Fraud Identification Tools Are Essential for Keeping Unemployment Insurance Scams at Bay, but They Aren’t Enough

In California, 1.4 million unemployment payments have been suspended while the state sorts through a massive fraud situation. Illinois’s attorney general has enlisted the FBI to investigate unemployment claims that fraudulently utilized personal information of approximately 350,000 residents.

And in Washington, the state unemployment system shut down entirely for two days in May 2020 when a devastating number of fraudulent claims flooded the system. A normal year in the state would see a few dozen fraudulent claims. More than 122,000 arose between March and November.

International imposter attacks acknowledged at year’s end siphoned an astonishing $36 billion from federal unemployment funds in just a few months.

These figures are stunning, as are the unemployment figures that leave millions of Americans in dire straits while we navigate an untenable economic situation and a precarious future.

Worse, identified fraud merely hints at the true extent of the problem. Even the best efforts at fraud identification don’t approach a 100% success rate. The available detection tools help but can’t function as they should without further effort. State unemployment insurance programs are quickly integrating fraud identification tools to address a burgeoning problem, but if the data going into these tools isn’t reliable, thorough, accurate, or relevant, only a portion of fraudulent claims can be identified.

To more effectively root out unemployment insurance fraud, states need advanced fraud identification tools. They also need impeccable data and workflow processes.

Agencies face a complex fraud problem while addressing need

The responsibility of managing public funds is heavy in even the best of times. Pressure on unemployment agencies to provide appropriate aid to citizens—quickly and accurately—intensifies whenever the economy slumps and is at a fever pitch while the pandemic tornados through any semblance of normalcy. The incredible volume of claims and the intricacies of emergency funding orders complicate the already unwieldy challenge of getting the right funds to the right people without delay.

Where states cope with additional burdens, fraudsters smell opportunity. During the Great Recession, stunning data breaches put personally identifiable information into the hands of fraudsters who took it straight into unemployment claims systems all over the country. In 2009, the cost of UI fraud nearly doubled from the previous year to $3 billion.

Technology (and dire need) have brought about fraud control options that didn’t exist during that disastrous moment, and agencies have improved data-sharing to enable record linkage tools that more readily identify fraudulent claims.

And fraudsters have adapted, discovering ways to bypass these fraud controls while taking advantage of the opportunity for trial and error provided by overwhelmed systems that too often can only earmark suspicious activity to be addressed later. In some cases, this lag leads to lawsuits for failure to address fraud.

All of which weaves an intricate tapestry of issues that get a lot of press and engender suspicion. Distrust from citizens and lawmakers doesn’t just mean bad PR but deters legitimate claims while encouraging fraud. Some states last year estimated fraudulent claims comprised as much as 80% of submissions; meanwhile, the Economic Policy Institute estimates that 30-40% of eligible citizens don’t bother filing for benefits because the system seems overwhelming.

True fraud protection requires a broader strategy

Getting benefits to the right people quickly depends on a dizzying number of details coming together just right, which of course is what makes the process susceptible to fraud. A complex system cannot depend on a one-dimensional answer. Fraud identification tools are essential but just one part of an effective solution.

My experience shows that a full solution must include the following.

  • Identity verification tools. The Department of Labor now insists that states block more fraudsters at the front door. Federal funding depends on implementation of ID verification by January 26, 2021. Selecting and especially fully utilizing ID verification tools creates a tough challenge that leaves a lot of states scrambling to understand which tools in the market will achieve the desired results and how much work those tools will require from them to implement.
  • More robust initial claims applications and automated fact-finding strategies. The most effective claim applications collect the right information to streamline work and provide more options for automation and workload reductions. Coupled with effective fact-finding strategies, these methods can help states separate the wheat from the chaff in their fraud backlogs.
  • Workflow and triage. Detecting fraud is a significant part of the process, but any “solution” falls apart if it stops there. What happens next? Who is responsible for what? In the scramble to address fraud, many agencies have fallen shy of detailing a process that addresses fraudulent claims after they’ve been identified. Wherever timeliness is paramount, a clearly defined process is essential.
  • Effective data visualization. Knowledge is power, but not until it can be internalized. Achieving that power gets a lot easier when knowledge is delivered through user-friendly dashboards that display important data points in easy-to-comprehend visualizations. I’ll level with you: I’ve seen a lot of dashboards that look great but provide no value. It takes incredible expertise to develop a dashboard that presents the right information in an effective format. Done right, dashboards provide clarity and insight that enable you to strategize—and progress toward your objectives.

Finding a way forward

On the very day I write this, the Bureau of Labor Statistics is announcing a loss of 140,000 U.S. jobs in December 2020 and an unemployment rate stuck at 6.7%—twice its pre-pandemic level. COVID deaths are surging, and the U.S. Capitol was invaded just two days ago.

Uncertain times serve as an invitation for fraudsters, meaning your responsibilities increase as you’re called upon to better protect funds while serving a much greater call for benefits. The UI system is a source of hope for those who need help, but fraudsters who prey on the opportunity it provides will take advantage of a crisis that leaves so many vulnerable.

There’s no simple solution to that complex problem. There is a solution, I promise. It just isn’t “install a fraud detection tool.”

Kate Shelby is a former Unemployment Insurance and Workforce Administrator for the State of Indiana and a former state prosecutor. She has maintained a special focus on eliminating fraud, waste, and abuse throughout her career. As Senior Delivery Leader for Public Sector Services at Resultant, she helps develop and bring large public strategic initiatives to life.

Are you interested in understanding more about how Resultant can help address the complexities of fraud using technology and data? Schedule a consultation with Kate to discuss solutions today.