Unemployment insurance fraud

• What is unemployment insurance?
• Terms and definitions
  • Unemployment insurance
  • Unemployment insurance fraud
  • Unemployment insurance fraud recovery
  • Federal unemployment tax
  • State unemployment tax
  • Employment taxes
  • Payroll taxes
  • Unemployment tax wage base
  • Unemployment Trust Fund
  • State Unemployment Trust Funds
  • Employment Security Administration Account
  • Extended Unemployment Compensation Account
  • Federal Unemployment Account
  • Indexing unemployment benefits
  • Experience rating
  • Refusal of work
  • Integrity Data Hub
  • Unemployment extension
  • Work search activity
  • Unemployment insurance overpayments
• Court cases
  • Steward Machine Co. v. Collector of Internal Revenue
  • Carmichael v. Southern Coal & Coke Company
  • Meilink v. Unemployment Reserves Commission of State of California
  • Sherbert v. Verner
  • Nash v. Florida Industrial Commission
  • California Department of Human Resources Development v. Java
  • Geduldig v. Aiello
  • Ohio Bureau of Employment Services v. Hodory
  • New York Telephone Co. v. New York Department of Labor
  • Califano v. Westcott
  • Thomas v. Review Board of the Indiana Employment Security Division
  • United States v. Lee
  • Hobbie v. Unemployment Appeals Commission of Florida
  • Frazee v. Illinois Department of Employment Security
  • Employment Division, Department of Human Resources of Oregon v. Smith
• Unemployment insurance in the states
• Reform proposals related to unemployment insurance
• Unemployment insurance reform activity in the states
• Index of articles about unemployment insurance

Unemployment insurance
• Terms and definitions • Court cases • Unemployment insurance programs in the states • Reform proposals related to unemployment insurance • Reform activity in the states related to unemployment insurance • Index of articles about unemployment insurance
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Unemployment insurance fraud is a term that refers to the unlawful receipt of unemployment insurance benefits by ineligible individuals. Unemployment insurance fraud occurs when an individual commits certain prohibited acts under the joint federal-state unemployment insurance program in order to claim benefits that they are not entitled to receive.

Unemployment insurance fraud is committed in a variety of ways with penalties ranging from monetary fines to incarceration, depending on the state.

The United States lost more than $400 billion in fraudulent unemployment insurance claims related to the coronavirus (COVID-19) pandemic, according to an analysis by the identity fraud mitigation company ID.me. Click here to read more about unemployment insurance fraud during the coronavirus (COVID-19) pandemic.

Background

See also: Unemployment insurance

The joint federal-state unemployment insurance program provides temporary monetary payments to individuals who have lost employment through no fault of their own. The federal government oversees the general administration of state unemployment insurance programs. The states control the specific features of their unemployment insurance programs, such as eligibility conditions and length of benefits.

Unemployment insurance fraud occurs when employers, claimants, or criminals violate certain state unemployment insurance laws in order to claim unemployment insurance benefits that they are ineligible to receive.

Unemployment insurance fraud can take many forms. Employers, for example, may seek to avoid tax liability by establishing false accounts. Claimants, on the other hand, may submit false information, continue collecting benefits when no longer eligible, or fail to be able or available for work, among other fraudulent actions. Criminals generally commit unemployment insurance fraud through identity theft, such as filing false claims using stolen identities or defrauding individuals through scam websites that mimic state unemployment insurance portals.

State agencies tasked with administering unemployment insurance programs work with local, state, and federal law enforcement agencies to identify and prosecute fraudulent unemployment insurance claims.

Types of unemployment insurance fraud

Employers, claimants, and criminals can commit unemployment insurance fraud in a variety of ways. The following list identifies selected examples of unemployment insurance fraud:

Individuals

• Reporting false information on an unemployment insurance application.
• Failing to report employment, such as self-employment, temporary positions, or cash jobs.
• Neglecting to report income.
• Making false statements to receive or increase benefits.
• Failing to report work refusals.
• Falsifying work searches.
• Not disclosing a work separation.
• Receiving benefits when incapable or not available to work.
• Neglecting to report other remittances, such as workers' compensation payments.
• Assisting another individual to commit unemployment insurance fraud.

Employers

• Wrongly classifying workers as independent contractors.
• Neglecting to report wages paid to employees or falsifying employee information.

Criminals

• Using another individual's identity to file for unemployment insurance benefits.

