who lose their jobs rather than a system vulnerable to fraud and abuse. State governments are now expected to implement stronger verification procedures or risk losing federal administrative support, marking what labor officials described as the most aggressive federal enforcement effort against unemployment insurance fraud in the program’s history.