DOL Warns States to Address Unemployment Fraud

The U.S. Department of Labor issued a nationwide warning June 17 that states could face penalties if they fail to address fraud, waste, and abuse in their unemployment systems.

In a letter sent to governors in all 50 states and U.S. territories, officials called for improving identity verification, modernizing technology systems, and strengthening oversight of unemployment programs.

DOL said states that fail to implement stronger safeguards risked losing certain federal administrative funding.

According to the agency, weaknesses in state systems allowed significant fraudulent activity and improper payments to occur in recent years.

The warning comes as federal officials continue efforts to recover money lost through pandemic-era unemployment fraud.

On the same day the letter was sent, DOL announced the recovery of more than $512 million in fraudulent unemployment claims, bringing total recoveries to over $1 billion in recent enforcement efforts.

Identity Theft

For Connecticut employers, the announcement highlights a challenge that has persisted since the COVID-19 pandemic: identity-based unemployment fraud.

Employers throughout the state have reported receiving unemployment claims filed in the names of active employees, often the result of stolen personal information being used by criminal organizations.

Since March 2020, Connecticut Department of Labor officials say the agency blocked more than 450,000 fraudulent unemployment claims, preventing nearly $5 billion in improper payments.

Since March 2020, more than 450,000 fraudulent unemployment claims were blocked in Connecticut.

Recent Connecticut enforcement actions demonstrate that unemployment fraud remains a siginificant concern.

Earlier this year, state authorities announced the arrest of a Stratford woman accused of using stolen identities to fraudulently obtain more than $230,000 in unemployment benefits.

Investigators alleged that the defendant used personal information from multiple individuals to create fraudulent accounts and file claims, leading to charges that included unemployment fraud, identity theft, and larceny.

Technology Upgrades

Federal officials say that states must continue investing in technology upgrades and data-sharing tools to reduce fraud risks.

The DOL’s June directive cited outdated systems, weak identity verification procedures, and insufficient controls as key contributors to fraudulent claims nationwide.

The DOL’s June directive cited outdated systems, weak identity verification procedures, and insufficient controls.

Business groups have long argued that unemployment fraud imposes costs beyond the direct loss of public funds.

Employers often spend significant time responding to fraudulent claims, assisting affected workers, and implementing additional cybersecurity measures.

Fraud incidents can also create confusion for employees whose personal information has been compromised.

Striking Workers

Earlier this year, U.S. DOL released a policy memo clarifying whether striking workers are eligible for unemployment benefits under federal law.

Issued Jan. 8, the memo followed the recent enactment of state laws in Washington and Oregon and passage of similar legislation in Connecticut that Gov. Ned Lamont vetoed last year.

The Washington and Oregon measures permitted workers voluntarily on strike to collect benefits, as did the Connecticut bill, which Lamont called “a bridge too far.”

“A state’s law must conform to the requirements of federal UI law.”

U.S. DOL policy memo

The DOL policy memo noted that federal law establishes requirements for state unemployment insurance programs, including broad coverage and benefit provisions, experience ratings, and certain administrative conditions.

“A state’s failure to follow these requirements may lead to conformity or compliance issues,” the memo read.

“A state’s law must conform to the requirements of federal UI law in order for the state to receive grants to administer their UI programs and for employers in the state to receive credits under the Federal Unemployment Tax Act.”