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Instances of unemployment insurance fraud have always been common, but the circumstances created by the pandemic have led to increased fraudulent activities, diverting public funds away from their rightful recipients. Given that employers are often the first to see unemployment insurance fraud warning signs, they are obliged to take proper steps and protect their business as well as employees.

What Is Unemployment Insurance Fraud?

Unemployment insurance fraud includes misrepresenting or concealing information about an employee’s work and earnings to receive or increase unemployment insurance payments. Both employers and employees can commit unemployment insurance fraud under state unemployment insurance laws. Employer fraud usually includes avoiding tax liability or establishing a false employer account to enable fraudulent unemployment claims. On the other hand, employees can commit unemployment insurance fraud by:

However, imposters are usually the ones who use other people’s names and personal information and attempt to claim unemployment benefits they are not entitled to. To achieve this, they use a variety of improper means, such as data breaches or social engineering attacks. Such fraudulent activities hinder the delivery of unemployment benefits to people who actually need them and cost states hundreds of millions of dollars.

Detecting and Reporting Unemployment Insurance Fraud

Collecting unemployment benefits based on false information creates broad consequences for many people and organizations. To begin with, high numbers of fraudulent claims undermine state unemployment agencies’ efforts to maintain the program integrity by slowing down processes and increasing workloads. At the same time, this increases the cost of managing unemployment programs and causes cuts into funds that might otherwise be available to those who report unemployment.

In many cases, employees or claimants discover that they have been targeted for unemployment insurance fraud only after the action was taken, when:

Employers, on the other hand, may learn that they have been affected by unemployment insurance fraud when employees inform them of suspicious UI claims, they receive notices from the state unemployment agency to that effect or notices that claims have been filed by or on behalf of persons who remain actively employed. Also, one of the suspicious activities indicating unemployment insurance fraud can be substantial amounts being charged against employers’ UI accounts and quarterly statements seeking payment of the employer share.

It is critical that both employers and employees act quickly once they detect the fraud. Unemployment insurance fraud victims should report unemployment identity theft to the state where it occurred and to the U.S. Department of Justice’s National Center for Disaster Fraud. They should also check their credit reports for suspicious or unauthorized lines of credit opened in their name.

If employers learn of or suspect unemployment insurance fraud, they should notify the appropriate authorities as soon as possible and report the suspected fraud to the Federal Trade Commission (FTC), the state unemployment benefits agency, and local law enforcement. The U.S. Department of Labor provides guidance on how to report unemployment fraud in each state while some states have their own websites to report UI fraud.

Employers should also gather all relevant information to investigate the fraud, support affected employees’ efforts to report it and address identity theft concerns. To do this effectively, they should prepare a plan to communicate steps employees can take to respond to unemployment insurance fraud and ensure them that their business takes claims of fraudulent activity very seriously.

Lastly, employers need to address the fraud’s financial impact on their business and employees and consult with relevant teams to determine whether their systems may have been breached, resulting in unlawful access to employees’ personal identifying information.

Preparing for and Handling Unemployment Insurance Fraud

Unemployment benefit programs protect citizens in need and are especially important in times of crisis, like the COVID-19 pandemic. However, a crisis such as this one increases the likelihood of mistakes and process gaps at agencies managing these programs, creating more opportunities for unemployment insurance fraud.

The impact of the pandemic on the economy will probably continue to result in more unemployment insurance claims than usual, particularly since many federal relief programs are no longer in effect. But even without a nationwide crisis, there is always the potential for unemployment insurance fraud to occur, making it necessary for employers to prepare and take proper steps. To that end, they can outsource unemployment claims management and ensure the protection of their business’s unemployment insurance accounts as well as a high level of cybersecurity safeguards.


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