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Risk Fraud & Compliance

Unemployment insurance fraud continues to challenge governments during pandemic

Melissa D. Berry  Regulatory Intelligence

Melissa D. Berry  Regulatory Intelligence

Although new claims for unemployment benefits were lower than expected, nearly 8.4 million people are still receiving unemployment insurance benefits. And, with the Federal Reserve describing economic growth as only “slight to modest,” it seems certain that millions of people will remain unemployed.

With so many needing unemployment benefits, it is no surprise that fraudsters are moving in to take advantage of the opportunity to steal from the government.

In a recent Thomson Reuters webinar, Follow the Money: Fighting Fraud in the Unemployment Insurance System During COVID-19, panelists discussed current trends in unemployment fraud, challenges for states administering the programs, and how technology could help prevent this fraud.

Moderator Jon Coss, vice-president of risk, fraud & compliance for Thomson Reuters’ Government unit, noted that during the eight months of the current public health emergency, states have been required to process more than 60 million new claims for unemployment benefits, as much as 10- to 15-times the typical volume of claims. This includes claims for self-employed individuals who are eligible for benefits for the first time under the Pandemic Unemployment Assistance (PUA).

The increased volume of claims, the need to quickly process applications, and reduced verification requirements have created a situation that is primed for fraudsters to steal billions.

When asked what is different now compared with the start of the PUA, panelist Randy Gillespie, director of the National Association of State Workforce Agencies (NASWA) Unemployment Insurance Integrity Center, said that early on “fraud was rampant” because states were handed a brand new program to administer, and it did not include the checks and balances necessary to keep fraud and waste in check. The PUA stripped away some protections against unemployment insurance fraud because individuals were permitted to self-certify their eligibility. Prior to the PUA, states could rely on quarterly wage reports and verify wages with employers.


You can access the Thomson Reuters on-demand webinar, Follow the Money: Fighting Fraud in the Unemployment Insurance System During COVID-19 here.


Additionally, the earlier attacks were largely committed by international organized crime rings, Gillespie said, adding that although every state has implemented new protections and have gotten “much better” at preventing fraud, he is still hearing that there are “tens of thousands” of fraudulent claims every week.

Panelist Lisa Schmith, CEO of Meridian Leadership Solutions, agreed that some states have made significant strides toward reducing unemployment insurance fraud and pointed to California’s identity verification program, ID.me, which has greatly reduced the number of fraudulent claims.

Stolen personal identifiable information

Some fraudsters have been able to access bank accounts using stolen personal identifiable information (PII) acquired through data breaches.

NASWA’s Gillespie said that a program such as PUA, which involves so many claims and such a large amount of money, means “increases in every type of fraud that the criminally minded can imagine,” including account takeovers. However, banks have been good partners in helping to identify fraud because they can identify patterns of direct deposits that appear fraudulent, in part because most states now require direct deposit for unemployment insurance benefits, he added.

Schmith, of Meridian, noted that California, for example, has reduced account takeover fraud by mailing letters to individuals that provides a custom ID that allows those individuals to access the system using a benefit debit card. The combination makes it more difficult for fraudsters to steal from bank accounts and helps prevent account takeovers.

However, there are situations where individuals such as prisoners will provide their personal information to someone else, giving the fraudsters “everything they need” to commit fraud, she added.

How do fraudsters target people’s data to use in fraud? Coss, of Thomson Reuters, said that access to data on the dark web is incredible with “10 billion identities breached” — and it’s not just the data that is available online. Fraudsters are also posting step-by-step instructions that explain how to defraud state unemployment systems. Fraudsters will sell the instructions for a nominal fee and then sell lists of personal data for a larger fee.

The dark web is not used just to buy and sale data but as a source for sharing techniques to defraud unemployment insurance programs, explained Gillespie, adding that “fraud hotspots” will appear in states after information is shared about successful fraud techniques are shared online.

Technology gaps & solutions

State unemployment insurance agencies are at a disadvantage because they have to quickly process claims and get checks to the people who need them, while fraudsters just have to look for an opportunity, Coss said.

Further, the complexity of the unemployment insurance process and the “antiquated systems” used to navigate technical requirements makes it difficult to balance processing the backlog of claims while identifying fraud, said Schmith.

Yet, despite the challenges faced by the state agencies, Gillespie said there are “technological solutions” that can help reduce fraud, and there are “tools out there that will go a very long way to shutting [unemployment fraud] down.” Indeed, all 54 jurisdictions administering unemployment insurance programs are implementing programs to verify beneficiary identities.

“Technology exists to prevent a good portion” of the unemployment fraud we are now seeing, Gillespie explained. But states are not always using the “front-end solutions” that keep fraudsters from getting into the systems in the first place.

Solutions exists that would prevent much of the unemployment insurance fraud because it would allow states to share and cross-match data to identify discrepancies, he added. For example, states could identify and flag bank accounts where fraudulent tax returns were previously deposited.

Fraudsters will always attack vulnerable systems in order to steal money from the government and from the individuals who need benefits the most. Finding technological solutions that can allow the verification of data across jurisdictions can help identify and prevent this type of pernicious fraud.

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