Preventing Unemployment Insurance Fraud

January 2, 2023 by Vikki Chaffin

employers should review steps to prevent ui fraud

Before the pandemic, the Labor Department’s Office of Inspector General opened about 120 investigations related to unemployment insurance (UI) fraud each year. However, the COVID-19 pandemic caused not only the highest unemployment rates since the Great Depression but also an ideal opportunity for scammers to steal workers’ unemployment benefits. As a result, the volume of UI fraud investigations has become unprecedented in OIG’s history.

In addition to processing unemployment claims, state unemployment offices are facing major backlogs due to fraudulent claims. This is creating delays for people who are legitimately trying to claim unemployment benefits and those attempting to clear any fraudulent claims from their names. Moreover, not only can instances of UI fraud have a negative impact on the victim, but they may also increase employer contribution rates. Also, employers are often the first to see signs indicating fraudulent activities, making it critical for them to take proper steps and help prevent UI fraud.

What Is UI Fraud?

To help prevent UI fraud, both employers and employees should understand how it is usually conducted. UI fraud refers to 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.

With the rise of the COVID-19 pandemic, unemployment programs have become a prime target for scammers because more funds became available and because some of the typical checks and balances for receiving benefits were lessened.

The federal government increased the weekly benefit amount through the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. It also offered unemployment benefits to workers who do not typically qualify, including the self-employed, freelancers, and part-time workers. In addition to this, many states lifted some or all standard unemployment qualifications, such as the one-week waiting period or the job-search requirement.

All of this led to fraudsters using identity theft to carry out the UI fraud. Such schemes usually involve stealing the identity of the real employees, applying for IU benefits under their name and diverting UI benefit payments to accounts opened fraudulently in the employees’ names but controlled by the fraudster.

Steps Employers Can Take to Prevent UI Fraud

In the case of UI fraud, the specific obligations of employers vary by state. Generally, they are required to promptly report any suspected fraud to the state agency that administers unemployment insurance benefits and cooperate in any subsequent investigation. Employers may also need to respond to more frequent information requests as agencies take additional steps to verify claimant information.

In addition to this, there are other measures employers can implement to help prevent UI fraud. For example, state labor departments often request employers to verify employee details and compensation information before authorizing payment of unemployment insurance benefits. Careful scrutiny of that inquiry and providing proper information can help to identify fraud in progress. Likewise, prompt and accurate new-hire reporting is also a critical way that employers can prevent UI fraud, as state agencies use new-hire data to compare against unemployment claims.

Upon receiving a fraudulent unemployment claim, employers may consider some of the following steps:

Confirming Employees’ Status

Upon receiving an unemployment claim, employers should first confirm whether an employee is still working for them and check whether they filed an unemployment claim.

Following Procedures to Dispute the Claim

If the employee did not file the claim, employers should follow the instructions on the form to dispute the claim. This may include returning the form with notification that the employee remains employed.

Proper Communication

If they receive notice of a fraudulent claim for unemployment benefits in the employee’s name, employers should notify them. They can also provide recommendations to the employee as to steps they can take to secure their identity, including filing an identity theft report with the Federal Trade Commission and reviewing their credit report. It is also important to warn the employee not to use the funds that they may receive from the fraudulent claim.

Revising Cybersecurity Safeguards

Anytime employers are presented with a case of potential identity theft related to an employee, they should make sure that there has not been any unusual activity on their systems, which could be indicative of a data incident. To help avoid a possible data breach, it is advised to identify where employee information is collected, stored, and used in order to find potential areas of weakness that could be exploited by scammers.

Maintaining Records

Employers should maintain copies of all communications to and from the state unemployment benefits agency for the company’s records and the affected employee’s file.

Monitoring Unemployment Claims

If this process is not in place, to help prevent UI fraud, every employer needs to consider establishing a process to monitor unemployment charge reports, including a process for identifying potentially fraudulent UI claims.

Notifying the State

Upon confirmation of a fraudulently filed claim, an employer should contact the relevant state department of employment security or unemployment benefits agency for instructions on how to report the fraud. Each state has a unique procedure for reporting fraudulent claims for unemployment insurance benefits and the DOL provides a list of state-specific contacts on its website.

Impact Of Fraudulent Unemployment Claims

Employers are responsible for paying federal and state unemployment taxes for each employee, thus funding states’ unemployment insurance programs. Employers’ state unemployment tax or SUTA rate depends on a number of factors, including the number of successful claims filed by former employees.

Fraudulent claims that result in benefit payments can also contribute to a rising SUTA tax rate and can lead to larger issues related to identity theft. In addition to this, UI fraud investigations can take from several weeks to several months and cause backlogs of unprocessed unemployment claims resulting in delayed benefits for those in need. Therefore, it is in everyone’s best interest to prevent UI fraud.

Given that many federal relief programs are no longer in effect, the impact of the pandemic on the economy will probably continue to result in more unemployment insurance claims than usual. But even without this, there is always the potential for UI fraud to occur. To that end, outsourcing unemployment claims management can help employers detect fraudulent activities faster without jeopardizing legitimate payments to individuals. As a result, they can not only prevent UI fraud but also ensure the protection of their business’s unemployment insurance accounts as well as a high level of cybersecurity safeguards.

Improve control over your unemployment claims management, minimize risks, reduce administrative burden, and maximize UI tax savings.

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