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How to Identify and Report Unemployment Insurance Fraud to Authorities

 

Since the COVID-19 pandemic began, certain types of fraud have been on the rise because of supercharged stimulus incentives passed to combat the economic impact of the pandemic. Unemployment insurance (UI) fraud, in particular, has become a major source of concern as the number of suspected cases continues to grow exponentially following each new stimulus law passed by the government. No business or region is immune.

 

The number of cases has become so prevalent across all states and industries that states using outdated systems are having trouble keeping pace with the fraudsters. This is particularly worrisome for victims who might have their accounts suspended while their state investigates the suspected fraud, delaying access to their legitimate benefits.

 

The cost of UI fraud

The U.S. Department of Labor, Office of the Inspector General (DOL-OIG) estimates that more than $63 billion from the unemployment system alone has been paid out improperly since the passing of the CARES Act on March 27, 2020. The CARES Act provided $2.2 trillion in economic stimulus to Americans, which included adding a bonus of up to $600 per week on eligible unemployment claims nationwide. Subsequent stimulus bills like the Consolidated Appropriations Act and American Rescue Plan Act reduced the bonus to $300 per week, but it hasn't slowed criminal activity at all.

 

The Associated Press reported on February 28, 2021, that to date, California has been the biggest target of UI fraud, with an estimated $11 billion in fraudulent payments and an additional $19 billion in “suspect accounts.” Colorado has paid out nearly as much to scammers—an estimated $6.5 billion—as it has to people who filed legitimate unemployment claims.

According to the Texas Workforce Commission, about 276,000 unemployment claims in the state were flagged for suspicious activity in 2020, compared to just 1,210 in 2019. These suspicious claims are under investigation but have not yet been proven fraudulent. The massive number of suspicious claims makes investigating them a very time-consuming, cumbersome process.

 

“The pandemic has opened up a new avenue for criminals to attempt to claim unemployment benefits, posing as an eligible individual who may have been furloughed, reduced to a part-time employment basis, or laid off completely,” says CarrLee Howard, Manager of Client Success for G&A Partners. “Most often, the victims are completely unaware of the crime until either we have contacted their employer or they have received other communications directly from the state unemployment agency. By that time, the claim has been submitted and the hope is that we can stop any benefits from being released by the agency to a random P.O. Box or account set up by the criminal.”

 

How criminals commit UI fraud

The DOL’s Employment and Training Administration (DOL-ETA) connects “organized crime rings” to the excessive amount of UI fraud, stating that these groups are “using stolen identities that were accessed or purchased from past data breaches” in order to fraudulently collect benefits.

 

The DOL-ETA also states that the stolen identities being used are most likely part of a data breach that “occurred in previous years and involved larger criminal efforts unrelated to unemployment.” 

 

So, if you’ve ever been a victim of identity theft or if you’ve ever made a purchase at a store or firm that was the victim of a cyberattack, then it’s possible a criminal may use your stolen data to file a fraudulent unemployment claim. Experts believe the Equifax data breach of 2017 and other similar, very large-scale breaches from past years are likely the source for much of the stolen data being used by the criminals in these fraudulent UI claims.

 

Of course, fraudsters don’t have to belong to a crime ring to procure a stolen identity and use it to falsely claim unemployment. He or she could simply be a motivated or desperate individual who has the opportunity to pull off the crime and who has rationalized the act to the point where they feel the reward outweighs the risk.

 

There are two other types of UI fraud that occur: Employer and claimant fraud.

 

Employer fraud is perpetrated by business owners seeking to avoid tax liabilities. It can often involve establishing a dummy employer account and then filing fraudulent claims against that account.

 

Claimant fraud is perpetrated when an individual:

• Knowingly submits false information to collect unemployment funds from the state
• Continues collecting benefits once they are no longer eligible to do so
• Intentionally fails to report wages or income while collecting full benefits
• Certifies that they are able and available to work for their benefits under state law when they are not

 

How to tell if you’re a victim of UI fraud

You aren’t going to know that you’re a victim of unemployment identity theft until or unless you start getting notices in the mail about your unemployment claim. Sometimes, the notice comes from your company, where you are still currently employed.

