In the last year, with increased unemployment benefits and an expansion of unemployment coverage under Pandemic Unemployment Assistance (PUA), there have been record amounts of unemployment fraud. Both companies and employees have become victims as identity thieves file claims for unemployment benefits using stolen identification. Both companies and employees can each take steps to fight the fraud. Companies must be proactive to protect their experience rating. Employees need to be proactive to protect their identities.
I. Increased Fraud Began With PUA and Expanded to Regular Unemployment in January 2021.
The Arizona Department of Economic Security (DES) originally saw fraud focused on PUA rather than the regular unemployment program. To combat this fraud, DES implemented an identity verification program in October 2020, which requires individuals applying for PUA to verify their identity before DES will accept the claim, rather than relying on self-certification information submitted by the applicant. The identity verification was not implemented for regular unemployment claims at that time, because there was less fraud and DES did not want to unduly delay benefits being paid.
The identity verification drastically reduced the fraud in PUA. As a result, the identity thieves switched their focus to the regular unemployment program. DES had been receiving an average of approximately 5,000 new claims per week. During the last three weeks of January, it received 175,000 new claims!
DES recognized this drastic increase was caused by fraud and, in most instances, no money was sent out. Companies still received the Notice to Employer on the fraudulent claims. DES has assured companies that no charges will be made against their accounts based on the fraudulent claims.
Based on the increased fraud in the regular unemployment program, DES implemented identity verification requirements for all initial unemployment claims beginning February 7, 2021. The number of initial unemployment claims received by DES has dropped back to approximately 5,000 per week, suggesting that the identity verification program is working to prevent fraud.
II. Individuals May Have Had Their Identities Stolen and Received Forms 1099-G for Benefits They Did Not Receive.
When DES pays unemployment benefits, it reports the payments to the IRS using a Form 1099-G. Many individuals have received a Form 1099-G that related to payments on fraudulent claims and not money that the individual received. This could create tax liability for the individual if the 1099-G is not corrected.
Individuals who receive a 1099-G that does not relate to them can file an affidavit with DES. DES will file a corrected 1099-G with the IRS to remove the payments from the individual’s tax record. The DES affidavit is electronic and can be completed at des.az.gov/1099G, select “1099-G Inquiry” to access the affidavit. The IRS has issued additional guidance on reporting identity theft related to unemployment benefits, available at https://www.irs.gov/identity-theft-fraud-scams/identity-theft-and-unemployment-benefits.
Additionally, according to DES, there has been no breach of their systems. Many of the fraudulent claims originated from outside of the United States. The information used to file the fraudulent claims may have come from other major data breaches from retailers, credit card companies, etc. The fact that a person’s identity was used to file a fraudulent unemployment claim demonstrates that their identity has been compromised, and it may be used for other purposes, such as obtaining loans or credit, that can be damaging to the individual.
III. Conclusion and Recommendations.
Unemployment fraud has a negative impact on companies and employees. It can result in increased unemployment costs for the company. Identity theft may have long-lasting impacts on the employees.
Companies should take proactive steps to address the fraud. Companies who receive a Notice to Employer of an unemployment claim that it believes to be fraudulent should respond to the Notice to Employer indicating that the claim is fraudulent. If the claim relates to an employee who is still employed, check the box “Still working full-time.” If the individual was never employed at the company, check the box “My records show that the claimant never worked for this firm.” The Notice to Employer can be returned via email, mail, or fax.
In addition, the company should file a report with DES on their fraud reporting page at https://fraudreferralexternal.azdes.gov/.
Further, companies should review their quarterly benefits reports from DES and identify and report any payments from the company’s account that are not accurate. The company has a limited amount of time after receiving the quarterly benefits report to identify, report, and correct errors.
Individuals should take steps to protect their identity and report the fraud. Among other actions, the individual could:
- File a report with DES regarding the fraud at https://fraudreferralexternal.azdes.gov/.
- File an identity theft report with the Federal Trade Commission at https://identitytheft.gov.
- File a complaint with the National Center for Disaster fraud at https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.
- Consider filing a report with local law enforcement.
The Employment Practice Group at Gammage & Burnham is available to help companies address unemployment fraud and respond to Notices to Employers regarding unemployment claims. We regularly represent companies in unemployment hearings and can help the company establish policies and procedures that can reduce unemployment claims and costs. For additional guidance, please contact Julie A. Pace, David A. Selden, or Heidi Nunn-Gilman.