State officials in December identified more than 56,000 claims totaling $330 million as fraudulent. But the number could be much larger. Of the roughly 1.4 million applicants for Pandemic Unemployment Assistance, more than half have been flagged as potentially fraudulent.
Haywood Talcove, CEO of LexisNexis Risk Solutions Government division, said in an interview with the Dayton Daily News that his company could stop the fraud in two days.
“That fraud does not happen in the private sector with banks, doesn’t happen in the private sector with insurance companies, health care companies or any other organization because it’s easy to stop,” he said.
Meanwhile fraud cases mount. Of the 287,446 jobless claims filed the first two weeks of this month, the agency has flagged 77,000 as likely fraudulent.
Local law enforcement agencies are fielding hundreds of complaints about potential fraud. Miami County Sheriff Dave Duchak said they get calls every day.
“In 34 years, I’ve never seen anything like massive fraud like this,” he said. “It’s total incompetence in state government.”
The LexisNexis office in Dayton alone reported 74 cases involving its employees this month, Talcove said.
Pam Patterson of Miamisburg received a tax form in the mail three weeks ago saying her husband, who died four years ago, received $1,746 in unemployment last year.
“This is crazy,” she said. “The state of Ohio was well aware he’s deceased. Is there no red flag when they’re keying in their Social Security number to pay out these unemployment benefits?”
Another woman in Middletown recently received a prepaid bank card in the name of her husband, who is also deceased.
Even Gov. Mike DeWine, the state’s first lady Fran DeWine and Lt. Gov. Jon Husted have been ensnared, with fraudulent claims filed in their names.
“The first time it happened was actually an unemployment claim that was filed in my name in the state of California,” Husted said. “There are a lot of people who are having these claims filed in their names even in other states — because it’s a national problem. It’s a global fraud ring.”
Husted said it’s a global problem without a simple solution. The Ohio Department of Job and Family Services last week said it entered into a $1 million contract with the Cincinnati consulting firm Russell Allen Partners to identify ways to stem fraud and improve claim processing.
Russell Allen managing director Jeff Ficke didn’t provide specifics on how the company plans to stop the fraud, but said it intends to have an impact within 30 days. It is working with private sector groups such as Fifth Third Bank, Nationwide Insurance and Western & Southern Financial Group.
“There’s some things we can impact immediately. There’s some thing that are going to take longer. But we are looking under every rock and looking at every technology partner to help us find the right ways to mitigate and minimize that risk,” he said.
‘We can immediately shut it down’
Talcove said LexisNexis uses a three-part process to catch fraud. First, it uses a process called device assessment to identify devices — phones, tablets, computers — previously used for fraud.
“Lexis has a contributory database of billions and billions and billions of bits of information. We know immediately when a device has been used for previous fraudulent activity, and we can immediately shut it down,” he said.
Secondly, it compares applicants’ data to other public records information it has to verify whether the person actually lives or has lived where they claim, or even lives in the state. And thirdly, it uses machine learning and artificial intelligence to identify trends.
Kansas launched such a system this month and has stopped more than 1 million bad transactions, he said.
Much of the fraud identified by Ohio has been in the Pandemic Unemployment Assistance program, which federal lawmakers created to help people — such as contractors or self-employed workers — who don’t qualify for traditional unemployment.
“Because no system existed to deliver that service, basically all the states had to build one from scratch,” Husted said.
ODJFS Director Kimberly Henderson said last week she knows a lot of fraud exists in the new assistance program.
“This is largely because of the way the PUA program was originally designed,” she said. “The Department of Labor urged states to let recipients self-certify both their eligibility and their earning history. This allowed payments to be issued quickly, but unfortunately also opened a door for criminal activity.”
Changes in the program implemented this year require states to verify the identities of new claimants and obtain documentation of pre-pandemic earnings within 21 days for new applicants and 90 days for existing claimants. The state starts paying the benefits before getting this documentation, then determines if it paid too much.
It’s unclear how much continues to be lost to fraud. The state reports PUA fraud to the U.S. Department of Labor monthly, but the December report was the first to declare it had substantiated massive fraud. Before the $330 million in December, the state reported less than $5 million in traditional unemployment and PUA fraud last year, according to data the Dayton Daily News obtained from the U.S. Department of Labor.
From April through November, the state had reported only 466 PUA fraud cases totaling $657,638, despite announcing in August that it had identified 1,700 applicants in the names of dead people.
