Employers: Beware of Widespread Unemployment Benefits Fraud

According to the US Secret Service, there is currently a wave of unemployment fraud that is likely being executed by a well-organized crime ring and appears to have extensive records of individuals’ personal information. Experts say that the number of reported incidents is staggering and may be driving up the cost of taxes for businesses and causing frustration for both employers and workers. The Department of Labor’s Office of the Inspector General estimated that pandemic-related unemployment scams totaled around $36B in losses through November 2020. Learn ways to help better protect your company and employees against unemployment fraud.

How the Unemployment Benefits Scam Works

According to the Federal Trade Commission (FTC), criminals file fraudulent claims for unemployment benefits using the names and personal identifying information of individuals who are still employed. Scammers may get stolen identities by purchasing information on the dark web, contacting victims impersonating government officials or trusted organizations, sending phishing emails, stealing electronic or physical data, or searching websites and social media.

In many cases, the bogus unemployment payments are deposited into bank accounts controlled by the scammers. However, if payments are sent to the victim’s legitimate bank account instead, the criminals may continue the scam. They may contact the victim and impersonate an unemployment official, telling the victim that the payment was made in error in an attempt to get them to transfer the funds elsewhere.

Unemployment Programs Have Become Prime Targets for Scammers

Experts say that unemployment programs have become a prime target for scammers because more funds are available and because some of the typical checks and balances for receiving benefits have been lifted.

The federal government increased the weekly benefit amount through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). It also offered unemployment benefits to workers who don’t typically qualify, like the self-employed, freelancers, and part-timers.

Around the same time, many states lifted some or all of the standard unemployment qualifications, such as the one-week waiting period and the job-search requirement. Mobile banking apps and prepaid debit cards issued by some state unemployment offices may have also contributed to the increase in fraud.

HR May Be Your First Line of Defense Against Unemployment Fraud

Employers often are the first to notice the fraud when they discover that a current employee or employees have been receiving unemployment benefits--sometimes for weeks. Both public and private employers have reported suspicious unemployment claims filed in the name of current employees, employees who retired or left the organization years ago, and even CEOs and senior-level management.

According to experts, it is crucial for HR teams to diligently review all unemployment claims so there is less chance that a fraudulent claim will be successful.

A fraudulent unemployment claim also indicates that criminals are using the employee’s personal information, including name, Social Security number, and date of birth. It’s recommended that HR teams provide further assistance and support to employees whose personal identifying information has been compromised.

How Employers Can Help Better Protect Against Unemployment Fraud

Fortunately, there are steps that employers can take to help better protect their business and their employees from unemployment benefits fraud.

  • Carefully review unemployment claims - It’s recommended that employers be vigilant in reviewing unemployment reports or advising their third-party unemployment claims administrators to do the same. Experts say that HR should promptly review whether the named applicant for unemployment benefits is a current or former employee. If it is a current employee, the claim is likely fraudulent. If it is a former employee, HR should contact the individual to confirm whether they filed a claim.
  • Alert the workforce about the scam - Experts recommend that employers notify employees about the spike in fraudulent unemployment claims and identity theft. Ask employees to report any suspicious benefits claims to the HR department as soon as possible in order to begin resolving the issue.
  • Check the company’s cybersecurity - The FTC recommends that employers review their cybersecurity policies. The agency provides a guide on Cybersecurity for Small Business to help better protect against cyber attacks.
  • Review procedures for storing employee information - To help avoid a possible data breach in the future, it’s advised to identify where employee information is collected, stored, and used in order to find potential areas of weakness that could be exploited by bad actors.

What Employers Can Do If a Fraudulent Unemployment Claim Is Suspected

  • Contact the appropriate state unemployment fraud hotline or website - The Department of Labor (DOL) provides a list of unemployment fraud hotlines or websites by state. The FTC suggests reporting the fraud online if possible, as it may save time and be easier for the agency to process. (Most states offer an online option that can be found on the DOL’s list.) Depending on the state, the agency may request a fraud report  from the employer, the employee, or both. agency may.
  • Provide the employee a copy of the report - The FTC advises that employers give employees a copy of any documentation of the report to the state, including any confirmation or case number. Inform the employee if the state requires that they also report the fraud.

  • Provide support and resources to the employee for identity theft - Experts say that unemployment fraud can be the precursor to much larger issues related to identity theft. A fraudulent unemployment claim is sign that an employee’s sensitive personal information is in the hands of criminals. Employers should consider directing affected employees to file a report with the FTC at IdentityTheft.gov, notify the major credit bureaus, review their credit report, request fraud alerts or a credit freeze, and take steps to ensure that their personal information is not used to commit additional fraud.
  • Consult with the IT Department - HR teams are advised to consult with their IT department to confirm that databases containing employee information have not been compromised.

For more information on how individuals can better protect themselves from unemployment fraud and how to report it, refer to Have You Been a Victim of Unemployment Fraud? What to Do and What to Do.