Recognizing (and combatting) unemployment insurance fraud amid COVID-19

As the coronavirus disease 2019 (COVID-19) pandemic continues to shake the US economy, Americans are filing claims for unemployment benefits in record numbers.  This has led to an unprecedented increase in the number of claims being filed for benefits under the regular Unemployment Insurance (UI) program, as well as those programs created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  As states continue working to provide these important benefits to eligible individuals, they must also be prepared to face new challenges associated with the COVID-19 pandemic, such as increased fraudulent activity and identity theft amid new and emerging fraud schemes.[1]

What is unemployment insurance fraud?

In general, unemployment insurance fraud involves the intentional misreporting or withholding of information in order to receive benefits.  Such conduct may include knowingly submitting false information, knowingly continuing to collect benefits when ineligible, certifying for benefits under state law despite not being able and available to work, or intentionally collecting full benefits while not reporting other wages or income.  During the current COVID-19 pandemic, fraudsters have been particularly drawn to using identity theft as a means to carry out the fraud.  Such a scheme would generally involve stealing the identity of a real employee, applying for unemployment insurance benefits under that employee’s name and diverting unemployment insurance benefit payments to accounts opened fraudulently in the employee’s names but controlled by the fraudster.  

Increase in fraudulent activity

States are seeing significant spikes in the number of fraudulent unemployment claims being filed across the country.  In New York, for example, the state Department of Labor recently announced that it has blocked more than 42,000 fraudulent unemployment claims since the COVID-19 pandemic reached New York, which, according to the department, prevented over $1 billion in fraudulent unemployment claims from falling into the hands of alleged wrongdoers.  Notably, the department also reported that it has referred more unemployment fraud cases to federal prosecutors in the past five months than in the previous ten years combined.

Although less specific in its reporting, New Jersey similarly announced that its unemployment insurance program has been the target of an increasing number of fraudulent claims.  This high incidence of fraud comes as New Jersey struggles to manage the millions of legitimate unemployment claims being filed due to COVID-19.  In Ohio, it was recently reported that the state has received upwards of 270,000 fraudulent claims during the pandemic, and that as much as $200 million per week has already been paid out to fraudulent accounts.

New York, New Jersey and Ohio are just three examples of the rampant unemployment insurance fraud that is occurring across the US and beyond.  Indeed, federal authorities have recently reported a massive, coordinated attack by an international ring of fraudsters seeking to siphon hundreds of millions of dollars out of the US unemployment insurance systems using a database of previously stolen personally identifiable information.  

Combatting unemployment insurance fraud

In an effort to combat unemployment insurance fraud, on September 2, 2020, the US Department of Labor announced $100 million in funding to support state efforts to combat fraud and recover improper payments in the regular UI program, as well as those programs created under the Coronavirus Aid, Relief and Economic Security (CARES) Act.  At the same time, the department’s Employment and Training Administration (ETA) issued UI Program Letter (UIPL) 28-20, which highlights tools and strategies to assist states in strengthening their anti-fraud operations, including the availability of a new identity verification solution to confirm the identity of individuals filing for unemployment benefits.

Employers can help to combat unemployment insurance fraud.  For example, state labor departments often reach out to employers to verify employee details and compensation information before authorizing payment of unemployment insurance benefits.  Careful scrutiny of that outreach can help to identify a fraud in progress.  Likewise, employers are strongly encouraged to check their quarterly or other regular unemployment charge reports to ensure they are not being charged for fraudulent unemployment claims.  Prompt and accurate new-hire reporting is also a critical way that employers can help combat unemployment insurance fraud, as state agencies use new-hire data to compare against unemployment claims.

The US Department of Labor has made available new resources to help employers, employees and states combat fraud in the unemployment insurance system during the pandemic.  See https://www.dol.gov/newsroom/releases/eta/eta20200519.  The Federal Trade Commission recommends taking these steps to help combat this kind of fraud in the unemployment insurance system:

Alert your workforce. Tell your employees about the scam. Ask them to report fraudulent benefits claims to your human resources (HR) department as soon as they learn about them. Direct your HR team to flag any notice they receive from the state about a claim supposedly filed by a current employee. Immediately notify the employee about any suspicious claim that your business receives.

Report the fraud. Check your state unemployment benefits agency’s website for reporting instructions. Depending on your state, the agency may want you, the employee or both to submit a fraud report. This link can help you find the agency’s website.

1. If possible, report the fraud online. An online report will save you time and be easier for the agency to process.
2. Give your employee a copy of any documentation of your report to the state, including any confirmation or case number you receive. Let the employee know if the state requires that the employee also report the fraud.

Suggest employees visit IdentityTheft.gov. Criminals are using employees’ personal information, including Social Security numbers and dates of birth, to file the fraudulent claims. That means the employees’ information is exposed, putting them at risk for further harm.

• At IdentityTheft.gov, employees can report the identity theft to the FTC and get step-by-step recovery help. IdentityTheft.gov will guide employees through placing a free, one-year fraud alert on their credit, getting their free credit reports, closing fraudulent accounts opened in their name, adding a free extended fraud alert or credit freeze to their credit report and more. IdentityTheft.gov also will produce an FTC Identity Theft Report that identity theft victims can use to clear fraudulent information from their credit reports.

Check your cybersecurity. This fraud is a sharp reminder that sensitive personal information in the wrong hands can result in tremendous harm. Is it time to check your company’s cyber defenses? With so many people telecommuting, you may want to start by sharing tips to help your employees maintain security when working from home. For a deeper dive, consult Cybersecurity for Small Business, the FTC’s no-nonsense site for security-conscious business owners.

[1]Unemployment Benefits Fraud Puts Workers at Risk of More ID Theft, FTC.gov (June 3, 2020), available at https://www.ftc.gov/news-events/blogs/business-blog/2020/06/unemployment-benefits-fraud-puts-workers-risk-more-id-theft.  New York and New Jersey likewise encourage the reporting of any suspected fraud in their respective unemployment insurance systems.  See https://www.labor.ny.gov/agencyinfo/report-fraud.shtm#:~:text=Call%20toll%2Dfree%20(888),Benefits%20Fraud%20for%20more%20information.; https://myunemployment.nj.gov/help/contact-us/reportfraud/.