US Labor Department providing $653 million to help states upgrade UI systems

The United States Department of Labor is seen in Washington, D.C., U.S.

WASHINGTON (Reuters) - The U.S. Department of Labor said on Friday it was providing up to $653 million in grants to state governments to help safeguard against fraud by updating their unemployment insurance (UI) information technology infrastructure.

It said in a statement that $600 million in grants would also assist with improving service delivery. The grants are funded by the American Rescue Plan Act signed in 2021.

State UI programs are susceptible to fraud. This month, the Massachusetts Department of Unemployment Assistance said it was "experiencing an increase in fraudulent claim activities."

That resulted in initial claims for state unemployment benefits surging to a 1-1/2-year high during the week ended May 6, leading economists to mistakenly conclude that the labor market was fast losing momentum.

The jump was subsequently revised away, leaving claims at levels consistent with tight labor market conditions.

"This funding represents a historic investment in the nation's UI infrastructure intended to help states invest in and equip themselves with the tools needed to strengthen their systems now and for the future to operate programs effectively," said Brent Parton, acting assistant secretary for Employment and Training.

The Labor Department said the need to upgrade the states' UI infrastructure became more evident during the COVID-19 pandemic when 1 million unemployed Americans filed initial claims every week for a year, overwhelming the nation's 53 different systems.

Up to $53 million will be available to enable states to participate in information technology modernization programs sponsored by the Department of Labor.

Last month, $200 million in funds for ID verification and fraud prevention were made available to states.

In addition to grant funding, the Labor Department said it was providing direct assistance and resources to help states modernize their UI programs and safeguard them against fraud while ensuring equitable access to benefits.

(Reporting by Lucia Mutikani in Washington; Editing by Matthew Lewis)