NY Times: Fraud Schemes Exploit Weak Spots in Unemployment Claims System

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Pandemic programs have lowered the barriers to collecting benefits, and the usual security methods haven’t kept up.

Patricia Cohen

By Patricia Cohen

  • Digest version

The for-sale ad appeared last week in an underground internet bazaar that specializes in selling stolen accounts and data. It was for access to a filched unemployment insurance claim in California that had been approved and offered benefits worth $17,550.

The black-market sale of jobless benefits is just one sign that the unemployment insurance system — the main artery for delivering financial assistance to laid-off workers — has been besieged during the coronavirus crisis by criminal networks intent on bilking the government out of hundreds of millions of dollars.

Since March, Washington State has turned up nearly 87,000 impostor cases. From January 2018 to June 2019, there were 184.

Traditional fraud-prevention strategies, Ms. LeVine said, “will not help us catch these thieves.”

Think of it as the difference between an attack within and one coming from the outside. Previously the cheating came mostly from workers who were in the system and trying to get something they were not entitled to. Now “it’s people outside of the system who are impersonating other people or breaking in,” explained Roman Sannikov, director of cybercrime and underground intelligence at the cybersecurity firm Recorded Future.

“Criminals go where the money is,” said Avivah Litan, an analyst at the research and consulting firm Gartner. After Congress passed the CARES Act, the emergency relief — including the Pandemic Unemployment Assistance program and a temporary $600 weekly supplement — was where the money was.

Some of the schemes, like those that hit Washington State in the spring, were linked by federal investigators to a Nigerian-based criminal ring called Scattered Canary. The ring used stolen Social Security numbers and other identity theft, and was suspected of operating in North Carolina, Massachusetts, Rhode Island, Oklahoma, Wyoming and Florida.

Washington State officials shut down the unemployment system for two days in mid-May as part of an effort to halt illegitimate payments that ended up totaling $576 million. The state has recovered $346 million so far.

Over three weeks in September, the police in Beverly Hills, Calif., arrested 87 people from states as far away as Alaska and New York on charges related to unemployment insurance fraud. The accused were not working in tandem but followed a similar pattern, applying for benefits with Social Security numbers stolen from people who had died or were in prison or nursing homes, said Lt. Max Subin, a department spokesman.

Sometimes using false addresses and “mules” or intermediaries, they then picked up debit cards loaded with thousands of dollars’ worth of jobless benefits from the state’s Employment Development Department.

“The thing that is so maddening about impostor fraud is that it strikes at the core of how unemployment insurance systems operate,” said Scott Jensen, director of the Rhode Island Department of Labor and Training. “If fraudsters are giving us fake information, it’s hard to verify it.”

An inaccurate Social Security number, for instance, is spotted immediately. “But if a fake Scott Jensen comes in with the real Scott Jensen’s Social Security number, then it checks out,” he said. Most of the fraud is not discovered until people get letters or checks from the agency and call to say they never applied.

For years, “this has been a weakness that has been really hard to fix,” Mr. Jensen said. “What is different now is the scale.”

Fraud linked to identity theft made up about 3 percent of all unemployment claims last year, according to government audits. With the pandemic program, that figure has skyrocketed.

Last week, Arizona said it had flagged over one million of 2.4 million claims — more than 40 percent — as potentially fraudulent. Over the summer, Colorado found that 77 percent of Pandemic Unemployment Assistance claims were faked.

In response, a Labor Department representative said that “the department has been focused on ensuring program integrity” and that it provided a wide range of information, tools and resources as well as extensive technical assistance to prevent fraud and improper payments.

State and federal officials are caught between getting money as quickly and efficiently as possible to people who desperately need it and erecting roadblocks to cut off criminals from improperly collecting benefits.

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