Protecting against unemployment fraud

Unemployment fraud exploded during the COVID-19 pandemic as billions in federal funding were made available and a spike in claims swamped state workforce agency systems. The consequences? An estimated $163 billion in pandemic unemployment insurance benefits was potentially paid improperly, with a significant portion attributable to fraud, leaving employers on the hook for paying claims that weren’t theirs and employees falling victim to identity theft.¹ Independent insurance agents can help employers mitigate their unemployment fraud risk by educating them about the pervasive trend and what they can do to spot and manage unemployment fraud with the following overview and insights.

What is unemployment fraud?

Unemployment fraud is the act of defrauding unemployment insurance programs and occurs in one of three ways: When a person (or claimant) provides false information to obtain unemployment benefits for which they are ineligible; when an imposter files for unemployment benefits using another person’s information without their knowledge; and when an employer falsifies information. The following are examples of how unemployment fraud is committed:

• Claimants provide false information or withhold information when applying for unemployment benefits, such as:
  • Continuing to file for benefits after returning to work
  • Reporting earnings incorrectly
  • Providing a dishonest reason for separation
  • Reporting that they are available or actively looking for work when they are not
• Imposters file a claim under another person’s name, Social Security number or employment information without their knowledge.
• Employers provide false information to prevent an otherwise eligible claimant from obtaining benefits, incorrectly reporting wages or intentionally misclassifying employees as independent contractors.

When unemployment fraud occurs, the risk to employers is an overpayment of taxes to their state’s unemployment fund, and the risk to employees is falling victim to identity theft. Committing unemployment fraud is illegal and may carry serious consequences. Claimants and imposters providing false information are not only required to repay any unemployment insurance benefits received, along with interest, but they may also face other mandatory penalties or prosecution. In the case of employer fraud, a penalty of not less than 15% of the amount of the fraudulent payment is assessed by the state, with additional actions that may include criminal prosecution, forfeiture of future income tax refunds or permanent loss of eligibility for unemployment compensation.²

How is unemployment fraud detected?

While unemployment fraud may be detected through state workforce agency audits, employers can reveal potential fraud issues by fact-checking their unemployment insurance summary charges, which the state provides quarterly. By verifying every line of the summary charges, employers can spot and report irregularities, such as dates a claimant worked or returned to work during the period, if the report includes people who voluntarily resigned or were terminated for just cause during the time frame benefit claims were made, if the wages earned during the base period are correct, etc.

In the case of identity theft, an employee may be the first to learn of unemployment benefit fraud when filing their taxes or receiving unexpected unemployment benefits communications from their state workforce agency regarding benefits they didn’t apply for.

What to do if unemployment fraud is detected

If unemployment fraud is detected by an employer, it’s important to take the following actions quickly:

• Report the issue promptly by calling their state insurance fraud hotline.
• Update their insurance company’s claim team.
• In the event of identity theft, notify the employee.
• Audit internal systems to ensure company data wasn’t breached to commit fraud.

If an employee detects unemployment fraud, they should notify their employer immediately. The employer should report the fraud to their state workforce agency and assist by helping the person report their identity theft and providing them with resources, including those available through government programs, such as identitytheft.gov.

Ways to prevent unemployment fraud

Offering employers unemployment fraud insights and proactive risk management approaches will set them up for success when it comes to preventing and managing fraudulent claims or catching fraud more quickly. Such measures include:

• Filing timely and accurate employee records. In addition to properly classifying individuals as employees or independent contractors (under the IRS 20-factor test), employers should file wage reports to the state workforce agency quarterly, report new hires within 20 days, and report rehires (after 60 days have passed from their first day of work) as well as employee separations, including the reason for separation.
• Reviewing quarterly unemployment benefits statements. Upon receipt, employers should review the charge summary provided to them by their state workforce agency. By verifying every line of the charges are accurate, employers can spot red flags and report irregularities quickly.
• Responding to and supporting state workforce agency actions. Employers should respond promptly to all unemployment benefit claims requests from their state workforce agency and attend appeal hearings, as applicable.
• Establishing cybersecurity protocols. Keeping employee records safe through proactive data security management practices ensures company systems and data aren’t at risk of being accessed and exploited for unemployment fraud.
• Educating employees. Employees should be aware of the pervasiveness of unemployment scams and how to spot them, as outlined in an employer’s policy handbook and scheduled communications and training.

Unemployment fraud protection and awareness

Managing unemployment fraud starts with awareness of the issue and is supported by solid HR, accounting and loss control programs, making access to an independent insurance agent’s expertise invaluable. Providing risk management and loss control insight and resources sets an agent apart as a trusted advisor. Nationwide is here to help, with access to a host of resources designed to help appointed agents meet their clients’ evolving protection needs. Learn more by visiting nationwide.com/agents/.

The Nationwide solution

Nationwide’s dedicated cyber risk specialists are available to assist clients with concerns or questions about cyberattacks, data security and various types of fraud. Services include phone support to answer questions on best practices, review attempts of device compromises—such as spam emails—and suggestions on prevention. Also provided are educational articles on security topics such as home networks, email, online browsing, unsecured Wi-Fi hotspot usage, and best backup and restore practices.

Nationwide’s online data protection software is designed to provide peace of mind when browsing the internet. This product includes:

• Anti-ransomware—This monitors attempts at encryption activity and protects emails, photographs, spreadsheets and other files from being encrypted and held for ransom.
• DataScrambler®—This feature protects clients from spyware that attempts to steal confidential information, log keystrokes and access computers’ built-in webcams.
• PhishBlock®—This tool detects malicious websites designed to steal information by using proactive and customized anti-phishing technology.
• Home internet security restoration—This provides specialist services to restore internet connection and internet-connected devices and resecure home networking infrastructure.