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Unemployment Fraud: Protection and Defense

By September 29, 2023March 14th, 2024No Comments

Unemployment fraud continues to create challenges and potential financial repercussions for employers’ years after bad actors took advantage of overwhelmed unemployment agencies in the midst of the pandemic. While unemployment fraud has always posed risks to vulnerable individuals, the widely publicized challenges experienced by state unemployment agencies across the United States (US) exposed vulnerable spots in their systems, allowing fraudsters to take advantage and collect billions of dollars in illegitimate benefits.

While fraud volume has significantly decreased since its peak during the pandemic, bad actors continue to utilize breached information to infiltrate unemployment systems and fraudulently collect benefits.

Breaches and Hacks Expose Data

Unfortunately, any data breach that exposes sensitive information can lead to an increase in fraud, including fraud directed at collecting unemployment benefits. In 2021, the US Secret Service issued an alert regarding a Nigerian fraud ring exploiting the COVID-19 crisis and committing large scale fraud against state unemployment programs. Since that time, we have seen numerous breaches and vulnerabilities lead to an uptick in unemployment fraud, often targeted at specific states.

The 2023 MOVEit Breach exposed information that is likely leading to an uptick in fraud. Both Louisiana and Oregon were reported to have had driver’s licenses, state ID cards, and/or vehicle registration records compromised by the breach. Minnesota, Illinois, and Missouri have all also reported being impacted, with additional states also potentially affected. Since the MOVEit process is mainly used by government agencies, it could be feeding information out that bad actors are trying to use to defraud the unemployment system.

Fraud Detection and Prevention

As a result of continued efforts to infiltrate the unemployment systems, many states have taken additional steps to detect and prevent fraudulent activity. Unemployment agencies have a challenging balancing act to prevent fraud. They need to determine someone’s true identity without making the process so difficult that it drives away true claimants. Previously, states had begun utilizing to complete identity verifications. However, reports have indicated that states are moving away from the platform because it is not easy to use. Instead, states are moving towards systems like, which provides access to all government accounts and enable verifications to be completed at a local post office if an individual is unable to verify online.

Additionally, through the Integrity Data Hub (IDH), the National Association of State Workforce Agencies (NASWA) has a sophisticated cross-matching system which puts UI claims data up against sources such as the Suspicious Actor Repository and Multistate Claims Database to help identify fraudulent claims. As of June 2023, NASWA reports to have conducted over 49.5M ID verification lookups and helped prevent over $3 billion in improper payments. States are continuing to look for ways to help detect and prevent fraud and 501 and it’s claims security partner(s) are here to help be an additional line of defense.

An Additional Line of Defense

In a perfect world, identity theft and fraud would never happen. Unfortunately, since that is not the case, it is key to have partners who understand not only the importance of data security but also the importance of thorough and continuous monitoring of incoming claims and benefit charge activity. 501 and it’s claims security partner(s) does just that.

501 and its claims security partner’s security and privacy stance is clear and best-in-class. Our claims security partner has nearly three decades of continuous service delivery and enterprise-class security features with comprehensive audits of our applications, systems, and networks to ensure client and business data is always protected.

Furthermore, we act as a partner to help detect and prevent payout on fraudulent unemployment claims. Once detected, with help from our client partners, we will report fraudulent claims directly to the state agency. We will continue to monitor the account for any additional determinations or benefit charges that may indicate further action is needed. If needed, we will continue to work with the state to ensure no charges are levied against your account.

How to Report UI Fraud

Employers who receive a request for separation information for employees who are still active and working should be reminded that these claims represent potential identity theft. Reach out to your employees to confirm that they did not file for benefits.

When you become aware of a fraudulent unemployment claim, it is important to communicate this to 501 as soon as possible so we can alert the state.

About Us

501(c) Services has more than 40 years of experience helping nonprofits with unemployment outsourcing, reimbursing, and HR services. Two of our most popular programs are the 501(c) Agencies Trust and 501(c) HR Services. We understand the importance of compliance and accuracy, and we are committed to providing our clients with customized plans that fit their needs.

Please contact us today to see if your organization would benefit from our services.

Already working with us and need assistance with an HR or unemployment issue, contact us here.

The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources. Some information was provided by our friend, Darby Gibson, Client Marketing & Insights Specialist, at Thomas & Company.

(Images by Peshkovagalina and Rawpixel)

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