State unemployment agencies and government watchdogs are beginning to uncover the extent of unemployment insurance fraud committed during the COVID-19 pandemic. A September 2023 report by the Government Accountability Office (GAO) estimates that as much as $135 billion—or 15 percent of the total $900 billion in benefits paid out during the pandemic—was disbursed to criminals making false UI claims.
In early 2020 and 2021, an unprecedented surge in unemployment claims fueled by state shutdowns, the availability of expanded UI benefits, and relaxed eligibility requirements placed significant stress on historically underfunded, understaffed, and technologically outdated UI systems. Criminals both domestic and abroad were quick to seize the moment, successfully using bots and organized teams of people to apply for benefits en mass using stolen personal information. In August, the Justice Department announced that they had brought federal criminal charges against 371 defendants and seized over $1.4 billion in stolen relief funds. The rest has yet to be accounted for.
How can employers prevent UI fraud?
While truly modernizing our UI systems to prevent fraud will require a concentrated national-state effort, employers are actually well-positioned to detect individual cases of UI fraud early and serve as a first line of defense to protect their employees. It’s important for employers to note that in addition to harming individuals and state economies, fraudulent UI claims that result in benefit payments can hurt their bottom line in the long term by causing increases to their SUI tax rate.
Below are some essential best practices that employers can take to protect employees and themselves from UI fraud:
Maintain accurate records
First and foremost, it’s critical for employers to maintain accurate, up-to-date, and secure records of current and former employees.
Federal law mandates that employers report new hires to the state where their employee works within 20 days of their hiring date. Accurately reporting this information is important in case it needs to be compared against unemployment claims in the future.
In general, employers should store employee files in a secure location and include any pre-employment and separation of employment documents in each file. Federal guidelines require employers to store all Form I-9s for new hires in a separate file for three years after they join an organization, or for one year after they resign.
In the case of employee resignation, employers should be sure to request and file a resignation letter containing the employee’s resignation date, last working day, and reason for leaving.
By keeping accurate records and properly storing information, employers can be better prepared to spot fraud and promptly respond to any requests for information from UI agencies.
Be responsive and report potential fraud
The unemployment insurance claims process is a timely one—so staying on top of evaluating and quickly responding to any notices from your state’s UI agency is key to stopping UI fraud before benefits are paid out. Federal guidelines generally require employers to respond to requests for information regarding UI claims within 10 days of receiving them, but exact reporting requirements vary state-by-state. In New Jersey and other states, lawmakers since 2020 have increased the penalties for an employer’s failure to comply with the UI “request for information” process in an attempt to better prevent fraud and streamline the claims process.
If an employer receives a notice of UI claim filing in the name of an employee who is still working for them or who left voluntarily, they should be skeptical of potential fraud. In this case, it is a best practice for employers to reach out to the employee and verify the claim first. If the employee confirms that they did not file a claim, the employer should dispute the claim and provide information to show that the employee is still working and on the payroll, or that they left voluntarily.
Notify employees
If an employer receives notification that a person who is still working for them has attempted to file for UI benefits, it is a strong indication that the individual’s personal identifying information (PII) may have been compromised.
If an employee confirms that they did not apply for benefits, they should be promptly notified of suspected identity theft and UI fraud and encouraged to immediately file a report of identity fraud to their state unemployment agency and the Federal Trade Commission. Specific requirements for investigating identity fraud can vary by state, with some states necessitating additional documentation, such as a police report or an affidavit, to initiate an investigation.
Additionally, employers should warn their employees not to use any UI benefits that may end up in their bank accounts. If an employee receives benefits they never applied for, they should report it to their state unemployment agency and ask for instructions.
Prevention is key
In today’s digital world, preventing UI fraud starts with safeguarding personal identifying information. Employers can and should play a role in helping employees learn to recognize and thwart phishing attempts to keep their personal information safe.
Through providing cybersecurity training and simulating phishing exercises, employers can help their employees understand the tricks and techniques used by cybercriminals, and enable them to recognize red flags more effectively.
Employers should also establish easy-to-follow procedures for reporting phishing incidents, and empower employees to promptly share any suspicious emails or messages they encounter. Finally, establishing strong cybersecurity measures and protocols, like firewalls, multi-factor authentication, and regular software updates, can help protect employees against data breaches that make them vulnerable to identity theft and UI fraud.
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(Photo by Tima Miroshnichenko, cottonbro studio)
The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
