Unemployment Insurance Fraud: What You Need to Know
Congress passed the first COVID-19 relief package for businesses and individuals in March 2020, when the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted, providing, among other things, one-time stimulus checks for individuals, extended unemployment insurance (UI) benefits, relief for state and local governments, liability protection, and the Paycheck Protection Program for small-business loan forgiveness.
The CARES Act provisions prescribed 13 weeks of federally funded benefits under the new Pandemic Emergency Unemployment Compensation (PEUC) program in addition to the standard state-administered unemployment insurance programs for those currently receiving benefits and new applicants. The program was designed by Congress to be fully self-certifying meaning that there were not many interactive checks in place according to the law, to ensure that someone who was filing was indeed who they claimed to be or held their described position at the company they were claiming to be employed at.
Over the summer, Arizona employers saw a dramatic spike in the number of pandemic-caused UI notices they received regarding individuals who either still worked for their organization or had no association with them at all. It became apparent steps needed to be implemented to prevent the massive amount of identity theft and fraud that was happening revolving around the claims.
One large cause for concern was more than an individual claiming to work for a company they had no association with, but more alarming was the amount of identity theft that was occurring to try to take advantage of the unemployment insurance program that was launched due to the COVID-19 pandemic. Many individuals affected by this type of identity theft were unaware they had been targeted until their employer notified them that their information was used as part of a UI claim.
As a result of the spike in false claims, The Department of Economic Security (DES) implemented an identity check verification step to the UI process in October.
What To Do
As an Arizona employer, have you reported claims filed by current employees or never-employees? As of early February, AzDES implemented a front-end verification requirement to file claims to help employers dealing with a rash of claims. Generally, this process is working and prevents UI benefits from being issued to the scammer and the employer’s UI experience rating being charged. The system is not perfect, however, and Arizona employers are urged to be vigilant when responding to UI claims, including carefully reviewing the name, address, and Social Security number on any submitted applications. Employers must check to verify the information and the alleged circumstances of termination against company records. Once a claim appears to be fraudulent, AzDES has instituted a fraud reporting hotline (1-800-251-2436) and website.
At a virtual meeting hosted late last month by the Arizona Chamber of Commerce, AzDES Director Michael Wisehart asked employers to report suspicious claims and to warn employees whose information is being misused to do the same using the same online link. He stressed the value of both employer and employee reporting on the fraudulent activity.
While this dual reporting might appear to be extra work on the part of the employee whose identity has been stolen, duplicate reports help to create a record should the fraud victims receive Forms 1099-G for the unemployment benefits and need to avoid taxation on the money they never claimed or received. Anyone receiving a Form 1099-G for UI benefits they did not claim or receive can report it here.
Also, victims should place credit freezes with the credit reporting bureaus and with the federal identity theft reporting system, as fraudulent claims mean, more likely than not, their SSNs have been compromised.
“Given the economic condition in Arizona, we have been hit less hard than some other states,” said Wisehart. “We are in a situation where we have spent the $1.1 billion of UI benefit trust fund availability that we had going into the pandemic. But we have not yet gone negative, which avoids starting to trigger the federal UI tax implications that businesses would face. We will have to build the fund back up from scratch.”
Director Wisehart, during the call, opened the floor to questions. We list some of the most pertinent questions and answers below.
Question: What should we tell our employees who had their identities stolen and used to file a fraudulent claim?
Answer: There is an online fraud reporting tool available via our website.
Question: How long does it take from when a claim is filed to identifying if the claim is fraudulent?
Answer: Now that we have the identity verification upfront, there is no more identity theft happening around these claims. Now it is a matter of sifting through what we have received previously. We have around 3,000 claims that we are working on. If folks have 1099 that they didn’t get benefits on, we are working on a quick form they can fill out, and then we will get it disregarded for them from the IRS. The IRS has recognized that this is a national problem, and they haven’t begun processing tax returns because of the scale of this UI fraud.
Question: Should an employee report UI fraud under their name, even if the employer responded?
Answer: Yes. I would recommend that they do. It won’t impact them if they don’t because their employer already has notified us, but I think folks need to take the necessary precautions to protect their information especially with a credit or online transactions, and we will continue to be extremely diligent on our side on protecting information but there is just so much out there already designed to steal information from people.
Question: Should employers expect a response or confirmation if a claim has been filed?
Answer: Yes, they will. But it may not be immediate due to the size and scope of the nature of what is happening. It will take some time.