A recent report from the U.S. Government Accountability Office (GAO) highlights the scope of unemployment insurance (UI) fraud during the COVID pandemic, when claims for supplemental government relief programs increased sharply. The total amount of COVID-era unemployment fraud is estimated to be between $100 billion and $135 billion, representing approximately 11-15% of all UI benefits paid during that period. Industry experts fear these estimates are too low, as many state agencies were so overwhelmed during the pandemic that their calculations may be unreliable. The GAO report states, “The full extent of UI fraud during the pandemic will likely never be known with certainty.”
Now that unemployment claims are leveling off, states are redoubling their efforts to recover overpayments and improve their detection of fraud. This blog will aim to shine a light on recent trends and what jurisdictions, employers and individuals can do to address system vulnerabilities and curtail unemployment claims fraud.
Finding imposter claims
Before COVID, states’ fraud monitoring systems focused primarily on detecting inconsistent information from bona fide claimants regarding their employment separation and wages. Amid the economic downturn associated with the pandemic, unemployment agencies scrambled to quickly distribute expanded benefits and cover additional workforce categories, such as gig workers, independent contractors and self-employed individuals. With unprecedented demand (as outlined below), states could not react fast enough to update their computer systems to check for imposter claims — presenting a huge opportunity for fraudsters to exploit.
Systems are being modified to catch the fraud techniques that targeted Pandemic Unemployment Assistance (PUA) programs in order to protect unemployment programs in both the short and long term. States are now flagging claims for nearly 50 potential fraud indicators, like out-of-state bank accounts, duplicate email addresses and multiple names using the same bank account number. They are also on alert for bad actors who hack into systems to gather names, Social Security numbers and birth dates from the dark web and launder money from fake claims through online cash apps and legitimate bank accounts.
By the numbers
More than 60.8 million unemployment claims were filed in the U.S. in 2020, compared to 11.3 million in 2019. The 536% year-over-year increase is largely attributable to labor market conditions related to the pandemic. According to the Federal Trade Commission (FTC), the same period saw a 1,750% increase in reported cases of identity theft related to government documents and benefits like unemployment. The economic turmoil has since settled post-COVID, and totals for initial unemployment claims filed (allowing for seasonal adjustments) went down to nearly 24 million in 2021 and about 11.3 million in 2022. Based on filings through the month of November, the 2023 total is expected to be between 10.5 million and 10.9 million claims.
However, unemployment fraud remains a pressing concern. To use Ohio as an example, the state’s Department of Job & Family Services (ODJFS) reported identifying $6.9 billion in unemployment overpayments as of June 30, 2023; included in that amount are $1 billion in fraudulent PUA overpayments and $185 million in fraudulent payments from traditional unemployment programs. Through collaborations with financial institutions and law enforcement, the State of Ohio has successfully recovered about $48.6 million in fraudulent overpayments (including $21.5 million associated with PUA overpayments) and $255.5 million in non-fraud overpayments. ODJFS has instituted a series of systematic anti-fraud measures to prevent future leakage.
Knowing what to watch for and what to do
Imagine getting a letter in the mail telling you about your unemployment benefits when you still have a job. It might look like junk mail appearing to come from the IRS or from your state’s economic security, employment/unemployment or reemployment agency. The mailing might appear to include:
- A notice from the state about an open claim for unemployment benefits
- A bank “pay card” referencing unemployment benefits
- A PIN code from the unemployment department
- An IRS reporting form 1099-G indicating 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
Not only is this correspondence puzzling; it may leave you wondering what to do next. Awareness of these fake mailings and the proper next steps to take is key. If you receive information about a claim that you suspect is fraudulent, report it right away and make sure you’re not dealing with a larger issue of identity theft. Appropriate courses of action include:
- Reporting the suspicious mailing to your state’s unemployment agency (a searchable database of state websites is available here) or to local law enforcement
- Utilizing the U.S. Department of Labor’s unemployment insurance fraud reporting website
- Protecting your credit by setting up a fraud alert and/or credit freeze
- Monitoring your credit using protection services like Experian and TransUnion
- Using the reporting and recovery resources on the Federal Trade Commission’s identity theft resource site
- Proactively verifying with your state’s unemployment agency that an unemployment claim has been filed
Individuals with questions about possible unemployment fraud should be directed to your state’s unemployment agency or your employer’s human resources department.
Employers should remain on alert for suspicious activity in connection with unemployment claims for current or former employees or for people they don’t recognize. Anything that raises a red flag should immediately be reported to the relevant state unemployment agency. We also recommend providing employees with information — such as this resource from the IRS — about the risk of identity theft involving unemployment benefits and measures they can take to protect themselves.
> Learn more — read about how Sedgwick’s unemployment compensation solutions help employers control costs, reduce fraud, maintain accurate records, and take care of current and former employees