A Quick Guide: The Risks of Unemployment Fraud

When Franklin D. Roosevelt signed the Social Security bill in 1935, a number of protective institutions came into being in the US. Among these, the Unemployment Insurance Program was drafted to help employable people who have lost their jobs.

In the event that someone loses their job for reasons outside of their control, the Unemployment Insurance and Benefits programs implemented by both the federal government and individual states in the US provide economic relief to compensate. However, this relief is not unconditional and it is not provided indefinitely. Unemployment Insurance is ultimately paid by state governments, with varying qualifying standards, using funds collected through special payroll taxes.

Unemployment Insurance across the country has historically been greatly needed, with unemployment rates at the height of US prosperity (1929) having rivaled those of Great Britain at its lowest historic point. Without unemployment benefits, many would face severe challenges in-between jobs, even though they might still be willing to work.

So, what is unemployment fraud and how did it start? Individuals looking to take advantage of the social welfare system could bend the rules when reporting their employment status, location, physical condition, or even their identity. These attempts at unemployment fraud are surprisingly successful, with exorbitant cumulative costs for the system at large. In fact, in 2020, the Mississippi Department of Employment Security (MDES) reported that it paid out $3.4 million from fraudulent unemployment claims.

This kind of fraud wastes federal funds given to the state that might have been better allocated had fraudsters not claimed them and is far too common.

What is Unemployment Fraud?

Simply put, unemployment fraud is the willful misrepresentation of information by an individual for purposes of collecting unemployment benefits.

Criminals have taken to this particular form of fraud in droves as the potential for illegitimate gains has increased in recent years. Fraudsters use real personal information sourced from the dark web (unregistered IP addresses, etc.) such as social security numbers and birth dates to impersonate innocent people or convert them into unwitting money mules. With stolen information, criminals can then claim unemployment in another person’s name and direct benefits to a drop account. What’s worse is that this type of fraud is fairly difficult to detect.

It’s Easy to Hide

Government agencies have a tough time separating scammers from ordinary unemployed people. Overwhelmed with unemployment claims, officials must respond within a reasonable amount of time to submitted claims without fully verifying an individual’s identity. In states with no income tax, the issue has been magnified as savvy attackers know tax records cannot be used to track identities.

Emboldened by an exploitable field of opportunities, fraudsters have pushed the limits of the Unemployment Insurance system.

How do they do it?

Criminals know they can get away with unemployment fraud, so they have increasingly engaged in it, leveraging years of widespread data breaches to salvage leaked social security information.

Purchases on the dark web power this phenomenon, providing bad actors with the information they need to open new accounts and file unemployment claims with various state agencies. Newborns, recently deceased, incarcerated, etc. are the usual targets of this form of identity theft. However, ordinary, working-class citizens are at risk from this kind of scam as well.

Risks / Wreckage

Unemployment fraud not only endangers state governments and those who depend on local Unemployment Insurance benefits, but it also puts those whose information has been captured and used for such purposes at further risk.

Individuals whose identities have been commandeered by fraudsters to file for unemployment benefits may find themselves being taxed on the additional income the state believes they have been provided with. This can lead to serious complications, especially if the victims were unaware of the fraud until their tax forms were delivered to them.

The fraud reporting and rectifying process is long and arduous, involving substantial paperwork, wait times, and the risk of unfavorable resolutions that result in even more costs for victims who may have already been struggling. From filing police reports and contacting Human Resources at their place of employment to reporting the fraud to credit bureaus and the IRS, tracking and unraveling such fraud can morph into a herculean task with a hefty price tag.

If victims of unemployment fraud are found guilty of the crime in error, they could be required to pay back what was pilfered with additional penalties. In addition to this, victims could find themselves disqualified from receiving benefits when they actually need them, leading to highly stressful and costly periods of unemployment through no fault of their own. Extreme cases could even put victims on the hook for potential prosecution and jail time.

Stopping Unemployment Fraud

Unemployment fraud cost the US government an immense $36 billion following the signing of the CARES Act in March of 2020. This money could have been put to better use supporting those who needed it.

Government institutions are depended on by citizens in tough situations to ease difficulty and fast-track recovery. However, susceptibility to fraud of any kind undermines the government’s ability to help in times of need. Ensuring federal and state institutions have the tools they need to fight fraud effectively is a non-negotiable goal.

A sophisticated identity verification program provides the technical means by which officials can quickly check a person’s identity either in person or online. Intellicheck’s identity verification platform has been proven to improve ID checking speed and accuracy at volume. Our verification solutions are also easy to integrate across industries; we have served major retailers and banks with dependable results. For a trusted solution to finding and fending off fraudsters, Intellicheck can’t be beaten.