Keith Sonderling sent letters to 53 states and US territories demanding action to “combat waste, fraud and abuse” within the unemployment insurance program, threatening to withhold administrative funds from states for the first time history.

“We are officially putting governors on notice,” said the acting US secretary of labor. “The American people will no longer tolerate the blatant waste, fraud and abuse of their hard-earned tax dollars – no state should allow it either. If states allow it, they will suffer the consequences. This department is no longer afraid to use every lever available to ensure taxpayer money is protected.”

The agency did not provide data on fraud or alleged fraud in unemployment systems, but highlighted three Democratic-led states – California, New York and Illinois – and made claims about each.

The agency says California owes $20bn to the federal government for a loan during the Covid-19 pandemic. California has struggled paying off the loan, as the state did with a similar federal loan received during the 2008 economic recession, due to the current setup of how employers are taxed to fund unemployment. The unemployment payroll tax system in California has been unchanged since 1984 at a taxable wage ceiling of $7,000 on a workers’ wages and maximum tax rate of 5.4%, leaving the state with insufficient funds to cover its unemployment reserve while legislators on both sides of the political aisle have been working to try to resolve the issue.

The Department of Labor also claimed that New York loses an estimated $2m per day in unemployment insurance fraud and improper payments, but did not differentiate between the two. They also cited that Illinois has improper payments of $320m, at a rate of 14%.