 

Or you might find out while filing your taxes. No one wants to be contacted by the IRS and told there is an issue with their taxes because they didn’t report all of their income, which is actually due to a fake claim. Around tax time you might also receive a Form 1099-G that reflects unemployment benefits you haven’t received, weren’t expecting, or that shows an amount that exceeds what you’ve recorded in your records. If you do receive a Form 1099-G with claims you know are fraudulent, report it immediately and be sure that your state issues you a corrected Form 1099-G and updates the IRS on your behalf.

 

According to a March 16, 2021, Fortune article, “Unemployment Fraud: How to tell if you’re a victim and what to do about it,” there have been reports of homeowners trying to sell their homes and soon after learning that their address is tied up in a UI fraud scam. This happens when criminals apply for unemployment benefits using addresses of homes being sold.

 

“Once approved, the state unknowingly issues benefits to the fraudsters,” the article states. “The thieves get the money electronically, or they try to retrieve the benefit cards from the mail at the ‘for sale’ house by contacting the new homeowner, or even a postal worker, to request the mail be forwarded to the thief.”

 

How employers can prevent or minimize UI fraud

When criminals make their first attempt to defraud the system and collect unemployment, employers invariably have to be notified. That means that if you're an employer, you are likely the first line of defense against this crime, after the state agency where the unemployment claim has been filed. The Society for Human Resource Management (SHRM) recommends that you take the following actions to prevent fraudulent claims from being paid:

 

1. Remain vigilant. Check every unemployment report for validity and make sure your third-party unemployment claims administrator (if you're using one) is doing the same.

 

2. Advise employees to watch for signs of identity theft. Make sure your employees are made aware of the heightened risk of UI fraud and identity theft and ask them to contact Human Resources immediately if they suspect they might be victims.

 

3. Notify employees immediately if you suspect they may be victims of unemployment identity theft. HR can promptly verify whether a named applicant for UI benefits is a current or former employee. If they are currently working for you, then the claim is most likely fraudulent. If they aren't working for you any longer, have HR contact the employee and verify that they have requested UI benefits.

 

4. Advise defrauded employees to immediately address the theft of their identities. If an employee's name is being used to file a false UI fraud claim, then the chances are great that their identity has been compromised and criminals are in possession of their personal data. Victims should immediately review their credit reports with the three major credit bureaus, request a fraud alert or credit freeze, and visit www.identitytheft.gov to get step-by-step assistance.

 

5. Consult with your IT Security team to confirm your databases have not been compromised. It's a best practice to regularly check your firewalls and data integrity anyway, but if you find that one or more employees have been compromised and are victims of unemployment identity theft, then it's time to take a close look at your database and ensure it is still secure.

 

How to report a suspected UI fraud case

If you do become aware that you are the victim of unemployment identity theft—or even if you just suspect you might be—report the potential theft to the state where it occurred. Each state is required and expected to enforce its own unemployment insurance laws, according to the DOL.

 

Just keep in mind that these state government agencies are overwhelmed right now with the number of suspicious cases already on their plates, and you might not receive an immediate response or confirmation. The state might require you to file a police report first or provide a sworn affidavit before they can even open an investigation.

 

“Unemployment insurance integrity is a top U.S. Department of Labor priority, and we are partnering with states as they innovate and apply new solutions to combat criminal attacks on their unemployment insurance programs,” says Principal Deputy Assistant Secretary for Employment and Training Suzi LeVine. “Criminals adapt their fraud techniques routinely, so we must be vigilant and determined to prevent those eager to deprive unemployed Americans of money they desperately need in these difficult times.”

 

The DOL-ETA offers a number of reporting steps and state contacts to assist you if you believe you are the victim of UI fraud. Be sure you also contact the U.S. Department of Justice’s National Center for Disaster Fraud and file a report there, in addition to filing with the state where you believe the fraud was committed. This will alert the DOL-OIG to the issue and could help you expedite your case.