States struggle to handle unemployment-insurance fraud

As state labor departments struggle with increased claims for unemployment insurance, they also are facing increased unemployment-insurance fraud, according to The Wall Street Journal.

Unemployment-insurance fraud in the U.S. likely doubled in 2009 compared with 2008, reaching a loss of almost $3 billion. The rate of fraud fell from 2.8 percent in 2008 to 2.14 percent in 2009, but more money has been lost in 2009 because of the overall increase in unemployment payments—from $48.6 billion in 2008 to $140 billion in 2009.

Many newly re-employed individuals who have accumulated debts and taken lower-paying jobs are tempted to supplement their incomes with an unemployment check. The most common type of fraud involves formerly unemployed individuals continuing to collect checks after finding work. Additionally, fraud rings can cheat the system out of tens of thousands of dollars at a time.

Many state detection departments are not adequately equipped to handle the increase in fraudulent claims. For example, Florida added only one field investigator in 2009 when unemployment insurance claims have more than doubled in the state. So state departments are focusing on claims that are easy to catch or involve large amounts.

Wider overpayments have become an even bigger problem, regarding not just fraud but payments made mistakenly to ineligible employees or benefits based on faulty information from an employer. About 9.3 percent of claims states paid out in 2009 should not have been paid out.

The Obama administration recently sent a bill to Congress that would allow state overpayment-detection departments to keep 5 percent of what they reclaim to help fund their detection measures. The bill also would require states to penalize perpetrators 15 percent of the amount stolen and require employers to report new hires’ exact start dates so investigators could detect fraud more quickly.

Suspects who are caught usually don’t have the money to repay the benefits; most benefits are recovered years after the fact through offsets against future unemployment benefits, collecting state and federal tax refunds, or property liens.

Date : 7/22/2010