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Colorado’s Spiraling Unemployment Insurance Fraud CDLE officials say they’ve been able to stop about $7 billion in fraudulent payments from being distributed, but the problem continues to grow. Here’s what you need to know
Colorado’s Spiraling Unemployment Insurance Fraud
BY NATALIE ROONEY
To say Fran Coet, CPA, partner with Atlas CPAs & Advisors, Westminster, was somewhat surprised in early January when she received a notice that she had filed an unemployment claim would be putting it mildly. Why? She had never filed such a claim. In fact, she hasn’t even taken time off since the beginning of the pandemic. “Accounting services were deemed essential so all of us have been working the whole time,” Coet says.
Hackers somehow obtained her full Social Security Number, which was on the notice from the Colorado Department of Labor and Employment (CDLE), but it incorrectly listed her middle name as her last name. “That also was strange,” she says. Ultimately, Coet ended up with four unemployment notices for two different corporations she used to own and five different employees. At McPherson, Goodrich, Paolucci & Mihelich PC (MGPM) in Pueblo, President and Managing Shareholder Ron Goodrich, CPA, CGMA, says his radar was triggered when one of his clients, a radiology practice, received two unemployment claims. “These are long-term doctors who are still working,” Goodrich says. “It didn’t make sense.”
Three days later, four of MGPM’s employees received claim notices, as well. Soon, the firm, which processes payroll for more than 200 clients, was receiving fraudulent notices daily. Clients began calling both Coet and Goodrich wondering what was happening. Their companies and organizations were being inundated with notices. Unemployment insurance fraud has become widespread in Colorado and across the U.S. Already, it has cost Colorado more than $10 million in lost funds. CDLE officials say they’ve been able to stop about $7 billion in fraudulent payments from being distributed, but the problem continues to grow.
HOW THE FRAUD HAPPENS
“Any time the government starts giving something out, some people find a way to get it when they shouldn’t,” says Goodrich. When the pandemic payouts began last spring, that’s exactly what happened. Fraudsters began targeting state systems nationwide when federal benefits began for the self-employed, contractors, and gig workers who normally don’t pay for unemployment insurance. States, including Colorado, had quickly implemented the federal Pandemic Unemployment Assistance (PUA) program, where less verification was required since no employers were involved. Now, criminals have moved from attacking the PUA program to targeting Colorado’s regular unemployment insurance system. Since mid-March 2020, CDLE reports an estimated 780,847 regular UI claims have been filed, and an estimated 1,032,471 total claims have been filed, including PUA. The fraud claims are so rampant that CDLE says it can’t accurately report how many Coloradans actually are unemployed and filing for benefits. The Department has flagged 140,000 state unemployment claims as potential fraud. Just 1,200 people have called the Department to challenge the hold on their funds. “It’s mind boggling that this fraud got this far out of hand,” Goodrich says. Once enrolled in Colorado’s unemployment system, workers receive a debit card from U.S. Bank. They can opt to have the money transferred to a bank account, but the card is still mailed. Many people don’t realize fraud has been committed in their names until the debit card arrives. If a fraudster collects a debit card from a vacant mailbox or the card is disposed of before the claim is shut down, the fraud victim may not realize money was claimed in his or her name until receiving a tax document.
Authorities say the fraud is being perpetrated primarily by sophisticated international crime rings, which know how to steal people’s names and Social Security Numbers or buy them on the dark web. No one knows when the information was acquired. “Was this information taken recently? Or was it acquired two or three years ago?” Goodrich questions. “So far, it hasn’t been traced to who did the hacking.” Colorado isn’t alone. Unemployment insurance fraud is flourishing in the U.S. Unemployment offices around the country are so overwhelmed in the wake of tens of millions of people filing for support during the pandemic that they can’t keep up. At this point, local law enforcement agencies aren’t even trying to catch fraud perpetrators. “Most police departments are declining to even take a report,” Coet says. “They can’t follow up on the number of claims.” Bank of America, another distributor of the debit cards, has been named in a class-action lawsuit that claims the bank didn’t do enough to stop the scammers.
IS THERE A SOLUTION?
