Combatting Unemployment Insurance (UI) Fraud
The United States lost $163 billion to unemployment insurance (UI) fraud during the pandemic. Here’s how employers can help prevent it.
The United States government lost an estimated $163 billion in allocated pandemic unemployment benefits to fraud and overpayment, a top Labor Department watchdog reports.
The lost funds include benefits overpaid to legitimate employees in addition to “significant” benefits obtained by scammers, both international and domestic.
Of that $163 billion, less than 3% (about $4 billion) has been recaptured. The exact scope of the fraud is still unknown, according to a report by the Washington Post.
Unmasking the Rise of COVID-19 Aid Fraud
Beginning in March 2020, hundreds of billions in fraudulent payments were siphoned from the country’s emergency COVID-19 aid programs—which allotted more than $5 trillion in aid to American employees and businesses who were financially hurt by the COVID-19 pandemic.
Those massive aid packages—coupled with an unprecedented volume of claims, relaxed waiting periods, and waived application requirements—set the stage for criminals to overwhelm state UI offices with fraudulent applications. By using the personal information of American employees (often stolen via hacked accounts or phishing scams), fraudsters were able to file fraudulent UI claims while remaining under the radar long enough to get paid.
“Early investigation and analysis indicate that international organized criminal groups have targeted these funds by using stolen identities to file for UI benefits,” says a March 2022 release by the Justice Department. “Domestic criminals, ranging from identity thieves to violent street gangs to prison inmates, have also committed UI fraud.”
Throughout the pandemic, online tools called “botnets” have enabled criminals to send out thousands of applications in a single click, while online forums have helped fraudsters swap tips for defrauding the government.
In California, state officials announced that they may have paid out more than $20 billion in unjust unemployment payments, including $810 million in benefits paid to applicants whose information matched the names of people in prison.
In Maryland, fraudulent claims actually outnumbered legitimate unemployment filings, and attacks are still coming two years later. As recently as March 2022, unemployment beneficiaries in Maryland received a fraudulent email from an entity impersonating the Maryland Department of Labor asking to verify their identities.
“The unprecedented explosion of unemployment claims, combined with years of disinvestment in our unemployment system, lack of state-by-state data sharing and weak identity controls, created a perfect storm for the fraud and identity theft in 2020 that we inherited,” Gene Sperling, a top adviser to President Biden, told the Washington Post in a statement.
How can employers safeguard against UI fraud?
Fraudulent unemployment claims are more than just an annoyance—they directly affect an organization’s bottom line. The more successful unemployment claims are filed, the higher that employer’s state unemployment tax rate (SUTA).
Employers can mitigate unemployment insurance fraud by staying organized, proactive, and on top of incoming unemployment claims. Here are some tips:
Promptly report new hires to appropriate government agencies so that data can be compared to unemployment claims
For example, new hires in New York must be registered with the New York State Department of Taxation and Finance within 20 days from their hiring date. Reporting new hires helps states to prevent fraudulent unemployment payments by enabling them to cross-match new hire data against active UI claimant filings. States and employers have saved millions of dollars in improper UI payments because of these cross matches, according to the Office of Child Support and Enforcement.
Carefully examine unemployment notices for discrepancies
When an employee files for unemployment, their employer will receive a notification from the State Unemployment Commission.
It’s the responsibility of the employer to verify the details of the claim and promptly report any inaccuracies. Employers should ensure that the individual listed on the claim was or still is an employee of the organization—a category that excludes temporary staffing agency employees and independent contractors.
All data on the report, including dates of employment, wages, and severance, should also be validated, and details surrounding the claim (ie: the cause for termination) should be confirmed. Generally, an employee does not have the right to unemployment benefits if they voluntarily left their job or engaged in willful misconduct that resulted in the loss of their job.
Pay close attention to unemployment charge benefits statements received from the state
Most states deliver unemployment charge benefit statements every quarter. However, some states, including New York, now require employers to monitor their accounts online.
Unemployment benefit statements itemize unemployment claims and related charges against State Unemployment Insurance (SUI) funds, which are funded by taxes on employers. Employers should compare benefit charge line items with claims they have already received and responded to.
If an employer does not receive a claim but is charged for benefits, they may choose to appeal those charges.
Charge benefit statements provide updates on the amount an employer has been charged for separated employees, and an estimate of SUI taxes the employer must pay to replenish the fund.
Immediately report potential fraud and gather evidence
Employers are required to respond to all UI claims. If an employer believes that a claim is not justified, they must respond to the notice promptly and begin to gather any written evidence related to the facts of the case.
Examples of written evidence include attendance records, a resignation letter, or recordings of disciplinary actions relevant to the employees’ termination.
Copies of each record should be sent to the unemployment officer assigned to the hearing, while a separation report and notice that the employer will attend the hearing should be sent to the unemployment office.
Always notify employees
If a fraudulent unemployment claim is filed under the name of a current employee, the employer should immediately notify the employee that their personal information is compromised.
Employees should be encouraged to file an identity theft report to the federal government and contact their credit bureaus to review and freeze their reports. Additionally, employees should be encouraged not to use any unemployment benefits dispersed to their accounts.
ABOUT THE AUTHOR
Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes weekly nonprofit-specific content for 501c.com.
(Image by Michael Treu from Pixabay)
