Fraudulent unemployment claims still plaguing outdated system

Kentucky continues to deal with a massive number of fraudulent unemployment insurance (UI) benefit claims with many individuals having false claims filed in their name, impacting their eligibility, tax reporting, and much more.

In the first meeting of the Unemployment Insurance Reform Task Force Tuesday, representatives from the business community and other areas testified before lawmakerson the status of the system and the fraudulent claims being made across the state.

Kentucky Chamber Vice President of Public Affairs Kate Shanks noted the Chamber hears from employers and employees every single day about fraudulent claims being filed in their name, including CEOs of some of Kentucky’s largest companies who are very clearly still employed. And many of these claims are improperly being paid out by the state, causing huge issues for the unemployment insurance trust fund.

“In the first year of the pandemic, $63 billion were paid out in improper and fraudulent claims,” Shanks said.

The U.S. Department of Labor expects a final estimate of improper and fraudulent claims paid during the pandemic could be much larger.  

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Many of the problems plaguing the system are worsened by a disconnect between the state and an employer, who has 10 to 12 days to respond to a claim, UCCS Unemployment Insurance Consulting Owner George McFarland told the task force. Due to issues with the postal service and other areas, many times employers are receiving communications about a fraudulent claim that require significant follow-up information on the same day that the response is due, according to McFarland.

McFarland added a whole new set of problems is then created when the state goes ahead and pays out the claim when a business is not able to respond in time.

Discussion was had about data breaches and phishing emails that could be playing a role in this crisis across the country. It was also noted that improving cybersecurity protocols at the state level as well as within individual businesses will be critical, but updating the state’s unemployment insurance system will have to be a focal point.

Rep. Phillip Pratt, a small business owner and legislator from Georgetown, said the issues within the system are evident, as his company had an employee walk off the job and never come back or contact the office again. The individual then claimed UI and received benefits for six months, even though the business responded to the state immediately to stop the process. Under state law, an individual who resigns rather than being fired or laid off is not eligible for benefits.

As for what comes next, Unemployment Insurance Reform Task Force Co-Chair Russell Webber noted the group will be working to revamp the system as they hear expert testimony and find ways to improve the system. Webber encouraged the Kentucky Labor Cabinet and the Kentucky Chamber to work together to ensure a more efficient process with this issue in the meantime.