How Your Business Can Fight Unemployment Fraud

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More than $5.4 billion was paid to potentially fraudulent unemployment claims between the start of the COVID-19 pandemic and October 2020 as initial unemployment claims soared last year, according to the Office of the Inspector General at the U.S. Labor Department in a February 2021 report.

While initial claims for unemployment benefits have significantly decreased in the past 12 months, the IRS is cautioning business owners that unemployment insurance fraud is still a cause for concern.

What Businesses Should Watch Out For

According to the IRS, unemployment fraud often involves individuals acting in coordination with or against businesses and financial institutions to get state and local assistance to which they are not entitled. Businesses should be aware of the following scams related to unemployment insurance:

  • Identity-related fraud. Filers submit applications for unemployment payments using stolen or fake identification information to perpetrate an account takeover.
  • Employer-employee collusion fraud. The employee receives unemployment insurance payments while the employer continues to pay the employee’s reduced, unreported wages.
  • Misrepresentation of income fraud. An individual returns to work and fails to report the income in order to continue receiving unemployment insurance payments. Or in an effort to receive higher unemployment payments, applicants claim higher wages than they actually earned.
  • Fictitious employer-employee fraud. Filers falsely claim they work for a legitimate company, or create a fictitious company, and supply fictitious employee and wage records to apply for unemployment insurance payments.
  • Insider fraud. State employees use credentials to inappropriately access or change unemployment claims, resulting in the approval of unqualified applications, improper payment amounts, or movement of unemployment funds to accounts that are not on the application.

How to Safeguard Your Business From Unemployment Insurance Fraud

  • Report accurate data to your state. Immediately report new hires to government agencies so this data can be used to verify future unemployment claims.
  • Flag suspicious activity. Report suspicious activity immediately to your state’s unemployment office.
  • Safeguard your data. Evaluate your business’s cybersecurity measures to ensure that data wasn’t compromised.
  • Educate your employees. Ask your employees to alert your business if they find themselves a victim of an unemployment insurance fraud scheme. Also direct them to the Federal Trade Commission’s website to report identity theft and to start a recovery plan.

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