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State Strategies for Stopping Unemployment Fraud Amid the Pandemic

By Zach Herman and Michael Quillen | Oct. 2, 2020 | State Legislatures Magazine

Since March, state unemployment systems have seen a historic volume of people applying for unemployment benefits. Initial claims peaked at just under 7 million applicants in the first week of March.

Though the rate of new weekly applicants has fallen since then, new weekly applications still hover around 1 million. The number of people receiving unemployment remains  at similar record-breaking levels.  The number of people on unemployment peaked at 25 million in May and though it has been steadily declining, still remains at 12.5 million. 

The volume of weekly applicants combined with the continued claims and the new programs created by the FFCR Act, CARES Act, and President Donald Trump's executive order are challenging unemployment systems in every state.

Scammers have seized the opportunity to defraud state unemployment systems out of millions of dollars. A report by the Secret Service found that the scams are being operated by organized crime using stolen personal information to submit false applications.

Scammers have seized the opportunity to defraud state unemployment systems out of millions of dollars.

Nearly every state has likely been the target of organized unemployment fraud. Washington halted all unemployment payments for two days after fraudulent payments had been discovered. Colorado halted approximately $36 million dollars in fraudulent unemployment claims in June and nearly $1 billion in fraudulent payments in September for the same reason. 

On Sept. 1, the Department of Labor released guidance for state unemployment systems  to address fraudulent claims along with $100 million to help combat fraud. The guidance offers a variety of strategies, including hiring or contracting specifically to expand fraud investigations, detection, and prevention, encouraging states to use the new Unemployment Insurance Integrity Center, to cross-reference and match applicant data, and to upgrade technology systems to help identify fraud.

States are adopting a variety of strategies to help prevent and catch fraud. Colorado created an 18-measure trigger approach adopted by the Colorado Department of Labor and Employment. While the specifics have not been made public, state officials have said fraud attempts are down, but still happen. Since implementation, state officials have prevented over 25,000 fraudulent claims from getting approved.

The Montana Department of Labor and Industry (DLI) has learned fraudsters have been using physical addresses of properties for sale to con the system into approving their claims. In response, the DLI has issued an announcement to the Montana Board of Realty Regulation and the Montana Association of Realtors to elevate awareness across multiple sectors.

Specifically, DLI is asking individuals to combat fraud by returning mail from the department addressed to someone other than themselves to the post office. Between June 1 and Aug. 31, the department has halted nearly $189 million in fraudulent payments.

In Kansas, officials have established reportfraud.ks.gov for potential victims and employers to report suspected fraud. It is unknown how many claims by fraudsters have been approved, but the state’s Department of Labor, who handles unemployment claims, has said they have blocked at least 45,000 fraudulent payments since the beginning of the year.

In Idaho, where over 150,000 people have filed claims since March, officials have identified potential issues on the front end to mitigate problems later and ultimately save money from going to scammers. The Idaho Department of Labor said about 45% of the claims flagged for identity theft turn out to be fraudulent.

States have to strike a delicate balance between getting benefits to the people who need them while catching and stopping people trying to defraud the system. States must balance speed with accuracy. There is likely no one-size-fits-all strategy for how to stop and catch fraud. Each state is working to figure out how they can best strike the necessary balance within their unemployment system.

Zach Herman is a policy associate in NCSL's Employment, Labor, and Retirement Program. Michael Quillen is a policy associate in NCSL's State-Federal Relations Program.

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