Imagine getting a letter in the mail telling you about your unemployment benefits when you still have a job. Not only is it puzzling, it may leave you wondering what to do next. This type of fraudulent activity related to unemployment claims has been on the rise in recent months and it’s important to be aware of these fake mailings. This article provides additional insights on the claims fraud issues covered in Sedgwick’s blog article, “Unemployment taxes, fraudulent claims and identity theft.”
According to the most recent estimates from the U.S. Department of Labor (DOL), more than $63 billion has been paid out improperly through fraud or errors — roughly 10% of the total amount paid under coronavirus (COVID-19) pandemic-related unemployment programs since March 2020. The increased number of unemployment claims is a contributing factor. In 2020, 60,856,885 unemployment claims were filed compared to 11,359,338 in 2019. That’s an increase of 536% year-over-year.
Initially, the largest volume of fraud was related to claims filed as part of the Pandemic Unemployment Assistance (PUA) program, but activity has shifted to the regular unemployment program as systems were modified to catch the PUA fraud techniques. For PUA claims, state systems flag claims for about 50 potential fraud indicators like out of state bank accounts, duplicate email addresses and multiple names using the same bank account number.
Finding imposter claims
When the COVID-19 pandemic began, unemployment agencies focused on getting benefits out quickly, paying the expanded $600 benefit, and covering people who did not typically qualify for unemployment benefits, such as gig workers, independent contractors and self-employed individuals. Combined with the unprecedented volume of claims and no built-in system to check for imposter claims, it has become a huge opportunity for fraudsters to exploit. To make the claims look real, they hack into systems to gather names and find data such as social security numbers and birth dates using the dark web. Once a fake claim is processed, the money does not typically go directly to the fraudster; it is laundered through online cash apps and people in the U.S. with legitimate bank accounts who help to launder the money.
What to look for
If you receive information in the mail about a fraudulent claim, it may look like junk mail that appears to be from your state’s employment or unemployment agency, your state’s economic security or reemployment agency, or the IRS. Here are some examples of what these mailings may include:
- A notice from your state unemployment agency referencing an open claim for benefits
- A bank “pay card” referencing state unemployment benefits
- A pin code from the unemployment department
- An IRS reporting form 1099-G with the total amount paid during the prior tax year
- A letter stating that a claim was filed for an individual and that you were their employer
Growing numbers
In February 2021, the Federal Trade Commission reported a 1,750% year-over-year increase in the reported cases of identity theft related to government documents or benefits such as unemployment in 2020. The first imposter claims were identified in the state of Washington in May 2020. States could not react fast enough to update computer systems, so the fraudulent attacks spread across the country throughout the rest of 2020. Before the COVID-19 pandemic, there was minimal fraud activity and state systems focused on fraud in terms of incorrect information being provided around separation and wages from bona fide claimants, but not preventing fraudulent claims from imposters.
Examples of state fraud increases:
- Ohio – Nearly 800,000 of the 1.4 million claims Ohio has received through the PUA program have been tagged for potential fraud; weekly first-time unemployment claims ranged from 17,000 to more than 40,000 during the pandemic, but since January 2021, those claims have topped more than 140,000 some weeks with many of them believed to be fraudulent
- Colorado – In 2020, the state had over 800,000 fraud cases totaling $6.5 billion in payments compared to 86 cases in 2019
- Washington – Typically, the state sees a few dozen fraudulent claims a year, but within two weeks of the CARES Act funding, $600 million was stolen and over 120,000 fraudulent claims have been identified in the past 11 months.
What to do if it happens to you
It is important to understand the specific instructions for your state and review the information provided by the U.S. DOL. Here are some key steps:
- Report fraud on your state’s unemployment agency website; a list of state websites is available here.
- Report the mailing to local law enforcement
- Take action to protect your credit report by setting up a fraud alert and/or credit freeze
- Continue to monitor your credit report or consider using a provider that specializes in credit protection and monitoring
- Utilize the DOL unemployment fraud reporting website and the Federal Trade Commission identity theft website
- To proactively verify that a claim has been filed, start the unemployment claim application process by visiting your state’s website
If you receive information about a claim that you suspect is fraudulent, take steps quickly to report it and make sure you’re not dealing with a larger identity theft issue. For questions about possible fraud, contact your state unemployment agency or your employer’s human resources department.