# Unemployment Fraud Investigations: An Insider‘s Perspective

- Canonical: https://33rdsquare.com/check-for-unemployment-fraud/
- Published: 2024-02-09
- Author: Bruce Schneier
- Categories: [Security & Privacy](https://33rdsquare.com/category/security-privacy/)

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As a cyber security expert with over a decade of experience securing sensitive data, I‘ve seen firsthand how the rise of digital systems has transformed the unemployment benefits landscape – for better and for worse. While online claims processing has made it faster and easier for eligible applicants to access crucial aid, it has also opened new doors for fraudsters to exploit the system through increasingly sophisticated schemes.

In the wake of the COVID-19 pandemic, unemployment fraud has skyrocketed to unprecedented levels. The U.S. Department of Labor estimates that **$45.6 billion** in potentially fraudulent benefits were paid out from March 2020 to April 2022 – nearly 10% of the total $413 billion disbursed during that time. And those are just the known cases; the true scope of unemployment fraud is likely much higher.

So how does unemployment fraud happen, and what does the investigative process look like behind the scenes? Let‘s break it down.

## Anatomy of an Unemployment Fraud Scheme

In my experience, the most pervasive form of unemployment fraud is identity-related. Scammers obtain individuals‘ personal information like Social Security numbers and dates of birth through a variety of nefarious means:

- **Data breaches** – Hackers infiltrate an organization‘s network and exfiltrate sensitive customer or employee data, which is then sold on the dark web
- **Phishing scams** – Fraudsters impersonate legitimate entities like government agencies or employers to trick victims into revealing personal details
- **Malware attacks** – Cybercriminals deploy malicious software to infect devices and steal data stored on them
- **Insider threats** – Rogue employees misuse their access to confidential records for personal gain

Once they have this information, fraudsters can use it to file unemployment claims in the victims‘ names and route the payments to their own accounts. In some cases, they may even build "synthetic identities" by combining real and fake personal details to avoid detection.

Other common types of unemployment fraud include:

- **Misrepresentation of eligibility** – Claimants fail to report earned income, return to work, or other status changes that would disqualify them from receiving benefits
- **Employer fraud** – Companies provide false information to state agencies to prevent legitimate claims from being paid out, or misclassify workers to avoid paying unemployment taxes
- **Insider fraud** – Employees within state workforce agencies abuse their power to inappropriately approve claims or divert funds

The financial incentives for unemployment fraud are significant. On average, fraudulent claims pay out around **$10,000-$20,000 per case** according to the National Association of State Workforce Agencies (NASWA). And with the expanded benefits available during the pandemic, some scammers were able to collect north of $50,000 by filing claims in multiple states.

## The High Cost of Unemployment Fraud

While the exact price tag is difficult to pin down, experts agree that unemployment fraud has cost taxpayers billions in recent years. Here are some of the most eye-popping statistics I‘ve come across:

| State | Estimated Fraudulent Payments | % of Total Benefits Paid |
| --- | --- | --- |
| California | $11-$30 billion | 11-27% |
| New York | $5.5 billion | 10% |
| Washington | $600 million | 10% |
| Ohio | $330-$477 million | 5-7% |
| Michigan | $8.5 billion | 15% |
| Sources: State auditor reports, DOL-OIG |  |  |

But the costs of unemployment fraud go beyond just the stolen funds themselves. Identity theft victims often spend months or even years dealing with the fallout, from disputing fraudulent claims to repairing damaged credit.

And for state workforce agencies already struggling to keep up with unprecedented claim volumes, investigating and litigating fraud cases diverts limited resources away from serving legitimate claimants. This "pay-and-chase" model is expensive and inefficient.