Penalties

State laws governing unemployment insurance may classify unemployment insurance fraud as either a misdemeanor or felony offense, depending on the extent of the fraud. Federal guidelines require states to assess a minimum penalty of 15% of the amount of the fraudulent claim, according to the U.S. Department of Labor. States generally prohibit individuals found guilty of committing unemployment insurance fraud from receiving future benefits for a minimum of six weeks for every week of fraudulent claims.

Criminal prosecution under unemployment insurance laws may result in the following penalties, depending on the state:

• Fines up to or exceeding $10,000, depending on the state.
• Incarceration.
• Probation in addition to, or in lieu of, incarceration.
• Repayment of fraudulent benefits.
• Forfeiture of future income tax refunds.
• Permanent loss of eligibility for unemployment insurance benefits.

Notable periods of unemployment insurance fraud

The following section examines notable periods of fraud in the joint federal-state unemployment insurance program.

Coronavirus (COVID-19) pandemic (2020-2021)

The U.S. Department of Justice (DOJ) established the multi-agency National Unemployment Insurance Fraud Task Force (NUIFTF) in response to the increase in federal funds attributed to unemployment benefits during the coronavirus (COVID-19) pandemic. The task force broadly aimed to combat fraud related to the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan (EIDL) program, and state-administered unemployment insurance programs. The DOJ as of March 2021 had filed criminal charges against 474 defendants aiming to obtain more than $569 million through fraud—including unemployment insurance fraud—related to the coronavirus (COVID-19) pandemic.

Blake Hall, CEO of identity fraud mitigation company ID.me, told Axios in June 2021 that the United States had lost more than $400 billion in fraudulent unemployment insurance claims related to the coronavirus (COVID-19) pandemic. Hall claimed that criminals may have stolen as much as half of the pandemic's unemployment claims.

In the same Axios report, LexisNexis Risk Solutions CEO Haywood Talcove claimed that criminal syndicates in China, Nigeria, Russia, and other overseas locations had stolen roughly 70% of fraudulent unemployment insurance claims. Domestic street gangs pilfered much of the remaining funds, according to Talcove.

Improper payment rates by state (July 1, 2019, through June 30, 2022)

Improper payment rates include all root causes of unemployment insurance overpayments, including administrative errors and unintentionally incorrect (non-fraudulent) claimant information. The improper payment rate does not necessarily indicate the rate of fraudulent payments in a state.

The improper payment rates displayed in the map below represent data collected for the three-year period from July 1, 2019, through June 30, 2022. During that period, the following five states demonstrated the highest improper payment rates:

1. Virginia - 43.80%
2. Tennessee - 39.84%
3. Florida - 39.58%
4. Rhode Island - 32.90%
5. Kansas - 29.42%

The following five states demonstrated the lowest improper payment rates:

1. Hawaii - 5.77%
2. Utah - 6.29%
3. Idaho - 7.46%
4. North Dakota - 8.49%
5. Kentucky - 8.85%

Reform proposals related to unemployment insurance fraud

This section presents the main approaches to addressing challenges related to unemployment insurance fraud and unemployment insurance overpayments.

If you know of any reform proposals that are missing, email us.

Incentivize job search efforts and job acceptance

In his 2019 article "Optimal unemployment insurance with monitoring," economist Ofer Setty proposed that job search efforts and job acceptance among unemployment insurance benefits recipients could be incentivized through monitoring procedures, decreasing a worker's UI benefits the longer they are unemployed, and increasing the taxes unemployed individuals pay once they return to work.

“

In optimal UI, a risk-neutral planner insures a risk-averse worker against unemployment by setting transfers during unemployment and a wage tax or a subsidy during employment. During unemployment, the worker searches for a job by exerting effort, the level of which is private information. Since the planner cannot observe the job-search effort, the constant benefits that are implied by the first-best allocation would undermine the worker's incentives to search for a job. Therefore, to solve the incentive-insurance trade-off, benefits should continuously decrease during unemployment, and the wage tax upon reemployment should continuously increase. I include monitoring in this framework as follows. The planner chooses the quality (precision) of the monitoring technology for the unemployed worker. The cost of monitoring increases with the monitoring's precision, which is correlated with the worker's job-search effort. The planner uses the monitoring signal to improve the efficiency of the contract by conditioning future payments and the wage tax not only on the employment outcome but also on the signal's outcome. These future payments create endogenous sanctions and rewards that, together with the monitoring signal, create effective job-search incentives. By exerting job-search effort, the worker increases the probability of a good signal and, consequently, of higher payments.

