Fight Against Fraud Slows Payments to Unemployed
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As workers grow desperate for unemployment benefits, criminals filing fraudulent claims are clogging state unemployment systems, making legitimate claimants wait even longer for help.
States that were generous and quick to help workers were also quick to be targeted by scammers. In response, states have had to slow down the processing of claims and even claw back some money, delaying payouts to people supposed to be getting them.
States with no income tax, such as Washington and Nevada, had no income records to help substantiate claims, making it easier for fraudsters to get money they didn’t deserve. For that reason, those states were hit harder and had more trouble weeding out fraud.
And new benefits for “gig” workers put states into uncharted waters, without the extra verification of a traditional employer with records of layoffs and wages.
“We were hit with a massive criminal attack. Our state was the first big state to get hit,” said Washington state Employment Security Commissioner Suzi LeVine at an August news conference. She said Washington was targeted in April and May because it started distributing CARES Act benefits sooner than other states, and it has a relatively high maximum state benefit of $844 a week.
Washington paid out $576 million in fraudulent claims that peaked in early May, according to reports provided to Stateline. It recovered $340 million after pausing benefits to identify fraud and taking back money deposited on debit cards.
Nevada cited widespread fraud as one reason for a backlog of claims that resulted in a court order to speed payment and a state task force designed to get money to people who need it without lining the pockets of fraudulent applicants.
“While working to address the critical needs of Nevadans, we will also maintain our focus on stopping fraud,” said Rosa Mendez, a spokesperson for the Nevada state Department of Employment, Training and Rehabilitation.
Arizona is still struggling to verify more than 1 million gig worker claims that might be fraudulent, said Brett Bezio, a spokesperson for the state Department of Economic Security. The state got 2.7 million applications and has only 3.4 million workers.
To ensure that legitimate claimants get their money, the state started paying 90,000 claims that had been held up for review after determining they weren’t fraudulent, with checks going out in late August, Bezio said.
The state agency “has focused immense efforts toward ensuring that all those eligible receive benefits,” Bezio said.
The federal Office of Employment and Training Administration is helping states by keeping a “Suspicious Actor Repository” and holding weekly calls to share strategies. The National Association of State Workforce Agencies, a trade group, manages an “integrity center” with resources to help states control fraud.
Washington state called in 54 National Guard troops to help with identity verification. Those blamed for the false claims include a Nigerian digital crime group called “Scattered Canary” that hit Washington state and Hawaii early.
Scattered Canary also was implicated in fraudulent applications in Florida, Massachusetts, North Carolina, Oklahoma, Rhode Island and Wyoming.
But there also have been arrests of U.S. residents. On Aug. 25, 33 people were charged in a scheme to get fraudulent unemployment benefits for thousands of Pennsylvania state prisoners. On Aug. 20, three Iowa men were charged with impersonating residents of Arizona and Massachusetts to get benefits.
Massachusetts paused benefits payments to investigate fraud.
Hawaii also had to pause benefits when it became clear that millions in claims were bogus. More than $125 million in claims were stopped but not before fraudsters got about $36 million.
Like many states, Hawaii found many applications coming from overseas and ended up using a location app to make sure workers were in the state before processing claims.
Hawaii also started requiring more verification, including copies of both sides of a driver’s license and social security card, and a selfie with the ID cards, said William Kunstman, a spokesperson for the Hawaii Department of Labor and Industrial Relations.
The fraud crackdowns have been yet another impediment for people struggling to get help from outdated, overwhelmed state unemployment systems.
Amy Swanner of Lake Stevens, Washington, lost not only unemployment benefits but $4,500 in savings on a debit card when the state Employment Security Department started investigating her identity. The investigation began because the card still carried her maiden name, which changed when she got married last year.
A bartender who hasn’t worked since March, Swanner said the identity issue was resolved when she sent her marriage license. But because neither her bank nor the state agency can tell her where her savings went or how to get them back, she said, she considers them stolen.
“That money was supposed to be our backup,” Swanner said. “I’m grateful for the help I’m getting. But somebody stole my savings.”
Such issues were common as the state tried to claw back money paid to fraudsters, often deposited on mass-market debit cards like the one Swanner uses, said Andra Kranzler, an attorney handling a lawsuit by workers seeking faster benefits payments.
Some of the people who need help most, such as people in low-wage jobs, or with several gig jobs, tend to use such cards. Many of them do business on public Wi-Fi, so internet addresses are inconsistent, drawing sometimes unfair cutoffs and scrutiny.
“It’s falling disproportionately on the most vulnerable people, the low-wage workers who are already facing economic insecurity,” Kranzler said. “They need help desperately.”
The state Supreme Court has agreed to hear the case, likely in the fall or winter.
Another state that was quick to pay out benefits, Arizona, also ended up slowing payments in order to investigate fraud. In July the state stopped accepting multiweek claims without an investigation, Bezio said, and that single action significantly slowed the number of claims filed.
The state Department of Economic Security doubled its staff dedicated to investigating fraud and found tens of thousands of fraudulent applications, including stolen identities used to claim benefits. Complaints of lost benefits to deserving workers followed, even as some people got benefits they never applied for.
Among other states dealing with unemployment fraud are California, Colorado and Montana.
California put out a warning about potential fraud Aug. 6, after some residents were notified about benefits they didn’t need and hadn’t applied for.
Colorado stopped payment on $34 million in claims deemed suspicious in July. The state started requiring phone verification for claims of more than one week in benefits, which caused claims to drop by 40%, which the state acknowledged could include legitimate workers unable to get through clogged lines.
Montana also fell victim to fraud and slowed approvals for gig workers, quadrupling staff for investigations. The state estimated in June that it has blocked $220 million in fraudulent claims.
A May report from the federal Labor Department’s Office of the Inspector General warned that the gig workers benefits system, which relies on self-certification that a worker is entitled to the benefits, is “highly vulnerable to improper payments and fraud” and warned states to ask for more documentation before paying claims.