Kansas unemployment system disrupted by 45,000 bogus claims in massive fraud scheme

Kansas workers and the state’s unemployment system have been attacked by criminal organizations as part of a multibillion dollar fraud scheme, delaying relief payments to out-of-work families and disrupting the national response to the coronavirus pandemic, state and federal officials say.

The Kansas Department of Labor, which handles unemployment claims, has blocked at least 45,000 fraudulent payments this year, according to the department’s acting secretary.

It’s not yet known how many payments slipped through to fraudsters. Acting Secretary Ryan Wright said the labor department and federal investigators are reviewing suspicious claims. The state Legislature has approved a post audit of the program.

“We will know eventually what the scale and scope of this is and what those costs are,” Wright said.

The primary victims are those who have had their identity stolen or had their personally identifiable information exposed as part of a data breach, according to a statement from the U.S. Department of Justice.

Victims often don’t find out they’ve been targeted until they go to file a legitimate claim, at which time they learn their application was rejected because a claim had already been filed under their name.

Others find out when their current employer tells them a claim has been filed in their name.

That’s what happened to Margaret Dawe, an associate professor in the creative writing program at Wichita State University. She has worked full time throughout the coronavirus pandemic, so you can imagine her surprise when the state school’s human research department told her that she had made an unemployment claim.

Someone — likely an identity thief — filed a fraudulent claim under her name seeking access to money that has been set aside for workers struggling to survive through a deep recession.

“I was a little scared that these bad guys had my Social Security number,” Dawe said. “And it’s scary not knowing their end game.”

Dawe said the list of government agencies and credit institutions now involved in her fraud report was “like a Russian novel where you need a character list at the front of the book,” making it slightly overwhelming.

A spokesman for the labor department said he was not aware of any way to check if someone has filed a claim in your name. But the department has set up a link for potential victims and employers to report suspected fraud. Reports may be filed at reportfraud.ks.gov.

“If you’ve been a victim, we’re trying hard not to victimize you and make you jump through a bunch of bureaucratic hoops,” Wright said. “We’re trying to streamline that process as much as possible.”

The labor department is asking victims to call their banks and credit card companies and to notify all three major credit reporting bureaus — Equifax, TransUnion and Experian — and request a fraud alert be placed on their credit reports. The three are offering free weekly online credit reports through annualcreditreport.com through April 2021.

Victims should also contact the Social Security Administration at 800-269-0271 to order a copy of their Personal Earnings and Benefit Statement to check the accuracy of the listed work history and the Internal Revenue Service’s fraud hotline at 800-908-4490 to request a copy their Wage and Income Transcript.

Applications for unemployment benefits soared in March after COVID-19 shuttered businesses across the country, putting tens of millions out of work and triggering an economic recession. Roughly half of the jobs that were initially lost have been recovered.

Wright said the fraudsters have primarily targeted the Pandemic Unemployment Assistance program, or PUA, an entirely new program created by the CARES Act to expand unemployment benefits to self-employed, independent contractors, gig workers such as Uber and Lyft drivers, employees at religious organizations whose employment has been impacted by COVID-19 and those who lack sufficient work history to file a claim or have been disqualified for state benefits but who are impacted directly by COVID-19.

“In the regular unemployment system, the state has a relationship with the employers,” he said. “And we have their records, their earnings reports and in this particular program that must all be furnished by the individual because they’re independent contractors. So that relationship is even different, and that’s what makes this so very different than everything else.“

The targeted attack has placed an additional burden on a department that was already struggling to make payments to Kansas workers.

Former Secretary Delia Garcia resigned in June after her agency overdrafted the bank accounts of an undetermined number of Kansans. The agency’s antiquated computer system, which operates on a 60-year-old and essentially dead computing language called COBOL, has caused delays and other infrastructure left many newly unemployed Kansans spending hours and days on the phone seeking benefits.

Prior to the pandemic, the largest number of fraudulent unemployment claims in a year was seven in 2013, Wright said.

“Last year, there were zero,” Wright said. “We’re not even through this year, and we’re at 45,000, so that kind of gives you the scale of this crisis, on top of everything else.”

Kansas isn’t alone.

State unemployment systems across the United States have been attacked by criminal organizations and fraudsters using stolen identities to exploit a massive expansion of benefits offered during the coronavirus pandemic, federal law enforcement officials say.

Wright said the U.S. Department of Labor’s inspector general estimates $8 billion in fraudulent claims have been filed this year in the United States.

An investigation of unemployment fraud is being led by the Secret Service, FBI, IRS, Homeland Security and other federal agencies that are working with state unemployment offices, including the Kansas Department of Labor.

“There will be arrests that will be made,” Wright said. “These crimes leave fingerprints and the teams (of state and federal law enforcement) have those. So whether it’s a week from now, a month from now, a year from now or five years from now — if you’re committing this fraud, you will be found and you will be held accountable.”