With unemployment levels remaining stubbornly high, the Colorado Department of Labor is seeing a rise in unemployment fraud.
The state’s Department of Labor and Employment estimates it paid more than $1.69 million last year in fraudulent claims, out of a total of slightly more than $1 billion in claims paid in 2009.
That’s about 1.8 percent of all benefits paid out, and higher than the previous year, said department spokeswoman Cher Havind.
“We investigate (fraud) pretty aggressively,” she said. “It’s vital to do that — fraud affects the integrity of the fund employers pay into, but it also affects people who have a legitimate claim.”
The problem is widespread. Nearly $3 billion was lost to unemployment insurance fraud nationwide last year, more than double the 2008 figure, according to estimates from the U.S. Department of Labor.
Although the overall rate of fraud dropped from 2.8 percent in 2008 to 2.14 percent in 2009, the higher number of payments made resulted in markedly higher level of funds lost to dishonesty.
The most common type of fraud occurs when formerly unemployed people get jobs and then continue to collect unemployment payments.
In Colorado, investigators check unemployment claims against a national database of new hires. They also rely on tips from the general public to investigate fraudulent claims.
“The first thing we do is to cross-match employers’ quarterly report on hours and wages to make sure we aren’t paying someone who has a job,” Havind said.
The U.S. labor department says states’ detection departments haven’t kept up with the increase in suspect claims. Most of those units are operating with the same number of employees before unemployment started to rise.
But Colorado has been more assertive — adding at least one new criminal investigator to its department, bringing the number of people investigating fraud in the unemployment insurance arena to 10.
“With so many new claims, we’ve added people,” Havind said. “Some are in our customer call-center, but once the economy improves, we are planning to move them over to investigations.”
The Obama administration recognizes the problem: longer unemployment benefits equal more chances to commit fraud. The president has sent a bill to Congress that would allow state overpayment-detection departments to keep 5 percent of what they reclaim to fund their detection measures.
The bill also requires states to penalize fraudsters 15 percent of the amount stolen. Employers have to report new hires’ exact start date, allowing investigators to detect fraud within weeks instead of months.
Colorado takes a much harsher stance in punishing fraud. The state Department of Labor can fine people 50 percent of what they were overpaid, plus have them pay back four weeks of payment for every week they were getting paid fraudulently.
The state can also bring charges in state and federal criminal courts.
In December, eight people from Colorado Springs were indicted in federal court on charges of unemployment insurance fraud. The case involved several people who were claiming unemployment benefits for former military personnel. The investigation revealed false names, fraudulent Social Security numbers, dates of birth and fake military records. In total, the group received $214,000 in fraudulent payments.
States tend to detect a little more than half of fraudulent claims, according to the U.S. Department of Labor. Because of their limited resources, many states focus on claims that are either easy to catch or involve large amounts.
More complex types of unemployment fraud — paying people off the books or independent consultants who don’t report their income — are seldom caught. And when they are, the perpetrators often can’t repay the money immediately
States do have other ways of recovering dollars lost to fraud. They can recover the money years after the original crime, by creating offsets against future unemployment benefits, garnishing state and federal tax refunds, or by placing liens on property.
The rise in fraudulent unemployment claims doesn’t surprise Havind.
“Before the recession, we were paying $20 million a month in unemployment claims,” she said. “In the deepest part of the recession, we were paying $20 million a week. We ramped up our staff, but there’s bound to be more fraud — it’s just the nature of things.”