Combatting Rampant Unemployment Fraud

Addressing fraudulent unemployment claims requires a combination of technological solutions, policy adjustments, and proactive monitoring. As fraudsters continue to develop new methods, a dynamic and adaptive team approach to fraud prevention is essential.

Unemployment insurance fraud can be committed by both employers and claimants under state unemployment insurance laws and carry stiff penalties. Unemployment insurance laws are enforced by each individual state. The U.S. Government Accountability Office found an estimated over $60 billion by extrapolating the lower bound of the Department of Labor’s (DOL) 2021 estimated national fraud rate for the regular UI program. Money stolen via fraudulent UI claims – an estimated $191B of benefits is projected to have been paid improperly.

Punishable claimant fraud can include:

• Collecting benefits while knowingly being ineligible.
• Not being able and available to work while certifying for benefits.
• Intentionally not reporting money earned while collecting full benefits.
• Using a fake identity or knowingly submitting false information to obtain unemployment benefits.
• Working another job without reporting it while receiving unemployment compensation.
• Cashing another’s unemployment check without permission.
• Not actively seeking a new job or giving false reasons for unemployment.
• Obtaining benefits from another state where one does not reside.

Controlling fraudulent unemployment claims is crucial to ensure that unemployment benefit programs are used properly and that funds are distributed to those who genuinely need them. Here are some steps that governments and organizations can take to prevent and address fraudulent unemployment claims:  

1. Verification and Authentication:

• Implement strong identity verification processes during the application process, such as multi-factor authentication and identity document checks.
• Utilize advanced data analytics and technology to detect patterns of fraudulent behavior, such as multiple claims from a single IP address or unusual application patterns.

2.  Cross-Check Data:

• Share data with other government agencies, such as tax authorities and immigration offices, to cross-reference information and identify discrepancies.
• Collaborate with financial institutions to verify claimant information and monitor for suspicious activity.

3.  Employer Collaboration:

• Establish communication channels with employers to verify employment status and reasons for separation.
• Encourage employers to promptly report employee separations and provide accurate information to unemployment agencies.

4.  Real-Time Reporting:

• Develop systems for real-time reporting of new hires and separations to quickly identify cases where individuals are fraudulently claiming benefits while employed.

5.  Document Verification:

• Require submission of relevant documentation, such as pay stubs, tax records, and official separation notices, to support claimants’ eligibility.

6.  Audits and Reviews:

• Conduct regular and random audits of claims to verify information provided by claimants.
• Employ data analytics to identify anomalies and discrepancies that may indicate fraudulent activity.

7.  Fraud Detection Systems:

• Implement sophisticated fraud detection software using machine learning and AI algorithms to identify potentially fraudulent claims based on patterns and anomalies.

8.  Education and Awareness:

• Educate claimants about the consequences of fraudulent claims and the importance of accurate reporting.
• Raise public awareness about the penalties for committing unemployment fraud.

9.  Hotlines and Reporting Mechanisms:

• Establish hotlines or online reporting mechanisms for individuals and employers to report suspected fraudulent activity confidentially.

10.  Penalties and Prosecution:

• Enforce strict penalties, including fines and criminal charges, for individuals found guilty of making fraudulent claims.
• Work with law enforcement agencies to investigate and prosecute cases of unemployment fraud.

11.  Continuous Improvement:

• Regularly review and update fraud prevention and detection measures to adapt to evolving tactics used by fraudsters. 

By implementing a combination of these strategies and maintaining a proactive approach, unemployment agencies can significantly reduce the incidence of fraudulent claims and ensure that resources are directed toward individuals who genuinely need assistance.

1. Key Actionable Practices as an Employer:

• Review best practices for storing employee and payroll data.
• Educate employees about the spike in claims and ask they report any suspicious claims immediately.
• Direct the HR team to flag any state notice about a claim for any current employee.
• Review company cyber policies.  
• Pay attention to unemployment claim activity or the detailed reports provided by your third-party administrator.

If you suspect unemployment fraud or have information about fraudulent activities related to unemployment benefits, you should report it to the appropriate authorities. The exact agency or organization you should contact may vary depending on your location. The U.S. Department of Labor provides the public with a one-stop resource for connecting with state websites and tip hotlines to report potential Unemployment Insurance claimant and employer fraud. Click below to find a direct contact to the state to report potential fraud.