Navigating unemployment: fraud, complexity and safeguards

The Massachusetts Department of Unemployment Assistance recently issued an alert about another uptick in fraudulent claims, three years after many states were hit with an initial spike during the height of the COVID-19 pandemic.

The DUA said it approved only 12% of claims from a recent batch of applications, while rejecting 25% and putting the remaining 63% on hold pending further review.

Forbes reported that unemployment benefits in Massachusetts are among the highest in the country. Until recently, when unemployment dropped below 5.1%, claimants were eligible for 30 weeks of benefits, compared to 26 weeks in other states. The maximum weekly benefit is $1,015. These statistics make Massachusetts a more frequent target for fraud, according to Paul Scott, vice president of the Unemployment Tax Management Corporation, which provides unemployment services to many MIIA members as well as other Massachusetts employers.

Municipalities are disproportionately targeted (compared to other employers) for fraudulent claims because of the higher number of long-term, high wage-earning employees, such as police officers, firefighters and teachers, Scott said.

“Municipalities are a lucrative target, as benefits are calculated based on wages earned,” he said. “Typically, criminals are using personal information they secured illegally over the past two decades — not a recent breach — and they’re often able to file false claims for municipal employees who are still employed there years later.”

Federal-state complexity
As most municipalities in Massachusetts are “reimbursing” (self-insured) contributors to the unemployment system, they have been forced to reimburse the state for a claim before it has been fully vetted and processed, Scott said. The federal government urged employers to pay claims quickly during the pandemic in 2020, and while some claims have since been deemed invalid, claimants must first pay back the state DUA before municipal employers can recover fraudulent funds or funds paid in error. Scott said this further burdens municipalities, because the state is behind on processing appeals from 2021 and 2022.

MIIA has been working with the MMA’s Legislative Division, the DUA and the Executive Office of Labor and Workforce Development to find a solution to help cities and towns while the DUA’s system is being resolved, said Stan Corcoran, executive vice president of MIIA.

“Through the effort of the MMA, and MIIA’s relationships with interested parties in the state, we’re focused on coming up with a better approach to addressing the high incidence of these fraud payments,” he said. “Our goal is to collaborate with members and the DUA to mitigate and eliminate this fraud.”

The increase in claims that kicked in during the pandemic, and the increase in both state and federal programs that impacted unemployment claim administration, have made the entire claims process more complex.

“There are five or more federal laws, including the CARES Act, that supplemented the state’s unemployment system,” said Nancy Fermano, a management consultant with MIIA. “As with all employers, municipalities saw a significant increase in the number of claims received.”

While some municipalities had human resources staff who were experienced in navigating the system, others had fewer resources and more volume than staff could handle given the time constraints to make payments to claimants, she said.

Non-fraud claims
Due to the increased complexity and the nature of the reimbursable system, it is crucial for municipal employers to gather and provide detailed information about an employee separation at the outset, Scott said.

“Good documentation, including a letter of resignation that includes the reason why the person is resigning, is key,” he said. “Nine out of 10 times, we won’t need the letter, but there will be a case where the story may change down the line, and it’s helpful to have that letter that says the individual left under good circumstances.”

In cases where an employee stops reporting, municipal employers should also be careful to document the abandonment in writing, he said.

Another strategy municipalities can employ is to take advantage of the state’s “reasonable assurance” provision, Scott said. Employees of school departments are ineligible for unemployment benefits if provided with reasonable assurance of returning the following school year. In addition, Massachusetts has a seasonal certification program, enabling municipalities to apply for a staff position to be classified as seasonal and thereby exempt from unemployment. These positions include lifeguard, recreation program staff, and athletic coaches.

Third-party resources are also available to help municipalities navigate the system. As part of its Unemployment Services Program, MIIA offers unemployment services to its members, including risk mitigation training, claims auditing and management, and all related payment processing. MIIA’s full-service program is administered by its partners, UTMC and First Nonprofit Companies, and has resulted in the identification of more than $1.7 million in unemployment benefit errors and $27 million in fraud charges to date.

For more information on unemployment fraud, as well as free webinars on reasonable assurance and seasonal certification programs, visit MIIA’s Unemployment Services Program page.

Written by Jennifer Ranz