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Agencies Receive Support to Combat Costly Unemployment Insurance Fraud

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The expansion of unemployment insurance (UI) benefits during the COVID-19 pandemic drew significant attention from fraudsters looking to capitalize on agencies’ limited capability to verify identities of claimants. The multibillion-dollar surge in fraud targeting the UI system was precipitated by years of criminal digital identity theft combined with algorithm-driven cybercrime, resulting in a problem that UI agencies and individual Americans will be dealing with for years. However, thanks to funding from the American Rescue Plan Act of 2021 (ARPA), agencies are getting help to implement better identity verification systems to combat fraud.

Billions in unemployment insurance funds at risk

As the COVID-19 pandemic lingers, federal and state agencies continue to struggle with the unprecedented UI fraud related to the Coronavirus Aid, Relief, and Economic Security (CARES) Act and American Rescue Plan Act of 2021 (ARPA). Programs like the Pandemic Unemployment Assistance (PUA) program under CARES rapidly expanded benefit coverage but without a similar expansion in technical identity verification capabilities to handle the expected volume of claimants — thus creating a target-rich environment for fraudsters.

As a result, cybercrime and identity theft were major issues for the UI benefits system during the pandemic, resulting in about $89 billion of lost funds — including potentially $5.4 billion fraudulent payments — according to the Department of Labor’s inspector general.

Unemployment insurance-related fraud continues to impact agencies and constituents

While unemployment claims returned to near pre-pandemic levels, the Department of Labor’s February 5, report cited an average 253,250 weekly initial claims for unemployment insurance for the previous four weeks — the lowest level since March 14, 2020 when the average was 225,000."

Digital fraud is a growing problem; 38% of Americans said they’ve been targeted or fallen victim to digital fraud in the last three months, according to TransUnion’s Consumer Pulse Report. Many of the leading fraud scams people experience involve compromised identities, including phishing (29%), account takeover (18%) and identity theft (24%).

In addition, 10% of respondents reported being targeted or fallen victim to an unemployment insurance scam. Not surprisingly, younger generations reported higher than average incidents of UI scams with 15% of Gen Z and 12% of Millennials, respectively.

Aligning with the TransUnion report, the National Unemployment Insurance Fraud Task Force  (NUIFTF) highlights fake website scams, and text message and email phishing related to UI claim processing are serious threats to individuals and state workforce agencies. The group has also issued a notice to warn the public that fraudulent UI claims may result in many individuals receiving erroneous 1099-G tax forms detailing payments for which they didn’t apply.  

Closing the technology gap to combat UI fraud

Less than half (43%) of government agencies reported having the security technologies necessary to provide customers with both secure and convenient online experiences when accessing their accounts, according to TransUnion’s Public Sector Fraud Trends study. Lacking the necessary tools, agencies are challenged to effectively protect customer accounts and data. While half of respondents believed their agency is effective at reducing customer fraud, the number drops to 40% in regard to effectiveness at protecting customer data, and 38% at preventing account takeovers.

But help for agencies is on the way. The Department of Labor is sending $260 million in grants to help states improve outreach and service, and $140 million for fraud prevention — part of the $1.9 trillion funds authorized by ARPA. The federal government is also deploying so-called “tiger teams,” or groups of experts across fields, including fraud and engineering, through a deal with TransUnion and other firms to better verify the identities of unemployment insurance applicants and pinpoint suspicious data.

For more details on how TransUnion can help your agency with identity validation, click here.


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