## The Investigative Process: How Long Does It Take?

When a state agency receives a report of suspected unemployment fraud, whether from the victim, the employer, or another source, it triggers an investigation to gather facts and determine whether fraud occurred. This process typically involves:

1. **Initial review** – An intake team assesses the complaint to determine whether it meets the criteria for fraud and assigns it to an investigator
2. **Evidence collection** – The investigator gathers documentation like employment records, wage reports, and claimant statements to piece together what happened
3. **Interviews** – The investigator may contact the claimant, employer, witnesses, or other parties to obtain additional information and resolve discrepancies
4. **Data analysis** – The investigator reviews the evidence for inconsistencies, anomalies, or other red flags that point to fraud, often using specialized software tools
5. **Determination** – Based on the totality of the evidence, the investigator decides whether fraud occurred and calculates the amount of benefits improperly paid
6. **Recovery efforts** – If fraud is found, the agency will attempt to recoup the stolen funds through measures like wage garnishment, asset seizure, or civil litigation
7. **Referral** – For large-scale or egregious cases, the agency may refer the matter to law enforcement for criminal prosecution

But this process is highly variable. Simple, cut-and-dry cases might wrap up in a matter of weeks, while more complex ones with multiple claims, jurisdictions, or large dollar amounts can drag on for months or even years.

According to NASWA, the average age of pending fraud investigations across all states is around **275 days** as of Q1 2023 – up from just 90 days pre-pandemic due to the explosion of cases. Some states like Kansas and Maryland have backlogs stretching over 500 days. Needless to say, agencies are severely overburdened.

Luckily, many states have taken steps to accelerate the investigative process by enabling claimants and employers to report fraud online, which can reduce intake and processing times. Some have also implemented data mining and machine learning tools to automatically flag suspicious claims for further review. More on that in a bit.

## The Role of Cyber Security in Preventing Unemployment Fraud

As I alluded to earlier, much of the recent spike in unemployment fraud can be attributed to bad actors exploiting gaps in states‘ cyber defenses. Legacy systems, patchwork integrations, and reliance on manual controls make it all too easy for fraudsters to slip through the cracks.

To shore up these vulnerabilities, state workforce agencies should invest in a multi-layered cyber security strategy that includes:

- **Data encryption** – Protecting sensitive claimant and employer data both in transit and at rest to prevent interception or misuse
- **Access management** – Enforcing strong authentication protocols and principle of least privilege to ensure only authorized users can view and modify records
- **Network monitoring** – Using tools like firewalls, intrusion detection systems, and security information and event management (SIEM) to identify and block malicious traffic
- **Patch management** – Keeping all systems and software up-to-date with the latest security fixes to minimize the attack surface
- **Anomaly detection** – Leveraging AI and machine learning algorithms to automatically flag unusual claim patterns or behavior for further investigation
- **Security awareness training** – Educating staff and constituents on how to spot and avoid phishing attempts, social engineering scams, and other threats

By implementing these best practices, states can make it much harder for fraudsters to penetrate their systems and disrupt their operations. Of course, it‘s not a foolproof solution – determined adversaries will always find new ways to attack. But a proactive, defense-in-depth approach can go a long way toward minimizing risk.

Some states are also exploring public-private partnerships to augment their cyber capabilities. For example, ID.me, a digital identity verification company, has teamed up with 27 state workforce agencies to date to help screen out fraudulent unemployment claims.

By comparing applicant information against a vast network of government and commercial databases in real-time, ID.me can spot discrepancies and potential fraud signals that a human reviewer might miss. In California, the company estimates it prevented **$125 billion** in fraudulent payments in 2020 alone.

## The Future of Unemployment Fraud Detection and Prevention

Looking ahead, I believe we‘ll see more states embrace a data-driven, risk-based approach to unemployment fraud mitigation. By leveraging advanced analytics and machine learning tools, agencies can continuously monitor claims for signs of fraud and prioritize the highest-risk cases for investigation.

Some promising techniques include:

- **Predictive modeling** – Using historical data to identify the characteristics and behaviors most closely associated with fraudulent claims, then applying those insights to incoming applications to score their fraud risk in real-time
- **Link analysis** – Mapping the relationships between claimants, employers, bank accounts, and other entities to uncover suspicious patterns and potential collusion rings
- **Behavioral biometrics** – Analyzing how users interact with online claims portals (e.g. mouse movements, typing speed) to flag bots or other automated attacks
- **Synthetic identity detection** – Employing sophisticated algorithms to spot fake or mismatched personally identifiable information (PII) that could indicate a synthetic identity

By shifting from a "pay-and-chase" model to a preventative one, states can save billions in improper payments and provide a better experience for legitimate claimants. It won‘t be easy – it will require significant investments in technology, talent, and governance. But the alternative is unsustainable.

