State audit finds Virginia failed to collect nearly $200 million in unemployment overpayments

The Virginia Employment Commission recognizes the importance of protecting the integrity of the unemployment insurance program and responsibly managing public funds. While the audit from the Office of State Inspector General (OSIG) identifies areas where overpayment recovery processes can be strengthened, it is also important to recognize the unprecedented operational challenges created by the COVID-19 pandemic and the extraordinary demands placed on unemployment systems across the country.


During the pandemic, VEC received and processed an over 1,200% increase in Unemployment Insurance (UI) claims and distributed over $2 billion in UI benefits to Virginians facing sudden job loss and economic uncertainty, often while federal guidance, eligibility requirements, and additional emergency programs were rapidly evolving. The scale and speed of the crisis created challenges for unemployment systems nationwide, including Virginia’s. The exponential increase in claims received and benefits paid resulted in a corresponding increase in benefits later found to have been overpaid.


As noted in the report, collection activities on unemployment insurance overpayments were suspended between June 2020 and August 2022. Collection efforts were quickly reinstated in August 2022 for overpayments resulting from fraudulent activity and have continued since that time. Collection efforts on overpayments established after August 2022 were not paused.



VEC recognized that many non-fraud overpayments may have been established in error or were the result of identity theft. To prevent erroneous collection activities, VEC took deliberate steps to individually review non-fraud overpayments established between June 2020 and August 2022 before reinstating collection activities. OSIG identified that a portion of these overpayments had not yet had collection activities reinstated, and VEC is currently reviewing and reinstating collection efforts on those cases.



It is important to note this report focuses only on the overpayment activity for the UI program and not on the federal pandemic programs. VEC recovered an additional $22 million in federal pandemic program overpayments between April 2021 and December 2025.



“This report examines actions and operational challenges that largely occurred during an unprecedented period in the pandemic and its aftermath. Since taking over as Commissioner earlier this year, my focus has been on where the agency goes from here,” said Commissioner Melissa Smith. “VEC is actively implementing improvements, modernizing technology, and strengthening processes designed to both recover overpayments appropriately and reduce the likelihood of future overpayments occurring in the first place.”


The report also highlights the important role technology can play in supporting and strengthening recovery efforts. VEC is in a much stronger operational and technological position today than it was during the height of the pandemic and the report notes that VEC has already been actively working to implement the recommended improvements.


Most notably, VEC resumed participation in the Federal Treasury Offset Program and has already submitted approximately 10,000 overpayments for collection through that process. In addition, VEC is actively exploring technological solutions that would allow claimants to make repayments online using credit or debit cards, and the agency is reviewing and revising its repayment plan communications to ensure they are clearer, more understandable, and written in plain language.



Many of the remaining recommendations involve operational, legal, financial, and technology considerations that require careful analysis to ensure any changes are effective, legally sound, and fiscally responsible. VEC is conducting internal reviews of these recommendations. VEC remains committed to strengthening its recovery processes, implementing corrective actions, and enhancing program integrity to ensure it responsibly pursues recovery of overpayments where appropriate and permitted under the law. Through these efforts, VEC reaffirms its commitment to safeguarding public funds, strengthening program integrity, and maintaining the trust of the Virginians it serves.