$437.2M blocked, but $19.4M was lost

Scammers have absconded with at least $19.4 million in state and federal unemployment benefits in Colorado, up from initial estimates of $6.5 million, according to updated fraud numbers the Colorado Department of Labor and Employment released on Friday.

The CDLE also said it has blocked $437.2 million from going out on 42,976 claims confirmed as fraudulent, which works out to an average of $10,173 sought per claim. A much larger number of suspicious claims remains under investigation.

“We estimate we have prevented payment of $37 billion and are dealing with 1.1 million fraudulent claims,” said Phil Spesshardt, benefits services manager for the state labor department, during a media call.

That bigger estimate is based on a scenario where Colorado put no fraud detection measures in place and fully paid every claim that came in. The state had fewer than 90 confirmed fraudulent unemployment claims in 2019, and early last summer went from zero to 58 fraud detection measures, which CDLE argues was a much more aggressive approach than many other states took.

Following requirements issued by the U.S. Department of Labor, CDLE this year rolled out an identity verification measure that requires claimants, new and continuing, to submit photos of government-issued identification documents and selfies through a company called ID.me.

Although the process goes smoothly for about 85% of those attempting it in Colorado, about 15% are rejected and have to go through a trusted referee process, which is severely backed up and can require waiting on the phone for five hours or more to verify identity with a live person.

The new requirements have resulted in a big drop in new claims. Spesshardt noted that even the new ID.me process isn’t foolproof. Some individuals have confirmed their identities — they are who they say they are. But they trip other fraud detection measures, and their claims get put on hold. On further investigation, the CDLE often finds they are gaming the system, filing multiple benefit claims or seeking benefits they aren’t eligible for.

That type of scam, however, is on a much smaller scale than the imposter fraud coming from organized crime rings, many believed to be located abroad. The crime rings are suspected of taking massive troves of personal identifying information stolen during prior security breaches at credit reporting agencies and retailers and using bots to quickly fill out unemployment applications in multiple states.

The automated workflow process is sophisticated enough to kick back applications to workers when the bots hit human verification measures online, Spesshardt said.

And they can submit a high volume of claims in a short period. Cher Haavind, deputy director of CDLE, said one state reported getting flooded with 100,000 unemployment applications over Easter weekend, almost all of which were suspect.

Spesshardt said scammers have infiltrated Facebook groups and are waging a pressure campaign with Colorado lawmakers and the media to get the state to ease up on its security measures and push claims through more quickly.

Haavind said media outlets have forwarded individuals complaining about holds and other delays, who upon investigation were found to have filed fraudulent claims. When asked, CDLE declined to provide any specific examples, citing privacy concerns.

As more investigations wrap up and additional fraud detection measures are deployed, expect the number of confirmed fraudulent claims, blocked and paid out, to rise in the weeks and months ahead, Spesshardt said.

“Those figures will continue to grow, but we are confident that our figures will be far lower than other states,” he said.