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Maryland overpaid $807.4 million in unemployment benefits since the COVID-19 pandemic and missed the opportunity to recover $760 million of that amount because it took too long do to so, state auditors said.
The report published Friday by the Office of Legislative Audits covered unemployment benefit paid out between Nov. 16, 2020, and Jan. 15, 2025, when states were flush with federal cash to help them through the pandemic and the sudden and historic loss of jobs that came with it. The chance to collect many of those overpayments passed in May 2025, the auditors said.
“That is quite concerning to me when we are not good stewards of taxpayer money,” said Sen. Shelly Hettleman (D-Baltimore County), co-chair of the Joint Audit and Evaluation Committee. “We have a (budget) shortfall, and we need to make sure that our money is spent on the priorities and the values we adhere to.”
Labor Secretary Portia Wu said her department takes the findings of the audit “very seriously” and that it is working to recover as much as it can going forward. But she also noted that “about 90%” of the unrecoverable overpayments would have fallen under the administration of Gov. Larry Hogan (R), and that much of the money involved would not have been state funds, but federal money that states received during the pandemic.
“We had been working on addressing these underlying problems far before these audit findings,” Wu said Friday, noting that the department has recovered “over $500 million in fraudulent, overpaid claims in 2025” and is “pursuing another $1.3 billion in overpayments.”
The Labor Department’s Division of Unemployment Insurance collects unemployment insurance taxes from employers and distributes unemployment benefits. The department explains on its website that “overpayments can occur for several reasons, including unreported wages, changes in work availability, or identity theft or fraud committed by a third party, which was particularly an issue during the COVID-19 pandemic.”
During the pandemic, the federal government offered states additional money to help keep up with surging unemployment claims at the time.
“We all know that the unemployment system had enormous, enormous strains during COVID and it just wasn’t functional in the way it needed to be during that crisis,” Hettleman said. “And then there were lots of starts and stops to get it up and running, and then there were legal issues and lots of concerns about fraud.”
State auditors found that the unemployment division “did not timely pursue recovery of claimant overpayments totaling $807.4 million resulting in up to $760.7 million that is no longer collectable as of May 2025.”
The labor department argues that the unrecoverable overpayments are closer to $600 million. Wu also noted that part of the collection of those overpayments were stalled in January 2022 by a legal challenge, which did not lift until September 2023.
But the audit notes that the department did not have “sufficient” overpayment collection even after the suspension ended, “resulting in an additional $33.6 million in overpayments not being adequately pursued.”
In response, the department said there was “necessary back-end work to resume collection activities” which led to additional delays after the suspension was lifted.
“Many of these issues, I think it’s over 90% of these overpayments were prior to this administration and during the pandemic,” Wu said. “Many of them may have been fraudulent. I can’t go back in time to change what was done. But I think we’re focused on doing our very best to recover as much as possible going forward.
“Some of these unpursued claims are very old. So even if we had been able to take action slightly earlier, many of these payments are not recoverable because they’re older,” Wu said.
“Obviously if actions had been taken closer in time to those overpayments, perhaps more of them could have been recovered. But I couldn’t have taken any action before that, before that 2023 window,” when the legal suspension was lifted, she said.
Meanwhile, some Marylanders are getting hit with notices saying that they owe money to the state for unemployment benefits, some that date back during the COVID-19 pandemic years.
Wu acknowledges that the notices from so far back are likely leading to confusion among Marylanders, especially those who may have been subjected to identity theft and fraud, which was prevalent during the pandemic.
The audit comes just days before the start of the 2026 General Assembly, when lawmakers will be grappling with an estimated $1.6 billion deficit as they prepare the fiscal 2027 budget.
It’s not clear how much the unrecoverable funds were lost state dollars. Wu says that that most of the lost funds were federal COVID-19 assistance, so the lost dollars would “not impact” the Maryland unemployment insurance fund.
“Because of the overwhelming majority of benefits during that time were special federal benefits, even if they are recovered, they go immediately back to the U.S. Treasury,” she said.
Hettleman is skeptical, especially as the state faces a $1.6 billion budget shortfall. Every state dollar counts.
“There was quite a bit of delay in trying to get that money back and determine whether the state actually overpaid people,” she said. “I still have concerns in why did it take so long for the department to take some action to address those issues. And I don’t have a good answer to that right now, but we will try to get one.”
The audit also found additional oversight issues involving potentially fraudulent unemployment benefit payments, as well as two cyber security-related findings that are redacted from public view.
