Labor Department recovers $512 million in fraud funds, warns states on controls

The Labor Department said it recovered $512,138,478.40 in fraudulent CARES Act unemployment funds and returned the money to the Treasury, then sent formal letters to governors in all 53 U.S. states and territories demanding immediate action on unemployment insurance fraud. The warning carried a sharper edge for workers tied to Big Lots: when stores close, hours shrink, or jobs disappear, a claim can become the moment identity thieves try to move in.

The department and its Office of Inspector General said the recovery was tied to Maryland and marked the state’s second major fraud-related repayment. Maryland’s unemployment agency has now had more than $1 billion recovered from fraud cases, a scale that underscores how deeply unemployment systems have been targeted.

Federal officials are also making clear that the crackdown is not limited to state agencies. In May, the Labor Department and its inspector general demanded that financial institutions preserve prepaid debit card funds linked to fraudulent unemployment claims, signaling that the government is following the money wherever it moves. The department had already issued state guidance on identity verification in April 2021, launched a victim-reporting website in March 2021, and announced up to $200 million in grants in April 2023 to strengthen verification tools and other anti-fraud controls.

For Big Lots workers who are dealing with layoffs, reduced hours, or a store shutdown, the safest approach is to treat an unemployment claim like a compromised bank account. Use only the official state unemployment website. Check that the mailing address and bank account attached to the claim are yours. Ignore anyone who promises to speed up a filing for a fee. Keep screenshots, confirmation numbers, and every message sent by the state. If a request for identity verification arrives, answer it quickly and keep a record of what was submitted.

The warning signs are concrete. The Labor Department says a worker may be dealing with unemployment identity theft if mail arrives about a claim never filed, a verification request appears unexpectedly, a letter says a claim was filed in the worker’s name, or an unfamiliar payment or debit card shows up. USAGov says the scam happens when someone steals personal information and files for benefits in another person’s name, and the IRS says an unexpected Form 1099-G can also be a clue.

Big Lots’ own collapse helps explain why the alert matters now. The company filed for Chapter 11 on September 9, 2024, then moved through a sale process involving Gordon Brothers Retail Partners and Variety Wholesalers, covering between 200 and 400 stores and up to two distribution centers. Big Lots later said Variety Wholesalers acquired 219 stores out of bankruptcy and reopened them in phases during 2025. For workers caught in that churn, unemployment benefits are supposed to be a bridge, not another source of stress.