Report: Gov't Overpaid $14B in Unemployment Benefits

You read that correctly: the feds and state governments overpaid approximately $14 billion in unemployment benefits last year, according to the U.S. Labor Department and CNN Money.

“Now, the U.S. Department of Labor and the states are in the midst of a massive effort to try to recoup some of their lost funds and avoid future overpayments,” writes Annalyn Censky for CNN Money.

So, um, where did all that cash go and how do the feds and state governments plan on getting it back? Let’s start with the first question.

Overpaid funds usually "end up in the hands of three types of people: Those who aren't actively searching for a job, those who were fired or quit voluntarily, and those who continue to file claims even though they've returned to work,” Censky reports, adding that overpayments "typically [result] from an administrative error made either by the government, the employer, the worker or a combination of the three."

But let's not rule out the obvious: fraud.

For instance, Ryan Greminger of Richmond, Ind. collected unemployment benefits while serving two years in a county jail!

"It's not like some big scheme I thought of," he said.

After being laid off in 2007, Greminger was on unemployment legitimately. However, once he landed in jail for drug-related crimes, a fellow inmate convinced him to keep filing the claims. So he did.

"I paid this guy $50 each time to have his girlfriend -- a woman I had never met -- file my unemployment claims," he said.

He’s out of prison now and owes the state about $14,000.

"I accept responsibility for what I did. It was wrong. It was a mistake," he said. "I'm paying for it now."

So let's answer the second question: how do states and the feds plan on recovering all this overpaid cash?

Amazingly enough, Vice President Joe Biden has been put in charge of leading the Campaign to Cut Waste, an initiative aimed specifically at stopping the feds from overpaying themselves.

Biden? Really?

"Unemployment checks are going to people in prison. Unemployment checks are going to graveyards," Biden said in September.

According to the Labor Department, about half of its overpayments can be recovered, but for some reason it never manages to recoup that much.

“Historically, only about a quarter of the estimated 'recoverable' overpayments have actually been recovered,” Gay Gilbert, administrator in the Labor Department's Office of Unemployment Insurance, tells CNN Money.

But she also believes “preventative measures” are having an effect.

"We believe our improper payment rate has very slightly started to tick down," Gilbert said.

What happens when government agencies discover someone has been overpaid?

“When the government finds someone was overpaid, it often issues a letter asking the claimant to return the extra funds. In some states, workers can have repayment waived, if they're in financial distress and can prove the error wasn't intentional,” Censky reports.

“In other cases, government attorneys can take claimants to court if they don't pay back what they owe. They have various methods of recouping the money, including setting up payment plans, garnishing wages or deducting funds from federal income tax returns,” she adds.

Of course, when all else fails and the recipient of an overpayments is found to be guilty of fraud, punishments can include probation, community service, and paying back the cash with additional penalties tacked on.

“In fiscal 2011, there were roughly 2,700 convictions for fraud related to unemployment insurance,” the report adds.

This story has been updated.