Dealing With Unemployment Fraud – Causes and How to Report

With unemployment claims reaching historic highs, an increase in fraud followed close behind, adding to the woes of unemployed Americans’ still waiting for their benefits. 

The hardest hit is the Pandemic Unemployment Assistance (PUA) Program and more recently the Lost Wages Assistance (LWA) program. PUA was created as part of the CARES Act which provides benefits to independent contractors, gig workers, part-time, and the self-employed. All groups that are outside parameters of traditional state unemployment programs. LWA was the $300 supplementary payment made in recent weeks (see your state’s payment schedule). With states desperate to get the money to out of work people, and limited checks and balances built into the system, fraud is rampant and many scammers (local and global) are taking advantage of the system loopholes and people desperate for answers to their unemployment payment issues.

As early as May, lawmakers received a memo stating scammers using stolen Social Security numbers and associated personal information were targeting seven states. The memo indicated the scam, which hit Washington State the hardest, included attacks in Florida, Massachusetts, Rhode Island, Wyoming, and North Carolina originated in Nigeria. Democratic lawmakers, Sen. Patty Murray, Washington, and Sen. Ron Wyden, Oregon, the head of the Senate Finance Committee, request answers, resources, and funds to assist states in getting critical jobless aid out to Americans and defend themselves from these fraudulent operations. 

To get a sense of the scope of the problem, in September, California saw 400,000 new PUA claims a week, double the level seen in August. The state is investigating and believes the increase in claims is related to outside agents exploiting vulnerabilities in the system and perpetuating identity theft. 

PUA is not the only program where they have uncovered fraud. The Paycheck Protection Program for small businesses was defrauded out of millions, including one Florida man who used his funds to by a Lamborghini

The two factors that appear to have opened up the Sates Unemployment Systems to fraud are outdated computer systems, and the removal of many checks and balances states use to prevent fraud. The removal of these safeguards was one way state UI agencies and departments could increase the number of claims processed and get more money out quickly for those needing it the most. 

Unemployment Fraud comes in two flavors

Unemployment Fraud comes in two forms, identity theft and the intentional submission of false data. With the amount of money available (we are talking billions of dollars!), unemployment insurance fraud is perpetrated by multiple different groups. In addition to the Nigerian scam, which leveraged identity fraud, some state sites have been best by bots used to access application sites. In the case of the bots, a simple solution was to implement a standard anti-bot measure. Oklahoma now makes all claimants prove they are human. Other states are following suit. 

The intentional submission of false information is usually perpetrated by individuals. This form of fraud takes one of two forms – either the individual knowingly submitted false information or the individual continue to collect benefits after they have become ineligible. Once discovered, the perpetrator of this type of fraud will be prosecuted and required to pay back all monies obtained. 

Lacking the Tools to Prevent Fraud

State unemployment departments do not have the array of tools to effectively track fraud and have never had to deal with fraudulent claims on this scale. According to the Labor Department, in most years, less than 3% of claims were fraudulent. The numbers now are staggering, both in losses and the number of claims for example: 

  • Washington State alone has paid out $650 million in fraudulent claims; as of June, they had recovered only $333 million. 
  • Michigan delayed payments for over 300,000 claims while they reviewed them for possible fraud.
  • Oklahoma stopped 100,000 fraudulent claims in the amount of $35 million.
  • Pennsylvania reacted by stopping Pandemic Unemployment Assistance payments for over 50,000 claimants – many of these are still under review. 
  • Maryland recently uncovered and prevented a scam that would have cost the state just over $500 million. 

If you are a victim of Unemployment identity theft, here are the things you should do. 

First!

Contact the unemployment agency in your state responsible for your unemployment claims and fill out their fraud or identify theft paperwork. Most states now have online options in addition to mail or fax. See the list below for each state’s Unemployment Fraud page and steps to prevent and report fraud.

Then.

Get your credit report and place a fraud alert with one of the credit bureaus – you only need to contact one. Here are the links for their fraud pages ExperianTransUnionEquifax

Free credit reports are available from the Annual Credit Report Website or by calling 1-877-322-8228. Reports can be obtained at Experian, TransUnion, and Equifax

If you receive confirmation that a payment has been made in your name, but you have not received it, you will need to report it to the IRS by completing Form 14039, instructions here

States are attempting to contain the fraud and working with federal agencies, including the Secret Service and the FBI. As States and agencies work to uncover and prevent fraud, individuals are seeing a slowdown in claim approvals. At this time, the most proactive thing an individual making a first filing can do it to provide complete information to their respective state unemployment agency and respond promptly to any requests received from them.

List of Unemployment Fraud Reporting Pages for each State (always ensure you are going to the official page).

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