BALTIMORE — Maryland’s unemployment insurance system failed to recover hundreds of millions of dollars in improper benefit payments, leaving as much as $760.7 million potentially unrecoverable, according to a newly released state audit — the second part of a broader review of the state’s unemployment program.
The fiscal compliance audit, issued in January by the Maryland Office of Legislative Audits, examined how the Maryland Department of Labor’s Division of Unemployment Insurance handled benefit payments between November 2020 and January 2025. The findings build on Part 1 of the audit, released in April 2025, which focused on unemployment insurance tax contributions collected from employers.
Auditors found the division did not timely pursue recovery of $807.4 million in claimant overpayments during the audit period. Because state law generally limits recovery efforts to three years, auditors concluded that up to $760.7 million of that amount may no longer be legally collectible.
The report attributes much of the delay to a lawsuit filed in late 2021 that challenged the state’s overpayment notification process. Collection efforts were suspended in January 2022 and did not resume until September 2023, after regulations were revised and updates were made to the state’s unemployment insurance computer system, known as BEACON. Auditors said the prolonged pause allowed many overpayments to age beyond the statutory recovery window.
Even after collections resumed, the audit found the agency did not aggressively pursue an additional $33.6 million in overpayments, citing failures to issue follow-up notices or refer delinquent accounts for collection.
The audit also identified longstanding weaknesses in claims oversight. Required supervisory reviews of claims and adjudications processed by both state employees and contracted staffing vendors were not consistently performed — a deficiency auditors said had been noted in earlier audits but not fully corrected.
Those control gaps may have contributed to fraud. In June and July 2024, two contract employees pleaded guilty to aggravated identity theft after manipulating unemployment claims in the BEACON system, defrauding the state of more than $3.5 million over roughly two years, according to the report.
Auditors also found the agency failed to adjust claimant account balances for $493.9 million in potentially fraudulent debit card funds removed from claimants’ accounts in 2020. The state could not document the disposition of approximately $3 million of those funds.
Additionally, the audit concluded the division lacked adequate procedures to promptly investigate cases in which individuals were receiving unemployment benefits while also reporting wage income, potentially allowing improper payments to continue.
The Department of Labor generally agreed with the audit’s recommendations and outlined corrective actions, including resuming collections, issuing revised overpayment notices, strengthening supervisory review requirements, and continuing updates to the BEACON system. Certain cybersecurity-related findings were redacted from the public report as required by state law.
Auditors noted that while improvements have been made since the earlier audit, the findings underscore persistent internal control weaknesses during and after the surge in unemployment claims brought on by the COVID-19 pandemic.
Read the full audit report below:
Got a tip or photo? Text us at 888-871-NEWS (6397) or email news@thebaynet.com.
Join The BayNet Membership for exclusive perks and zero ads.
Don’t miss a story—sign up for our newsletter!
(face palm)