Payroll Taxes Funded the Most Scandalous Frauds In 2020 And 2021

In an April 21, 2022 article in Forbes, Carrie Brandon Elliott writes that, for two years in a row, the Association of Certified Fraud Examiners has placed theft of pandemic-related enhanced unemployment benefits at the top of its annual list of five most scandalous frauds in the US.

In response to pandemic-related shutdowns, the U.S. government enacted several stimulus measures that included enhanced unemployment benefits. Enacted March 18, 2020, the Families First Coronavirus Response Act increased flexibility for state unemployment insurance agencies and provided additional funding to respond to the COVID-19 pandemic. Enacted days later, the Coronavirus Aid, Relief, and Economic Security Act expanded states’ ability to provide unemployment insurance for workers affected by the coronavirus, including workers who aren’t ordinarily eligible for unemployment benefits, such as independent contractors.

What followed, says Elliott, “were countless fraudulent benefits claims: The Office of the Inspector General for the U.S. Department of Labor estimated about $87 billion in fraud-related payouts, although some experts think losses could be much higher than that.”

Bots and low-wage workers completed high volumes of online application forms and claimed unemployment benefits in all 50 states. Bots automatically populated the forms with stolen PII, while Chinese and West African crime syndicates hired low-wage workers across the globe to input stolen data into unemployment benefits portals. One U.S. state received claims from IP addresses in nearly 170 countries.

According to the IRS website, stolen PII was also obtained through websites that mimic unemployment benefits websites, including state workforce agency websites, to unlawfully capture consumers’ PII. Consumers are lured to the fake websites by spam text messages and emails claiming to be from a state workforce agency with instructions to click a link. According to Elliott, “the fake sites are designed to trick consumers into thinking they are applying for unemployment benefits. In doing so, they disclose PII and other sensitive data that are used to commit identity theft.”

Many victims discovered their identities had been stolen when they filed claims for benefits and learned that someone had already created an account and used their Social Security numbers to receive payments. Others discovered the fraud when their unemployment payments stopped and they were informed that claims with their PII had been filed in another state. Some individuals were victimized more than once.

The article pints out that employers are often the first line of defense against unemployment fraud. Employers are advised to respond quickly to state notices that employees have filed benefits claims — especially if the names on the notices aren’t employees. 

For more on how this played out, see Payroll Taxes Funded The Most Scandalous Frauds In 2020 And 2021 (