The state is still working through whether hundreds of thousands of payments — including 270,000 payments suspended in August — were fraudulent.
“Some cases had the requisite proof to issue fraud determinations (some with overpayments; some we caught at the front door), many fraud holds are still in the process of being investigated and fraud determinations issued, and some — while fraud was highly suspected, there wasn’t enough evidence to prove fraud, so the determinations were issued as nonfraud overpayments and denials of PUA,” said Tom Betti, spokesman for the Ohio Department of Job and Family Services.
The state couldn’t say how many suspended accounts were paid before they were stopped.
“I’m sympathetic. These systems weren’t set up to defend against transnational criminal groups that only had one purpose: to defraud,” Talcove said. “And these systems are set up to get payments to people in a relatively quick way.”
“What they missed was the evolution of technology that got used in the private sector to stop the fraud, and didn’t move there quick enough. If they don’t’ move there quickly every day, they’re losing money every single day.”
Fraudsters overseas, in U.S. prisons
About 70 percent of the unemployment benefits stolen in the states LexisNexis is working with is going out of the country, Talcove said, to places like Russia, China and Nigeria.
The fraudsters are using identities obtained from data breaches and purchased on the dark web to flood unemployment systems across the country with applications. Sometimes they have the money deposited into a bank account they control. Other times they have prepaid debit cards sent to an address where a stateside operative will bundle them up and ship them over.
“That money is being used for nefarious purposes, including terrorism, drugs and child trafficking,” he said.
The U.S. Department of Labor Office of Inspector General is handling the criminal investigation, according to state officials. The Ohio Attorney General’s Office is not involved, nor is the FBI in Ohio.
The Department of Labor has predicted the fraud could amount to tens of billions of dollars based on the standard overpayment rate of unemployment — not taking into account additional vulnerabilities in the PUA program.
“Conservatively, assuming improper payments continue at 10 percent, at least $36 billion of the $360 billion expended under the CARES Act as of Nov. 7, 2020, could be paid improperly, with a significant portion attributable to fraud,” says a September 2020 report.
The Department of Labor and law enforcement have taken action against alleged fraudsters in other states, several linked to unemployment agency employees and people in U.S. prisons.
In December, a California woman who worked for the California Economic Development Department was charged with filing more than 100 fraudulent PUA claims worth more than $2 million, including a $21,000 claim in the name of U.S. Sen. Dianne Feinstein, which was paid. The same month, a California prison inmate and accomplice were charged with filing for $200,000 worth of unemployment in the names of other inmates.
In January, a woman who worked for the Massachusetts Department of Unemployment Assistance and her incarcerated husband were charged with filing fraudulent claims.
This month, a Pennsylvania woman pleaded guilty to obtaining $11,000 in the name of a prison inmate; an Arizona man pleaded guilty to fraudulently obtaining multiple debit cards from the California unemployment system and trying to obtain nearly $223,000 in benefits; and a West Virginia woman pleaded guilty to filing for unemployment in the name of a prison inmate.
Aid to those in need slowed
While tech-savvy criminals in other countries are potentially pocketing millions, people helping those in need locally say they can’t get anything.
“What has been an obstacle for clients, particularly in the early days of setting this up and getting it started, is if you are not a tech savvy person or do not have access to the internet to scan documents and print them and file them, if can be very difficult for people,” said Stanley Hritle, an attorney with Advocate for Basic Legal Equality in Dayton.
Henderson and other state leaders have warned that efforts to prevent fraud will create additional delays and obstacles for people filing legitimate claims.
“The idea was we need to get money into people’s hands so they can buy food and pay their landlords,” Hirtle said. “People can’t pay their rent if they can’t get benefits.”
Hirtle said appeals for people denied unemployment used to take a month; now they aren’t even being scheduled. And he worries that concerns about unchecked fraud will undermine lawmakers’ will to extend benefits that expire in March.
“The political will to extend this will be harmed if people think this is a program that is just being abused by fraud,” he said.
Meanwhile Julius Fingerle of Springboro is among the people whose claims are caught up in the backlogged system. He is still waiting for three weeks of unemployment benefits from June and July.
“There are no polite words for this system,” he said.
Are you the victim of ID theft-related unemployment fraud?
Hotline: State officials launched a hotline for people who suspect their identity was improperly used to file for unemployment benefits. The number is 833-658-0394.
Website: Individuals and employers can visit unemployment.ohio.gov to report suspected unemployment fraud and obtain information on what to do if you or your employee’s identity may have been compromised.
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