Dealing with rampant unemployment fraud

One of the many unanticipated consequences of the COVID-19 crisis is a virtual explosion in fraudulent unemployment claims that individuals, employers and states are now dealing with across the country. While unemployment fraud is not new, the availability of enhanced benefits through the CARES Act and other payment programs has led to skyrocketing false claims using stolen identity information.  

While both employers and claimants can commit unemployment fraud under their state unemployment laws, the current crisis primarily involves use of stolen identities by third parties to file unemployment claims. Ohio is among the states that have been particularly hard hitby scammers. The Ohio Department of Jobs and Family Services (ODJFS) reports that in the first week of February alone, one-third or more of new claims were likely fraudulent. Both the federal and state governments are fighting back and deploying resources to assist employers and individuals.

What should employers do?
Employers play an important role in fighting unemployment fraud as they are often the first line of defense when they receive inquiries from state unemployment agencies seeking verification of unemployment and compensation information. Reviewing the unemployment claims carefully and notifying the state agency of fraudulent claims is a critical aspect of combatting fraudulent claims.   

At the federal level, both the U.S. Department of Labor and the Federal Trade Commission (FTC) have offered guidance for employers on fraud prevention tactics and responses. The FTC suggests that employers take the following steps: 

• Alert your workforce. Tell your employees about the scam. Ask them to report fraudulent benefits claims to your human resources (HR) department as soon as they learn about them. Direct your HR team to flag any notice they receive from the state about a claim supposedly filed by a current employee. Immediately notify the employee about any suspicious claim that your business receives.
• Report the fraud. Check your state unemployment benefits agency’s website for reporting instructions. Depending on your state, the agency may want you, the employee or both to submit a fraud report. This link can help you find the agency’s website.

1. If possible, report the fraud online. An online report will save you time and be easier for the agency to process.
2. Give your employee a copy of any documentation of your report to the state, including any confirmation or case number you receive. Let the employee know if the state requires that the employee also report the fraud.

What can individuals do?
Individual states have implemented a variety of methods to support individuals through this crisis.  In Ohio, officials at the ODJFS have created an Identity Theft and Unemployment Benefits resource page that can be accessed at Coronavirus and Unemployment Insurance: Identity Theft (ohio.gov). Unemployment fraud victims may make reports of identity theft via a red button on the ODJFS’s website. 

A new hotline is also available for victims to report such fraud. The hotline, (833) 658-0394 is open from 8 a.m. until 5 p.m. Monday through Friday. Additionally, the ODJFS recommends that victims take the steps listed on the Ohio Attorney General’s website to protect their identity check their credit report online.  

Individuals can also visit IdentityTheft.gov to report the identity theft to the FTC and get step-by-step recovery help. By using the FTC’s identify theft reporting site employees can get assistance with placing a free, one-year fraud alert on their credit, getting free credit reports, closing  fraudulent accounts opened in their name, adding a free extended fraud alert or credit freeze to their credit report and more. 

Unfortunately, many individual victims of unemployment fraud were unaware that their identities had been stolen until they received a 1099 tax form for jobless benefits for which they never applied – or received. Reporting cases of fraud allows states to conduct investigations, and if necessary, issue a corrected 1099 to the Internal Revenue Service. The ODJFS recommends that victims file their taxes as usual and follow up with the ODJFS if they do not receive a corrected 1099.

While catching scammers may be a difficult process, all states are required to enforce their own unemployment insurance laws. Criminal penalties for unemployment fraud may include fines and/or incarceration; require repayment of fraudulent benefits; forfeiture of future income tax refunds; and/or permanent loss of eligibility of unemployment compensation. Commission of unemployment fraud may also be prosecuted by the U.S. Department of Justice in federal courts under 18 U.S.C. § 1341 or other federal statutes.

To combat this unemployment fraud epidemic, employers and employees will need to remain vigilant in reviewing claims and promptly reporting fraud. McDonald Hopkins will continue to provide updates on this important topic.