Pandemic Unemployment Fraud May Shift, Bring More Business Costs – Bloomberg Law - Bloomberg Law

Employers should increase their vigilance against unemployment insurance fraud as a pandemic-era program for independent contractors—a ripe target for sophisticated swindlers—expires next month, experts on jobless benefits said.

Domestic and international cybercriminals who’ve used stolen identities to commit fraud on a mass scale may shift their focus to traditional unemployment insurance when the Pandemic Unemployment Assistance program ends Sept. 6, those experts said. The program provides benefits to gig economy workers and others who don’t qualify for regular unemployment benefits.

“Fraud rings look for easy targets that produce revenue with minimal risk,” said Douglas Holmes, president of UWC - Strategic Services on Unemployment Workers’ Compensation, an advocacy organization for businesses. “When PUA is no longer on the board, they’ll look to other places to exploit. They’ll look to regular UI.”

Employers finance the unemployment insurance system via state and federal taxes on wages, effectively putting them on the hook for benefits paid to bogus claimants in the form of higher tax rates for companies. Nonprofits that don’t pay such taxes have to reimburse states for unemployment benefit payments.

Companies can also face increased expenses related to fraud if a state’s unemployment trust fund is drained to the point that it needs to borrow money to remain solvent, since those loans too prompt higher taxes on employers.

State unemployment systems were hit with an unprecedented tidal wave of claims with the onset of the pandemic, shattering pre-pandemic weekly claims records. With overburdened state systems waiving normal requirements and the federal government providing billions in aid, criminal syndicates took advantage by flooding states with fraudulent claims for both PUA and traditional unemployment insurance, the jobless benefit specialists said.

“The criminals were just going to town,” said Steve Gray, director of the Michigan Unemployment Insurance Agency from 2019 to 2020.

Improper unemployment assistance payments made while pandemic-aid packages are running will total $87 billion, with a significant amount due to fraud, according to an estimate from the U.S. Labor Department’s Office of Inspector General.

The Labor Department announced last week it’s sending $140 million to the states for fraud prevention as well as “tiger teams” of staffers to help with unemployment insurance issues, including fraud.

Employer Notices

The Pandemic Unemployment Assistance has been an attractive target in part because it gives benefits to workers who technically don’t have employers. That means PUA claims don’t come with employer notices, which are a powerful tool for spotting fraud for regular unemployment insurance.

Employers should pay close attention to those benefit claim notices, report those that are suspicious, and alert workers that they might be victims of identity theft. Companies should also audit their periodic reports of unemployment insurance charges from the state to detect questionable claims, jobless benefit advisers said.

A large share of unemployment fraud during the pandemic has been against PUA, although a precise accounting isn’t available, said Michele Evermore, a senior policy adviser for unemployment insurance at the Labor Department.

Some of the criminal syndicates that have gone after PUA will migrate to traditional unemployment insurance, Evermore said.

Firms that provide unemployment insurance services to employers said that potential shift in fraudsters after PUA expires gives employers another reason to watch unemployment claims closely.

“Employers should be as vigilant as possible to any improper payments, since they’re funding the system” said Richard Siegel, president of Unemployment Tax Management Corp.

‘Not Just Theft’

Although PUA is a more vulnerable target, criminals haven’t ignored regular unemployment insurance during the pandemic.

David Prosnitz, president of Personnel Planners, said bogus claims typically make up less than 1% of the claims his firm sees when assisting employers with unemployment insurance issues. But during certain periods of the pandemic, that share has surged to upwards of 50% of claims, he said.

“It’s not just theft. It’s bigger than that,” Prosnitz said of the rampant fraud. “It’s aimed at the American public. Millions of people have had their identities stolen. Criminals are trying to steal a basic social benefit from people who are unemployed.”

Geoffrey Moomaw, president of Interstate Tax Service, was seeing about 150 fraudulent claims involving his Pennsylvania-based clients when his company started tracking them in March. Those figures blew up to thousands per week after the state went to a new online benefit system, he said.

But Pennsylvania added a game-changing identity security protocol in June, which prompted a drastic reduction in the amount of fraudulent claims filed, Moomaw said.

“I can now concentrate on actual unemployment claims instead of being a fraud investigator,” he said.