HR Compliance

Unemployment Fraud: Staying Aware and Mitigating Risk

By

Phil Bruce

| Jun 1, 2020

Recently, employers have seen a significant increase in the filing of fraudulent unemployment claims. This includes cases where applicants use another person’s information to apply for benefits in his or her name – people who, in many cases, were never employed or are still employed by a given company.

Part of the reason for the uptick in fraudulent activity is the expansion of unemployment benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and some state unemployment agencies suspending or shortening waiting times before a person can receive benefits. Unfortunately, the increased amounts, number of claims and fewer restrictions have also created more incentive and opportunity for fraud.

Even more alarmingly, the U.S. Secret Service believes fraudulent unemployment claims have been filed on a mass scale by a Nigerian cybercriminal group with a substantial database of Social Security numbers and other personally identifiable information, their efforts impacting multiple states including Washington, Massachusetts, Florida, North Carolina, Rhode Island, Oklahoma, Wyoming and Florida.

Once a fraudulent claim is filed, the employer usually receives notification that an unemployment claim was filed by one of its employees. Individuals that never applied for benefits may also receive a similar notice confirming filing (or approval) of a claim made in their name. Depending on how their state pays unemployment benefits, some individuals may even receive an electronic benefit transfer (EBT) card in the mail to access funds.

How does this affect employers?

Unemployment fraud acts as a drain on the entire system, taking money away from those who really need it (not to mention the corresponding losses in time). If successful, it hurts employees who are furloughed or laid off – in other words, those with legitimate claims – by causing delays in getting much-needed funds into their hands.

Then there are the federal and state unemployment tax obligations faced by employers. While many states have taken steps to ease this burden in response to COVID-19, fraudulent claims still carry the potential to throw a wrench into a properly functioning taxation process. Gone unnoticed, fraudulent claims could increase employer taxes because employers pay unemployment benefits, ultimately creating more taxes employers may need to pay.

What steps should employers take?

Basic awareness goes a long way, so be on the lookout for fraudulent claims, especially if your organization has implemented layoffs or furloughs (or plans to do so). Employers should review all claims to make sure they originate from eligible employees. Ignore the temptation to gloss over crucial information.

Next, be sure to communicate with managers and employees about fraudulent claims and how to report them. For example, if a fraudulent claim is filed in an employee’s name, the employee should take steps to ensure he or she is not a victim of identity theft. This process should include a credit check.

Communication should also extend to any external vendor handling unemployment claims. This helps the vendor know which employees may be filing. Some states may even allow (or require) employers to file mass unemployment claims for their employees.

If you have reason to suspect fraud, you should immediately contact your state’s unemployment agency. If in doubt about reporting procedure, check the agency’s website. This usually resolves the issue, but don’t forget to keep a record of the report in case bureaucratic error results in a later charge for the claim.

About the Author

Phil Bruce

Phil Bruce counsels and represents employers exclusively in all aspects of labor and employment law at McAfee & Taft. A portion of his law practice is devoted to complex business litigation, including breach of contract cases, breach of confidentiality cases and cases involving Lanham Act violations. Bruce’s achievements include the Super Lawyers’ list of “Oklahoma Rising Stars,” which recognizes the state’s up-and-coming attorneys.

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