State Unemployment Fraud Losses Exceed $60 Billion

It took tax season to reveal the full scope of the fraud targeting state unemployment offices across the U.S. In January, millions of Americans began receiving 1099-G tax forms from their state unemployment department despite never having filed unemployment claims. It is further evidence of widespread identity theft in the midst of the pandemic that fooled state unemployment departments into sending benefit payments to fraudsters.

Improper Unemployment Payments a Reality

A recent report from the Office of Inspector General for the U.S. Department of Labor estimates that more than 10% of the $630 billion earmarked for unemployment insurance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act has been “paid improperly, with a significant portion attributable to fraud.”

Blake Hall, Founder and CEO of ID.me, a company that provides identify verification services to state unemployment agencies, told CNBC, “This is the largest fraud attack on the U.S. ever.”

Pandemic Provided Opportunity

As we described in the article, “State Unemployment Agencies Targeted by Fraudsters,” countless applications for unemployment benefits were filed using stolen personally identifiable information (PII). The unemployment payments were typically deposited into accounts the imposters control. In some cases, the payments were sent to the real person’s account and then cashed out or transferred through social- engineering strategies that preyed on the isolation and loneliness caused by the pandemic.

According to Andrew Fong, Senior Manager with PULSE® Fraud Operations, issuers should remain vigilant and says PULSE’s previous guidance remains best practice. All transactions coming from state unemployment agencies deserve special attention.

“If the credits are going to customers that do not reside in that state, consider reversing them immediately,” said Fong. “For DebitProtect® Authorization Blocking customers, we recommend adding the PANs of the accounts that received these types of credits into a DebitProtect card group. Ultimately, the key to stopping this fraud is to block cash-outs from those accounts.”

Identity Theft Rampant

One of the best illustrations of how widespread the problem of identity theft has become is the revelation that scammers had used Arkansas Governor Asa Huthinson’s identity to file a phony unemployment insurance claim in his state.

Nobody is safe, As reported by Fortune, in the story, “How the dark web became a haven for unemployment insurance fraud,” everything a fraudster needs to file a phony unemployment claim – a person’s name, Social Security number, date of birth and address – costs only a few dollars on the dark web.

Don’t Ignore It

Apparently unable to distinguish legitimate benefit claims from those that may have been fraudulent, state unemployment offices have now delivered 1099-G tax forms to each citizen who was paid a benefit. This included millions of people who neither filed for unemployment nor received funds. These state agencies are alerting taxpayers who received the 1099-G erroneously not to ignore or discard the form.

Most states have information on their unemployment office’s website for reporting identity theft. Others have set up telephone hotlines. The Internal Revenue Service (IRS) has also established Identity Theft Central with information for taxpayers whose names were used to claim unemployment benefits they did not receive.

As with any instance of identity theft, running a credit report to check for other suspicious activity is also a good idea. The Federal Trade Commission offers other resources for recovering from identity theft.

What’s Next?

For fraudsters, every time money changes hands there is an opportunity. The same personally identifiable information used to file phony unemployment claims could be used to file fraudulent tax returns and divert refunds to accounts controlled by fraudsters. The IRS Taxpayer Guide to Identify Theft offers several signs for taxpayers to watch for, such as the inability to e-file a return because of a duplicate Social Security number.

If you are an issuer and you need more protection through our DebitProtect Authorization Blocking service, the experts at PULSE® are available to help. Call us at 877-247-8573 to learn more.

 

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