Keith Sonderling, acting head of the US Department of Labor, has sent letters to 53 states and US territories demanding action to combat waste, fraud, and abuse in unemployment insurance programs. For the first time in history, the agency threatens to withhold administrative funds from states that fail to comply.
Sonderling's Warning to Governors
“We are officially putting governors on notice,” Sonderling said. “The American people will no longer tolerate the blatant waste, fraud, and abuse of their hard-earned tax dollars – no state should allow it either. If states allow it, they will suffer the consequences. This department is no longer afraid to use every lever available to ensure taxpayer money is protected.”
Lack of Data Cited
The Department of Labor did not provide specific data on fraud or alleged fraud in state unemployment systems. However, it highlighted three Democrat-led states – California, New York, and Illinois – making unsubstantiated claims about each.
Regarding California, the department claimed the state owes $20 billion to the federal government for a loan taken during the Covid-19 pandemic. California has struggled to repay this loan, similar to a federal loan received during the 2008 recession, due to an outdated unemployment payroll tax system unchanged since 1984. The taxable wage ceiling remains $7,000 per worker with a maximum tax rate of 5.4%, leaving insufficient funds for the state's unemployment reserve. Legislators from both parties have been working to resolve the issue.
For New York, the department alleged it loses an estimated $2 million per day in unemployment insurance fraud and improper payments, without differentiating between the two. Illinois was cited for having improper payments of $320 million, at a rate of 14%.
Improper Payments vs. Fraud
Improper payments are not necessarily fraud; they are often due to antiquated technology. The national improper payment rate is estimated at 14.9%. While New York, California, and Illinois have high improper payment rates, several Republican-led states also have leading rates. Florida, for example, reported a 36.43% improper payment rate from 2021 to 2024, more than double California's 16.85%.
“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, why the fraud isn’t going away,” said Michele Evermore, senior fellow at the National Academy of Social Insurance. She noted that states should seek help from the Department of Labor rather than be blamed and threatened.
“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. It’s not the right way to soberly and stoically deal with a problem that everybody faces,” she added.
Fox News Appearance
Sonderling appeared on Fox News on Wednesday morning, stating: “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.” He claimed Democrat governors lead states with the highest fraud, without citing evidence or data.
Previous Actions
In May 2025, the department sent letters requiring states to return unspent funds from the American Rescue Plan Act, a move criticized for disrupting modernization and anti-fraud efforts. Estimated fraud in unemployment insurance from April 2020 to May 2023 was between $100 billion and $135 billion, according to the Government Accountability Office, though the department argued the estimate was overstated.
