Identifying and Addressing Fraudulent Unemployment Claims
It’s a scenario that employers of all sizes, in all industries and in all cities and states have seen play out time and time again over the past year: A happy, smiling, productive employee is participating actively on a teleconference or email exchange (or maybe even in person at the workplace) and a few minutes later a claim for unemployment arrives for that individual.
How could this happen?
Well, there are a number of reasons; however, far and away the least likely is that the employee has secretly left the company, never told anyone, continued to show up to work, and is now legitimately eligible for unemployment benefits. More likely would be one of the following scenarios:
- The employee’s work hours have been cut substantially enough for them now to be earning below their weekly UI benefit amount, thus making them eligible for partial unemployment. This is easy to investigate, of course through a simple payroll review.
- The employee had a second job, from which they have separated and they are filing based on that. In this case, the employee (although probably not filing an intentionally fraudulent claim) would not be eligible for any UI benefits, as their earnings from their regular job (which they will have to report each time they certify for benefits) would be high enough to exceed the threshold for eligibility.
- The employee is intentionally attempting to commit fraud by filing a claim when they know they are not eligible. This is a rare situation, but there have been cases of employees believing there is an open door to the currently-supplemented benefits. Reality too is that many states are approving claims labeled as COVID before attempting to verify from the employer that these are legitimate claims.
- Fraud is being perpetuated against your employee. This is a frighteningly common occurrence in today’s high unemployment environment and the primary focus of this article.
For additional information on fraudulent unemployment claims, strategies employers should undertake to address them and information that should be provided to an employee for whom fraud is suspected, please continue to our blog.
The High Cost of UI Fraud
Fraudulent UI claims are neither rare nor insignificant. They represent a serious threat to the employer and to the employee – and even to your state government and the federal government – as they are bankrolling most of cost of these claims.
The US Department of Labor’s Office of the Inspector General is the federal agency tasked with primary responsibility for meeting the challenges created by the COVID-19 pandemic and assisting the DOL and Congress in improving the efficiency and integrity of the UI program.
Historically, the UI program experiences some of the highest rates of improper payments among all government benefit programs. While a formal estimate of the amount of fraudulent payments through the CARES Act has not yet been put forth, the OIG has estimated that improper payments have been above 10% in 14 of the last 17 years. Extrapolating, based on the approximately $630 billion in UI payments made last year, at least $63 billion was likely paid out on claims that were improper and/or fraudulent. Given the extra incentive that came with the enhanced weekly benefits ($300 – $600) it can be expected that the actual amount was considerably higher than $63 billion.
A look at 2020 statistics from a few individual states reveals how widespread this is:
- California – at least $11.4 billion in fraudulent claims, with strong suspicion about another $20 billion;
- New York – more than 400,000 fraudulent claims were referred to federal investigators in 2020 accounting for $5.5 billion in claims;
- Ohio, – more than 100,000 people have reported potential fraudulent activity in their names to the Department of Job and Family Services. The estimated cost in Ohio (and Michigan too) is hundreds of millions of dollars paid out by the state.
- Colorado – has flagged more than one million UI applications as potentially fraudulent;
- Maryland – has identified a quarter million phony claims;
- Massachusetts – paid out $242 million in improper claims in 2020.
While many employers may be comforted in the knowledge that the federal government is picking up the tab for supplemental benefits payments (currently $300 per week through September) and has also assured employers that COVID claims will not be counted against their experience ratings, therefore not necessarily negatively impacting their UI tax rate, there is more to the story than this. Reimbursable employers (non-profit, public entity employers) are not currently provided the same level of government support and are only receiving 50% relief on UI charges.
Additionally, keep in mind that eventually the tab will come due! We should expect that the federal government will put pressure on the states to recoup some of the costs, and that will (logically) result in the states pushing it down to employers in the form of higher UI taxes. Not a guarantee, but something to be mindful of.
Bottom line – the amount of UI fraud over the past year is massive and will have a negative impact on employers!
What to Do When You Suspect Fraud
Given the omnipresent nature of UI fraud, all employers should be extremely vigilant. If ever there was a time to carefully monitor all UI claims – now is the time. Be sure to have a good understanding of where UI claims are going – who is receiving them and responding to them. Ensure that that person is fully aware of everything that is at stake.
We know that fraudsters are taking advantage of this situation. The DOL and the FBI are well aware of the massive spike in fraud/imposter claims and they are actively investigating.
If you become aware of an unemployment claim for an employee, and you have any suspicion that the claim may have been filed fraudulently there are steps you, as the employer, can and should take, as well as (and even more so) that the employee will need to take themselves.
- Contact the employee as quickly as possible. and determine if they did or did not actually file the claim.
- If they did, you may want to advise them to contact their state unemployment agency to get a better understanding as to whether or not they are actually eligible. This is easy to find on each state’s website.
- If the employee is still employed by you with no significant decrease in work schedule or earnings, you should probably contest the claim by indicating that the claimant is still employed.
- If they did not file the claim, there is an issue that is much more serious to the individual than simply a UI claim – it very likely indicates identity theft, and that has a larger scope of consequences.
- Do not try to handle this for the employee. You will not (and should not) have the information needed. It is necessary that the individual take care of the reporting themselves, as it runs far deeper than an employment-related issue. Advise the individual to:
- Report the incident to https://identitytheft.gov/ which is managed by the Federal Trade Commission
- Contact your local police department and file a report (when possible)
- Report the incident to the state UI agency in which the imposter claim was filed
- Place a freeze alert on their credit record with each of the three credit bureaus:
- Equifax – 866/349-5191
- Experian – 888/397-3742
- TransUnion – 800/680-7289
- Advise the employee to order a free credit report at https://www.annualcreditreport.com/index.action (Equifax, Experian, and TransUnion are currently offering free weekly online reports through April 2021)
- Advise the employee to contact their financial providers (banks, credit card companies, etc.) to flag irregular transactions.
Unemployment claims are often an overlooked liability. In the past, the worst-case scenario typically involved a former employee that may have abandoned their job or quit for personal reasons being awarded UI benefits because no one took the time to review or respond to the claim. Using simple math, we know that this risk is heightened during periods of high unemployment. Remember that we are still seeing weekly UI claims volume coming in at a higher level than at the peak of the “great recession” in 2008-09. This should be reason enough to pay close attention to all UI claims.
In this current era of fraudulent UI claims, the stakes are so much higher. Employers should consider it a responsibility to carefully monitor all UI claims as a key component of overall efforts to protect employees. There is far too much for all to lose by not doing so!