Unemployment Fraud Claims on the Rise – What does it mean to Employers and Employees?

Unemployment Fraud Claims on the Rise – What does it mean to Employers and Employees?

If the pandemic wasn’t enough for employers and U.S. citizens, adding fuel to the fire is the sharp rise in unemployment fraud. States are losing billions of dollars, and thousands of identities are being stolen across the country (including mine, which I share more details about). The U.S. Department of Labor estimates states paid as much as $36 billion in improper benefits.

Baker Donelson reported on November 17, 2020 that, “In Washington, officials announced a theft of $550 million to $650 million from the state's unemployment system, of which about $300 million was recovered. Cybercriminals in Colorado were so aggressive that 75 percent of applications during a single month were ruled fraudulent,” all through unique fraud schemes. In Illinois, they saw over 212,000 fraudulent claims for unemployment benefits in 2020, according to the Illinois Department of Employment Security (IDES). In California, they’ve paid $11.4 billion in fraudulent unemployment claims.

The increase in fraud was driven largely by the pandemic and the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) when lucrative federal funds ($600/week) became available to individuals in addition to the regular state funds. Then add to this the pressure many states are feeling to get benefits out as soon as possible, including relaxing/lifting some or all of the standard qualifications, and these programs became the prime target for scammers and fraud. There are two types of fraud claims: Fraud Claim and Imposter Claim.

What is the difference between a Fraud Claim and an Imposter Claim?

A fraud claim is when a claimant files his/her own claim, but fails to properly report earnings for a week in which they also collected benefits. For example, they earned $500, but he/she reports $0 earnings to the unemployment (UI) agency to receive an increased benefit amount. In this example, the claimant had control over his/her own actions, whereas in the case of an impostor claim, the victim had no control over that activity.

An impostor claim is a form of identity theft and is often the product of organized fraud ring activity. In this time of claim, imposters are filing claims for unemployment benefits using the names and personal information of people who have not filed claims. People learn about the fraud when they get a notice from a state unemployment benefits office or from their employer about their supposed application for benefits.

For example, Jane Doe works for ABC Company. Her personally identifiable information (PII), such as name and social security number, is used by “organized crime fraudsters” to file an unemployment claim to collect benefits against ABC Company. However, Jane Doe still works for ABC Company and didn’t file the claim. Jane Doe had no control over the claim being filed; someone else did it using her Personal Identifiable Information. She is the victim of identity theft.

Back in late November last year, I fell victim to imposter fraud when I received a letter from the Arkansas Unemployment Office that my benefits were denied. DENIED – WHAT BENEFITS? After calling the Arkansas Unemployment office, I learned someone had filed for benefits with my social security number, my home address but a different phone number. Shock, outrage, confusion and many other feelings went through me at that time.

After working with the fraud department at the Arkansas Unemployment department, I learned I now needed to call the local police department to file a criminal report, call the credit bureaus to notify them my identity was stolen, immediately freeze my credit report and put a freeze on my credit. Just when I thought everything was handled, five days later in the mail I received a letter from The PENFED Credit Union related to a loan application – what loan application? It was another fraud attempt. Needless to say, besides a lot of time, anger and frustration, I continue to worry about additional fraud attempts.

So as an employer, are you receiving claims in the name of currently-employed employees who have not had their hours cut or been furloughed? This is definitely a red flag.

With cybercriminal activity such as hacking escalating during the pandemic, it is possible that a system has been breached and employee identities have been stolen to file fraudulent UI claims.

What should an employer do if unemployment benefits were paid?

If you receive a UI claim on a current employee, follow these steps:

  • Ask the employee if they filed a UI claim.  
    • It is possible they filed a claim out of misunderstanding since there is a great deal of confusion and misinformation due to the pandemic.
  • If the employee did not file a claim, it is likely fraud and the employee needs to communicate to the appropriate state agency.

Employers should always protest and appeal the benefit charges of a fraud claim. Employers should also request and seek credit for the fraudulent claim.

An employer must also inform the affected employee that:

  • Payments of unemployment benefits went out
  • The state treasury may be notified of benefits for state income tax purposes
  • The IRS may be notified of benefits for federal income tax purposes
  • The employee should follow the steps listed below:
    • Report the fraud to your state unemployment benefits agency
      • If possible, report the fraud online. An online report will save you time and be easier for the agency to process.
    • Advise the employee that they may have be a victim of identity theft and should take all necessary steps immediately to protect their personal information

This is already a stressful time for business owners and employees. Unfortunately, scammers know this and are taking advantage where they see any opportunity. By being aware and on the lookout for the signs of fraud, we can do our part to stop them in their tracks.