”

In their 2015 article "Unemployment Insurance Fraud and Optimal Monitoring," economists David L. Fuller, B. Ravikumar, and Yuzhe Zhang proposed that incentives to report new employment and disincentives to collect unemployment benefits while employed could reduce fraudulent claims. The authors proposed a constant period between verification checks for employment, tax incentives for individuals who promptly reported new employment between verification checks, and unemployment insurance benefits that decreased with the length of unemployment.

“

The most prevalent incentive problem in the U.S. unemployment insurance system is that individuals collect unemployment benefits while being gainfully employed. We examine a model of optimal unemployment insurance where a worker can conceal his employment status and the Unemployment Insurance authority has a technology to verify his employment status. We find that the optimal interval between consecutive monitoring periods is a constant, independent of history. The optimal employment tax is nonmonotonic, increasing between verifications and decreasing immediately after a verification. The optimal unemployment benefits decline with unemployment duration with sharp declines after each verification.

”

Require employers to report work refusals

See also: Refusal of work

The Foundation for Government Accountability (FGA) published a 2020 paper titled "Reporting Employee Work Rejections," proposing that states require employers to report unemployed workers who refuse job offers.

“

Individuals aren’t returning to work after being laid off, and are refusing new jobs as well. Instead, they continue to draw taxpayer-funded unemployment insurance benefits. Continuing to collect unemployment after refusing to work is fraud. ... States should set up simple, easy-to-use processes where employers can report employees who have refused an offer of suitable work.

”

Increase verification and reporting

The FGA published an article in 2021 titled "Top 10 Examples of Outrageous Unemployment Fraud in 2020—And How to Fix It." The article proposed that state agencies tasked with administering unemployment insurance programs could reduce unemployment insurance fraud by performing increased unemployment insurance verification checks against existing records and reporting their findings to state legislatures.

“

One typical practice for state unemployment agencies is to cross-reference their claims against the state’s quarterly tax and wage reports, provided by employers. However, rather than simply once per quarter, states should be performing these checks every week, since unemployment claims themselves happen every week. Further, a cross-reference is only as good as the database it utilizes. Therefore, weekly checks should be made against three important databases: prison records, the National Directory of New Hires, and the NASWA Integrity Data Hub. These are pre-existing databases to which states should already have access. State legislatures should also require their workforce agencies to report back, at least once per year, about their implementation of and findings from these crosschecks, including overpayments detected and money saved.

”

In his 1997 article "Unemployment Insurance Fraud and Optimal Monitoring," U.S. Department of Labor economist Burman Skrable proposed that additional use and publication of unemployment insurance fraud recovery and identification techniques could deter fraudulent claims.

“

Massive efforts to restructure the UI system's incentives are unlikely. Narrowly defined process improvements, at least to improve benefit payment administration, have had, overall, slight effects on payment accuracy. The most productive avenue remaining might thus be more, and more intelligent, detection and recovery efforts. Students of UI integrity have concluded that much evasive behavior is systematic, and thus liable to detection and deterrence by computerized profiling. They have urged this for increasing employer compliance with tax reporting laws and for screening claimants to focus scrutiny on those persons statistically more likely than average to violate various UI eligibility provisions (Blakemore et al. 1996; Burgess 1992; Burgess and Kingston 1987, p. 256). Such work could build on the profiling systems developed to identify laid-off individuals who are prone to need extensive reemployment assistance and implemented in the past two years. Benefits profiling could use the extensive BQC records. Employer profiling would require each state to mount one-time, if not continuing, random audit programs of employers as was done in Illinois. The targeted selections of workers would help SESAs focus enforcement efforts, information, and job search assistance on workers most likely to need them. Targeted employer audits would increase yield. Both should also provide more effective deterrence if the activity and results are publicized (Kingston, Burgess, and St. Louis 1986, p. 334; Blakemore et al. 1996, p. 22).

”

Require recovery of overpayments

See also: Unemployment insurance fraud recovery

The 2021 FGA paper "Top 10 Examples of Outrageous Unemployment Fraud in 2020—And How to Fix It" also proposed that state legislatures could require state workforce agencies to recover unemployment insurance overpayments and report any cases where recovery was not attempted or impossible.

“

State lawmakers should also require state workforce agencies to recover all fraud and non-fraud overpayments. Further, state workforce agencies should be required to report and explain to state legislators and the public any cases where they fail or refuse to recover any overpayments, even for allowable reasons such as agency error. Fraud and overpayment recovery should not be optional, since the unemployment tax increases on small businesses that are caused by a leaky unemployment program are also nonoptional.

”

See also

• Unemployment insurance

External links

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