Protect Your Accounting Firm from Bogus Unemployment Claims

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The Department of Labor reports that the government’s expansion of unemployment benefits during the COVID-19 pandemic likely triggered the country’s boost in fraudulent claims. What’s more, a telling 2021 report from the Ohio Auditor’s office revealed the extent of the state’s phony unemployment insurance claims during the time of the COVID crisis. While shedding light on what went wrong, it also offered a glimmer of hope for things turning around. Let’s look at the extent of the damage and what we can learn from it as accountants.

Far-reaching Fraud

In April 2021, the Department of Labor issued new guidance to state agencies to help identify and freeze payments made to potentially stolen or fake identities. And this was just one of many alerts from the DOL during the pandemic, proof of just how far-reaching unemployment fraud had become and how desperately states required assistance.

It Hits Home

Our state did not go unscathed by scammers. Per the Ohio Auditor’s October report, the state accidentally doled out hundreds of millions of dollars to fraudsters while billions in overpayments were made between March 2020 and February 2021. The report found thousands upon thousands of instances in which payments were made to incarcerated or deceased individuals, pointing to pervasive identity theft.

Given the number of unemployment scams Ohio has seen, your firm may very well be affected by scam artists. Luckily, you are also in a prime position to catch this fraud and stop it in its tracks. First, let’s take a look at what caused such a widespread epidemic of unemployment insurance theft.

Lessons Learned: Cause for Fraud

The COVID-19 pandemic seemed to create the perfect conditions for the increase in fraudulent unemployment claims. Government-mandated stay-at-home orders led to lost income, which, in turn, led to business closures and job layoffs. The CARES Act and stimulus bills attempted to offset losses by expanding eligibility for unemployment benefits, increasing weekly payment amounts, and lengthening the duration those benefits could be received. Needless to say, these changes made unemployment benefits very attractive.

Unfortunately, the government’s haste to ensure quick payouts as opposed to careful deliberations led to a system easily abused. Ohio audit findings listed several reasons for the state's unemployment fraud challenges:

• Eligibility and benefits expansion
• Lack of internal control procedures
• Outdated infrastructure
• Relaxed verification rules
• Failure to act swiftly

Luckily, because many of the obstacles that led to the state’s unemployment insurance abuse have been recognized, they are now in the process of being fixed with new solutions and new leadership. Let’s look at how we can take this page of recent history and turn it into a learning opportunity when it comes to managing an accounting firm.

Prompt Action to Protect Your Assets

It all culminates in one concept: Take early action.

As an employer in Ohio, you receive notice from the Department of Job and Family Services (JFS) when a worker files an unemployment claim. Promptly looking over these state notices can help you and the state quickly identify potentially fraudulent requests.

A claim for benefits from a worker who hasn’t worked for you in years, or from one who is still employed, is a red flag that their identity has been stolen. So are unusually hefty amounts being charged against your UI account or quarterly statements for payment of the employer share. Your swift action can protect you and your employees.

Stay responsive to JFS inquiries, providing them with accurate and timely information. Be upfront about whether a worker voluntarily quit or was fired for misconduct because that could affect their claim application.

Safeguard Steps

Take the following steps to protect yourself and your business against unemployment fraud:

1. Promptly check unemployment reports for accuracy.
2. Report new hires to the Ohio New Hire Reporting Center so employment data can be compared to any subsequent unemployment claims.
3. Immediately report suspicious or potentially fraudulent claims. Call the Ohio Claimant Fraud hotline at 1-800-686-1555. Next, file a report with the National Center for Disaster Fraud for cases occurring during the COVID-19 pandemic.
4. Check your business’s cybersecurity to identify a potential data breach should you discover a suspicious claim. Better yet, check for ways to shore up your cybersecurity before a breach occurs.

Educate Employees

Educate your employees about the potential for identity theft and what the company is doing to prevent it. Let them know the company safeguards that are in place and any new ones that are being added.

In addition, teach your workforce to recognize phishing scams that could trick them into divulging personal and organizational information that, in turn, could be used to swipe their identity. Finally, let them know that you are there to help them through the process if their identity has been compromised, starting with identity fraud resources from the Federal Trade Commission.

Our national and state governments have learned from their mistakes and are turning things around. We can also learn from the slip-ups and oversights and use that knowledge to improve accounting and managerial procedures. To further your accounting skills and stay up-to-date with current events and how they affect accounting logistics, check out our continuing education credits for accountants in Ohio.