On Jan. 10, CDLE launched a new unemployment system, cdle.colorado.gov/myui-plus, with multiple triggers to catch fraudulent claims before the money is sent. But the nets created to catch the criminals spawned a new problem: People with legitimate claims are going without money while trying to disentangle themselves from a system where
TO REPORT UNEMPLOYMENT INSURANCE FRAUD
• Go to cdle.colorado.gov/fraud-prevention. • Click on “Submit a Fraud Report” and complete/submit the online form. • Contact all three credit bureaus — Experian, Equifax, TransUnion — and place a
“fraud alert” on your name and/or Social Security Number. • Request a free copy of your credit report from each credit bureau and review it.
Should anything inaccurate appear on a report, a dispute must be filed directly with the credit bureau(s). Should an inquiry from another state’s Department of Labor appear on a credit report, there is a good chance the victim has been targeted by a fraudulent UI claim in that state. • File an identity theft report with the Federal Trade Commission at identitytheft. gov. • If you receive a U.S. Bank Reliacard for Colorado unemployment benefits but did not file a claim, contact U.S. Bank immediately at 1-855-282-6161. Report that a fraudulent unemployment claim was filed using your information, and request the card be deactivated. • If you are an employer and receive a “Request for Facts About a Former Employee’s
Employment” and/or a “Notice of Unemployment Insurance Claim, Wages Reported, and Possible Charges” for a current employee, notify the employee to file a Fraud
Report online at cdle.colorado.gov/fraud-prevention. The employer should, on the
Request for Facts notice, mark “Other Reasons” in box 9 and write on the face of the notice, “This is a fraudulent claim, verified with the employee,” sign it, date it, and mail it to the Colorado Department of Labor and Employment, Unemployment
Insurance Operations, PO Box 400, Denver CO 80201-0400, within the time shown on the notice. Retain a copy for your records. • If you receive such a notice for an individual who has never been an employee, indicate on the form, “This is a fraudulent claim. This individual has never been employed by INSERT COMPANY NAME.” If you know the individual, notify him or her to file a Fraud Report. • If you or someone you know receives an incorrect Colorado 1099-G as a result of a fraudulent Unemployment Insurance Claim, contact the Colorado Department of
Labor and Employment (CDLE) to request a corrected, zero’d 1099-G at cdle.colorado.gov/tax-form-1099-g. • Additional resources can be found at Stopfraudcolorado.gov.
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wait times for assistance can extend for more than a month.
SCRAMBLING TO HELP CLIENTS
Goodrich says when clients receive CDLE notices, they immediately assume the firm has done something incorrectly. “When a penalty notice comes from a taxing authority, the client always wants to know what you’ve done wrong,” he says. “We explain there has been fraud, and we contact the state for the client, but each individual has to contact the state as well. It’s involved, and it takes time. Who pays for that hour or more? That’s the hard part. We have nothing to do with it, but we’re performing a service for our client. From a business perspective, do you bill, or do you not bill for it? Will it ruffle the client’s feathers?” Unfortunately, Goodrich says, there’s really nothing individuals can do to protect themselves from this fraud. “This happened because criminals have so much of our personal information, and that’s a scary thing.” Coet says, “I’m grateful clients are turning to us as the trusted advisors, but we don’t have the answers in this case. Because this is a state agency issue, we turned to the COCPA so we can speak with one voice as a profession.” Coet adds her office has been helping clients protect themselves by distributing information as they receive it from trusted sources. “We’ve let them know it isn’t our office generating these notices, that it’s a multi-state issue, and billions of dollars are involved. We also let them know this is going to be an ongoing problem until the State of Colorado can get their hands around it and turn off the spigot.” COCPA CEO Mary E. Medley says she understands the frustration taxpayers and COCPA members are experiencing. “The COCPA has been hit with fraudulent claims, too - one of which was in my name. We’re working with CDLE representatives to identify ways we can help.” Watch for updates in NewsQuick, the weekly COCPA member e-newsletter, and future webinars on the issues. And, in the meantime, respond to those notices. “You must notify CDLE of a fraudulent claim within the time period specified on the notice,” Medley urges. “Otherwise, the process continues, as if the claim is legitimate.”
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