Unemployment Fraud

Posted on Monday, March 22, 2021

Unemployment fraud in the U.S. has reached dramatic levels during the pandemic—the Labor Department inspector general’s office estimates that more than $63 billion has been paid out improperly through fraud or errors since March 2020. Criminals are seizing on the opportunity created by the pandemic. Using data stolen from prior data breaches, the criminal makes a claim using someone else’s identity to access an increased pool of benefits. About $550 billion was spent in support of those out of work in 2020, compared with an average of $32 billion in the previous five years. States, often overwhelmed with claims, navigating new rules and using outdated systems, have struggled to keep up.

What is unemployment insurance fraud?

Employers and claimants can both commit fraud under state unemployment insurance laws.

Employer fraud can include certain actions to avoid tax liability or establishing a fictitious employer account to enable fraudulent claims against that account. Claimant fraud can include knowingly submitting false information; continuing to collect benefits when knowing oneself to be ineligible; not being able and available to work while certifying for benefits under state law; or intentionally not reporting wages or income while collecting full benefits. Additionally, identity theft may result in unemployment insurance fraud that is not the fault of the employer or the identity theft victim.

The State is required and expected to enforce its own unemployment insurance laws.

What are the penalties for unemployment insurance fraud?

All states are required to assess a penalty of not less than 15% of the amount of the fraudulent payment. Other penalties under state unemployment insurance laws generally include criminal prosecution with fines and/or incarceration; required repayment of fraudulently collected benefits; forfeiting future income tax refunds; and/or permanent loss of eligibility for unemployment compensation. Commission of unemployment benefit fraud may also be prosecuted by the U.S. Department of Justice in federal courts under 18 U.S.C § 1341 or other appropriate federal statutes.

How can I report unemployment insurance fraud?

The Indiana Department of Workforce sends a correspondence letter (52984) to review employee unemployment claims.  Employers should review this correspondence for proper unemployment filing.

If the employer suspects unemployment fraud has occurred they should do the following.
•    Protest the claim through the above correspondence (letter 52984)
•    Report the fraud through the Indiana Department of Workforce Development website - DWD: Indiana Unemployment

In addition, if the employee did not file a claim and was the victim of identity theft or filed the employee filed the claims but their account was subsequently accessed by a third party to divert funds, the employer should take the following recommended steps.
•    Have the employee complete Form 57068 notifying the Indiana Department of Workforce Development of the possible fraud - DWD: Report Unemployment Fraud (in.gov)
•    The employee may need to file a police report and credit monitoring is recommended. 

Contributed By: Kim Grote | Payroll Manager | DWD CPAs & Advisors

Posted in Tax Topics For Individuals, Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.