I‘m also hopeful that we‘ll see more collaboration and information-sharing among states, federal agencies, law enforcement, and the private sector to combat unemployment fraud. Scammers don‘t care about state lines or jurisdictional boundaries – they‘ll exploit any weakness they can find. Only by working together can we hope to keep pace with their evolving tactics.

The UI Integrity Center, a joint initiative of NASWA and the U.S. Department of Labor, is a great example of this kind of partnership in action. By providing states with access to shared data sources, investigative tools, and training resources, the center is helping to build a more coordinated and effective fraud response across the country.

## What You Can Do to Protect Yourself

As an individual, there are steps you can take to reduce your risk of falling victim to unemployment fraud:

- **Guard your personal information carefully.** Be extremely cautious about giving out your Social Security number, birth date, or other sensitive details online or over the phone. If you‘re unsure whether a request is legitimate, contact the agency or company directly using a verified phone number or email address.
- **Use strong, unique passwords.** Create a different password for each of your online accounts, and make sure they‘re at least 12 characters long with a mix of upper and lowercase letters, numbers, and symbols. Consider using a password manager to generate and store complex passwords securely.
- **Enable two-factor authentication.** Whenever possible, require a second form of verification (like a code sent to your phone) in addition to your password to access your accounts. This makes it much harder for hackers to break in even if they guess or steal your password.
- **Watch out for phishing scams.** Be on high alert for emails, texts, or calls claiming to be from a government agency or employer and asking you to click a link, open an attachment, or provide personal information. If something feels off, trust your gut and verify the request through another channel.
- **Check your credit reports regularly.** You‘re entitled to one free credit report from each of the three major bureaus (Equifax, Experian, and TransUnion) every year. Review them closely for any suspicious activity, like new accounts or inquiries you don‘t recognize.
- **Consider identity theft monitoring.** For added peace of mind, you may want to sign up for a service that will proactively scan for signs that your personal information is being misused and alert you in real-time. Some employers offer this as a benefit, or you can purchase it directly from a reputable provider.

If you do suspect that you‘re a victim of unemployment fraud, act quickly:

1. Report it to your state unemployment agency and employer immediately. Many states now allow you to submit fraud reports online, which can speed up the process.
2. File a complaint with the U.S. Department of Labor‘s Office of Inspector General (OIG) at www.oig.dol.gov or by calling 1-800-347-3756.
3. Visit IdentityTheft.gov to report the fraud to the Federal Trade Commission (FTC) and get step-by-step advice on what to do next.
4. Consider placing a fraud alert or security freeze on your credit reports to prevent scammers from opening new accounts in your name.
5. Keep detailed records of your communications and any documentation related to the fraud in case you need to provide evidence later.

Remember, the sooner you report suspected fraud, the faster investigators can act to stop the damage and recover any stolen benefits. Don‘t be embarrassed or afraid to speak up – it can happen to anyone.

## Protecting What Matters Most

At the end of the day, unemployment fraud is more than just a numbers game. Behind every statistic are real people struggling to make ends meet after a job loss. When scammers siphon off funds meant to help them get back on their feet, it undermines the entire social safety net we all rely on.

That‘s why I‘ve dedicated my career to fighting cyber threats like unemployment fraud. It‘s not just about protecting data or dollars – it‘s about safeguarding the systems and services that are vital to our society and economy.

There‘s still a lot of work to be done, but I‘m confident that with the right mix of innovation, collaboration, and vigilance, we can stay one step ahead of the fraudsters and ensure that unemployment benefits go to those who need them most. It won‘t be easy, but it‘s a battle we can‘t afford to lose.

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Source: [Unemployment Fraud Investigations: An Insider‘s Perspective](https://33rdsquare.com/check-for-unemployment-fraud/)