State sees rash of fraudulent claims for unemployment

It was April Fool’s Day at the U.S. Department of Labor, where weekly initial claims for unemployment assistance by Connecticut residents reached more than 9,700 in a single week — including roughly 330 from those identifying themselves as independent workers.

Whether or not a handful of those claimants actually reside in Lagos or Moscow, rather than Lyme or Monroe, remains to be seen, as fraudulent claims over the past year were fairly common.

The state Department of Labor disclosed last month that roughly 100,000 of the 1.1 million unemployment applications received since the start of the pandemic were deemed fraudulent, without making any estimate as to how many more it may have missed. Until DOL brings a new unemployment system online in 2022, unemployment fraud remains a weekly threat.

In upgrading its system over the past year, the DOL has developed new ways of flagging cases, it said, but would not reveal those systems to avoid giving con artists a leg up. The Department did state that staff members review each one individually, and that no part of the process is automated.

Over a three-year period ending in June 2020, Connecticut was among the 10 worst states in the country for fraudulent payouts, with an “improper payment” rate hovering around 15 percent, as estimated in January by the Employment and Training Administration.

Rhode Island and Massachusetts had slightly elevated levels. At 35 percent of unemployment claims deemed fraudulent, Michigan sank to the bottom.

Connecticut received $1.8 million last September from the Trump administration to improve DOL’s defenses, as part of $100 million distributed nationally.

“The scope of this problem is at least $200 billion nationally,” said Haywood Talcove, CEO of LexisNexis Risk Solutions Group, which sells software safeguards to help labor departments defeat fraud. “It’s not a Connecticut problem, it’s not a Massachusetts problem, it is a problem that has infected the entire system.”

‘A serious challenge’

In addition to run-of-the-mill identity theft, DOL indicated there was a new variety of unemployment fraud in the past year: individuals identifying themselves as independent entrepreneurs, a back channel that allowed them to tap weekly benefits under the Pandemic Unemployment Assistance program, which was created as part of the Coronavirus Aid, Relief and Economic Security Act.

PUA marked the first time that solo workers could get unemployment benefits despite not paying taxes footed by regular employers to fund unemployment trusts funds. As of mid-March, the Connecticut Dept. of Labor had paid out more than 81,000 PUA claims.

Kurt Westby, Connecticut’s labor commissioner, said that organized crime remains “a serious challenge” heading into spring.

As it patched together a decades-old database system to deal with overwhelming claims last spring and summer during the COVID-19 pandemic, the DOL had to ferret out fraud, even as its workers obeyed a state mandate to work from home.

With many claimants enduring weeks of delays to get their initial check, the DOL was working in a pressure cooker, which fraudsters parlayed into phony claims.

“You want to get them all out as quickly as you can, and that’s the generalized frustration: trying to meet the needs of everyone, because there’s a lot of people out there hurting,” Westby said.

In addition to investigating new claims that may be suspect, the DOL is hoping to catch existing claims being paid out to identity thieves by having people report online or by calling 800-894-3490, particularly if they receive DOL or tax forms requesting information on benefits for which they never filed.

The U.S. Department of Labor also launched a new website — dol.gov/fraud — last month for people to report if they believe they are victims of identity theft.

Last week, the National Association of State Workforce Agencies kicked off a round of seminars to help state agencies learn what emerging tools are out there to ward off fraud.

LexisNexis Risk Solutions Group is among the vendors providing such tools, with parent company RELX itself a significant employer in Connecticut through its Reed Exhibitions division, which has its main U.S. office in Norwalk.

Talcove said heading off fraudulent claims before they can be filed is a relatively easy fix, one that the finance and e-commerce sectors solved more than a decade ago with varying techniques.

Those include analytics on devices being used to access systems and firewalls that require ID verification by asking questions only filers would know — a vehicle they have driven in the distant past, for example, or information about a relative.

“Most states focused on what they call program integrity fraud: an individual ... who may have a job and not report it in order to get [unemployment] benefits, or claim to have a higher salary,” Talcove said. “They left the front door wide open. They didn’t check for impostor fraud . ... Once that digital lock has been put in place, it goes away.”

Talcove estimated it would cost a state the size of Connecticut less than $2 million to create an upgrade. The ETA study in January estimated Connecticut paid out more than $51 million in improper payments last year, of $7.5 billion disbursed in all under enhanced benefits authorized by the CARES Act.

Talcove said the evidence suggests the rackets are being run from Russia, China and Nigeria, with a ring in the latter country clipping more than $600 million from the state of Washington alone. Ohio, Tennessee and Kansas are among the states using systems from LexisNexis Risk Solutions to combat unemployment fraud, as is the Florida Department of Children and Families.

Talcove said many states have tried to defeat fraud by requiring extra documentation from claimants, which he said creates unnecessary hassles during the claims process compared to the newest tools.

“It’s like bringing a sledgehammer to tap in a nail to hang a picture,” Talcove said. “Ninety-nine percent of the time when you use [the tools], it catches virtually all of the fraud. It gets the recipients paid faster and it stops the fraudsters cold in their path.”